Sunday, 3 June 2012

Smoking actually saves the Government money in the long run

This from a few days ago from Radio NZ,
The fiscal benefits of smoking have long been suspected but rarely acknowledged and a report by the Treasury now puts this on the record.

In its report, the Treasury says smokers often die earlier than non-smokers and save the state in superannuation costs.

The Treasury says smokers pay $1.3 billion a year in excise which may already exceed the direct health costs they impose.

The report then goes on to consider broader economic questions. It says smokers' shorter life expectancy reduces superannuation and aged care costs, meaning they are already "paying their way in narrowly fiscal terms".

The report was prepared for last Thursday's Budget decision to raise the tax on cigarettes to discourage smoking.

The tobacco excise will rise by 10% per year for the next four years, beginning on 1 January 2013. This is in addition to the annual inflation-indexed increase and will increase the price of an average pack of 20 cigarettes to more than $20 by 2016.

The Treasury's report says smoking helped, not harmed, Government finances, because the early death of smokers saved huge huge pension costs of $5.5 billion to $5.8 billion a year.
[...] health lobby group Action on Smoking and Health (ASH) rejects those arguments, saying they ignore many costs from smoking.
And these costs would be? And how large are they?
Research by the New Zealand Institute of Economic Research has suggested that people should be able to pay increased prices into a special fund and get the money back later if they can prove they have quit.
Isn't there a bit of a moral hazard problem here? After they have gotten their money back why don't these people just go back to smoking?
Meanwhile, a group of smokers spoken to in central Wellington seemed determined to keep on smoking, saying they would save money in other areas as the price goes up.
Or in other words the demand for smokes is inelastic. Which of course is why the government just loves taxing it!

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