Cigarette price increase to help return budget to surplus

OPPOSITION claims that pensioners and low-income earners will be the hardest hit by a proposed increase in cigarette prices are wrong, a leading public health academic says.

The Federal Government confirmed on Thursday it was planning to implement a series of 12.5% tobacco tax excise increases, beginning in December, with Treasurer Chris Bowen saying the move was designed to help return the budget to surplus by 2016/17 and reduce smoking-related illnesses.

Mr Bowen said the change would raise $5.3 billion over the next four years and would be one of the biggest revenue measures contained in the government's economic statement, expected to be delivered on Friday.

"This I know won't be universally popular with all; it's a difficult decision, but a decision taken in the best interests of the nation taking into account all the impacts it has both on the government's budget and also on the health outcomes for Australia," Mr Bowen said.

The government was eager to play up the expected health benefits of the decision, saying evidence showed the last time the excise was increased - by 25% in 2010 - there was an 11% reduction in consumption.

Opposition Leader Tony Abbott said the hike was "just another tax" and claims it was a health measure were "wrong".

Mr Abbott said he agreed with the views of shadow treasurer Joe Hockey, who told ABC radio he "didn't like" the move because of the impact it would have on low-income earners and pensioners.

"Smokes and beers might be the thing that is important to them," Mr Hockey told ABC radio.

"You can have all the moral indignation that non-smokers have but for pensioners and low-income people this tax increase is going to have a far bigger impact on their everyday budget than it will for someone on $200,000 a year smoking cigars."

But Professor Rob Moodie, from the Melbourne School of Population and Global Health, said Mr Hockey's argument was specious.

He pointed to Victorian research showing low-income earners were 13 times more likely to kick the habit than high-income earners when a packet of smokes rose by just $1.

"They're more likely to actually quit. They convert that money they spend on tobacco into money they can spend on food," Prof Moodie said.

He said because smoking was addictive some low income earners might cut back rather than quitting altogether to offset the price rise.

Prof Moodie said evidence from around the world showed price control was the single most effective way to reduce smoking, and described the government's decision as a "win-win-win" because it would help people quit, alleviate pressure on the health system and generate more revenue.



The government will impose four, 12.5% tax excise increases on cigarettes starting on Dec 1. This will be followed by hikes on Sept 1, 2014; Sept 1, 2015; and Sept 1, 2016.

Treasury estimates the measure will raise $5.3b during the next four years.

Government modelling shows a packet of 20 Winfield Blue cigarettes will rise by 98c on December 1 and will cost $5.25 more by the end of 2016 under.

Smoking-related health problems are estimated to cost Australian taxpayers more than $31b a year.

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