A better tobacco policy

Ah, New Year’s. ‘Tis the season of self-obsession, time to shake those old bad habits and embrace a virtuous new you. Forego the fries, stock up on salad; transform the exercise equipment back from coat rack to cross trainer; purge your wardrobe of sweatshirts bought in 1992. And of course, the classic: toss the cigarettes, slap on the nicotine patch and stop smoking.

Could that impulse explain the federal government’s timing in affixing new, gruesome images to cigarette packaging? Perhaps. Stories about the graphic labels peppered the airwaves for the past week, sandwiched between ads for Chantix and other smoking cessation aids. As 2011 kicks into gear, smokers thinking of quitting will be faced with one more reminder of the evils of their habit.

Or not. That’s because many of those warning labels won’t even reach their destination. In two of Canada’s biggest markets, Ontario and Quebec, bootleg cigarettes in clear plastic bags are increasingly the norm, as contraband tobacco sales surge, and legal sales get crowded out.

Since tobacco taxes began rising over the past decade, so have the number of RCMP seizures of illegal smokes, from 28,996 cartons in 2001, to 119,968 in 2004, to 965,688 in 2008. One in three cigarettes bought in Ontario today is contraband, up from one in six two years ago. A study published in October 2010 by the Centre for Addiction and Mental Health (CAMH) and the University of Toronto revealed that 43% of the cigarettes consumed by teenage smokers in Ontario were contraband, up from an estimate of 25% in the 2006/07 Canadian Youth Smoking Survey.

Across Canada today, the economic incentive for black-market production and consumption is far more graphic than any warning label. A legal carton of 200 cigarettes, including tax, can be bought for between $70 and $106; an equal quantity of illegal product costs $6 to $10. Research published by the Fraser Institute in July 2010 revealed that a 10% increase in the price of tobacco products can reduce the lawful category of cigarette sales by 3% to 10%.

Canada’s contraband cigarette trade — the subject of an extensive investigation by National Post reporters last year — is tied up with the problems on impoverished First Nations reserves, which benefit from tobacco-tax exemptions. Even in cases where illegal cigarette smuggling is conducted in plain sight by natives, governments are reluctant to enforce the law, for fear of provoking violence.

But the trade’s impact reaches far beyond First Nations: Profits have even been traced to terrorist organizations, including Hezbollah. Teenage smoking in Canada has stopped declining, as gangs peddle black market tobacco in the schoolyard. Small convenience stores close, as competition from contraband siphons their tobacco business.

It wouldn’t be hard for Ottawa to help solve these problems: Lower cigarette taxes, and thereby kill the contraband trade.

Canadians saw this movie before, in the 1990’s, when a spike in tobacco taxes incentivized a cross-border aboriginal smuggling trade, fed by cigarette manufacturers who later collectively paid over a billion dollars in fines for their part in the scheme. South of the border, the story is the same: According to the American Tax Foundation, over the past century, discrepancies between state tax levels have consistently provoked tobacco-related criminal activity in high-tax jurisdictions. In 1968, the head of the Tobacco Tax Council went so far as to remark that it was possible for bootleggers to “live in New York in the summer and Florida in the winter. Quite a nice life!”

Back in our semi-frozen North, the other parts of the puzzle — more law enforcement, greater economic opportunities for First Nations, public-awareness campaigns about the evils of contraband — won’t make a dent if the incentive persists to make big bucks off cheap smokes. Instead of huffing and puffing with scary pictures, the government should make its own New Year’s resolution: decisively tackle the contraband tobacco trade, and the taxes that feed it.

source: nationalpost.com

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