Sunday 2 May 2010

Confusing "social costs" and fiscal costs [updated]

Lindsay Mitchell first pointed out massive inflation in the reported health costs of smoking. Where most measures, even coming from the anti-tobbac folks, were well south of $400 million, the Dominion Post started reporting figures of $1.9 billion as the annual health-related costs of smoking.

That number's also made it into a DomPost editorial, as pointed out by Matthew in comments here:
The Health Ministry estimates the health-related costs at $1.9 billion – much more than the $1.3b that will be raised once the new tax rates are fully in force.
And, I've seen more than a few folks on "ask the public" tv news interviews complaining about how smokers aren't paying their way and ought to be more heavily taxed.

What's the provenance of the $1.9 billion number? MacDoctor suspects they're using a "social costs" figure. Paul Walker emails me the following:

"The cost of smoking in New Zealand is substantial. The cost from tobacco use to New Zealand’s publicly funded personal health care services in 1987 was estimated at $202 million in 1992 dollars. Not counted are the costs of exposure to second-hand smoke, or the costs of cigar and pipe smoking. The wider estimated costs to society far exceed the direct health care costs to Government and has been estimated at $1.9 billion in 1992 dollars^9"

9. Public Health Commission. Tobacco Products: The Public Health Commission’s Advice to the Minister of Health 1993-1994. Wellington 1994.
I was guessing the $1.9 billion was an inflation adjustment of the 2005 figure of $1.7 billion; Paul thinks it comes from this prior figure. Either way, it's a measure of "social cost" rather than costs to the health care system or to the government more generally.

I really hate these "social cost" estimates. Motivated folks can always present them as being actual costs to the government, and that affects public opinion about the appropriate level of taxation.

Update: The $1.9 billion figure is on the Ministry of Health website; my apologies to the Dom Post for thinking they'd been the source of confusion. It will be interesting to see the Ministry's supporting documentation.


  1. You have to commend the government on generating yet another side-show 'issue' that gets extensive debate, while the real issues receive zero parliamentary inquiry.

    I notice Australia has moved to increase smokers taxation the day after NZ, now there's a government that desperately needs to generate a few side-shows.

  2. From $400 million to $1.9 billion is quite a jump. Correct me if I'm wrong, but that means that the social non-health related health cost is around $1.5 billion. That is a LOT of lost productivity, secondhand smoke damage, etc.

  3. Check my review of that report, posted a couple of days back, for the run-down on where its numbers come from. They do not correspond to any economist's notion of "social costs", and by that I mean that you're no longer an economist if you believe those numbers.

  4. Well, I'm not an economist anyway, so no difference if I believe them or not :)

  5. @Lats: You know the dig wasn't at you...

  6. Oh yeah, for sure, in fact I like to think I'm a good deal more rational than a lot of folk out there. I try anyway :)

    Any news on the small Crampton btw?

  7. Ah, I ought put up a twitter update, oughtn't I. Midwife visit tomorrow; we move to greater encouragement on Wednesday should it come to that.