A €1 increase in the price of a packet of 20 cigarettes would see 30,000 smokers quit the habit, according a report published yesterday.
The report contradicts the findings of a Revenue Commissioners study in February that found increases in the price of cigarettes would increase smuggling and fail to discourage the habit.
Yesterday’s report, Tobacco Taxation, Smuggling Smoking in Ireland, was prepared by British economist Howard Reed for the Irish Heart Foundation. It will be presented to members of the IMF-ECB-EU “troika” and to the Minister for Finance in coming days.
It was commissioned following the tax freeze on tobacco in the last two budgets ordered by then minister for finance Brian Lenihan, who said that increases in tax would fuel smuggling.
Mr Reed’s research found that elasticity of demand for cigarettes, measuring how many people stop smoking as a result of a price increase, was -0.32. This figure suggests that a €1 increase in the price of a packet of 20 cigarettes would result in about 30,000 fewer smokers. There are between 800,000 and 900,000 smokers in Ireland so that would be a reduction of about 4 per cent in the number of smokers.
“Between 1995 and 2009 the price of a packet of 20 cigarettes in Ireland increased by about 64 per cent. Volume of cigarette sales reduced over that period but revenue held up pretty much. In 2009, cigarette prices increased by 11 per cent but real tax revenue increased by 9 per cent,” he said.
He also said findings by the Revenue Commissioners that increased prices made no difference to the number of people smoking “was out of line with every piece of international research on this issue”.
Using data on tobacco expenditure in the Household Budget Survey, he found that the size of the illicit tobacco market had remained unchanged between 1995 and 2005. “In other words, increases in the price of cigarettes had no effect whatsoever on the smuggling of cigarettes,” he said.