Tuesday 30 October 2018

Correcting corrective taxes

Over at the NBR, I have a look at the Tax Working Group's advice around excise ($). The advice, and the documents in support of it, aren't bad. They do miss a trick when it comes to tobacco excise though:
The main health risks of smoking are from combustion. Does it make sense to apply the excise levied on smoked tobacco to reduced harm products? Excise is slightly lower for tobacco products other than cigarettes but still seems excessive for reduced-harm products that do not involve combustion.

A 10-gram package of snus selling for $18, containing 15 sachets, would draw $10.33 in excise if the 10-gram weight is an accurate measure of the taxable weight – about $0.69 per sachet. Excise is more than 130% of the cost of the base product. The excise content of the cost of a HEETS stick is lower than the excise content of a cigarette but mostly because HEETS contain less tobacco.

It does not help encourage people to switch to less harmful alternatives when those less harmful alternatives draw substantial excise levies.   
I argue for a low/no excise category for noncombusted tobacco. 

I had a minor quibble around their treatment of alcohol. The TWG Secretariat's background paper cites others claiming that alcohol excise may be progressive because richer people spend more on alcohol. But excise will be a bigger fraction of the purchase price of alcohol purchased by poorer people if people buy fancier alcohol when they're richer. The percentages here now come from very out of date HES findings. But the excise figures are current.
The secretariat noted that poorer households spend only 1.9% of their income on alcohol and richer households spend 2.8% of their income on alcohol. But if the poor household mostly bought $15 cask wine and the richer household mostly bought $30 bottles of wine, the poorer household would be spending 0.74% of its income on alcohol excise while the richer household would be spending only 0.21% of its income on excise.
An ungated copy of the piece will be up at the Initiative's website in due course.

Those interested in snus as alternative to smoking might check out NZ Snus. None of their products would be recommended for non-smokers, but this curious non-smoker who tried one of their stronger products particularly suggests not trying the stronger variants unless you're used to getting a lot of nicotine.

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