This week in plain packaging: Worst. Policy. Ever. [UPDATE]

This week in plain packaging: Worst. Policy. Ever. [UPDATE]

 

The Australian has been tough on plain packaging since the white (olive green? ugly olive? sorry, drab brown) elephant stomped onto the scene, but this week The Oz has gone into overdrive since revealing the policy has reversed a decades-long decline in (legal) tobacco consumption, driving it up by an extra 59 million cigarettes in 2013.

[Source: The Australian. Click image for link.]

The usual velveteen-tyranny leftists have been tying themselves in knots to unravel the truth, throwing wild accusations of allegiances to or data-charming by Big Tobacco, the IPA, the Australian, and economics Professors Judith Sloan and Sinclair Davidson (the latter of whom has kept an outstanding log of developments at Catallaxy Files, some of which is linked below).

Trying to construct guilt by association is futile in the face of data that would arguably be open to investigation by ASIC if there were meaningful questions about its accuracy. There aren’t. There are simply different interpretations about what it means.

One of these originates with the Kouk, aka Stephen Koukoulas, aka economist, speaker, and former Gillard advisor, drawing our attention to ABS National Accounts data (click the Series ID link in row 13, “Cigarettes and tobacco”) that shows the volume of tobacco consumption is still decreasing, on-trend.

The figures calculate the monetary value of tobacco consumed in real volume terms. The ABS attempt to adjust the data for the impact on inflation – but ultimately expenditure is price time quantity. In the actual calculations, the ABS has admitted to using cigarette prices from 2011-12 in their 2013-14 calculations. [Thanks to Prof Davidson for his help explaining this!] What that doesn’t account for is the rapid change in the average price of tobacco as sold that has occurred over the last year as a result of consumers making vastly different consumption decisions.

Plain packaging is a “nudge” policy, and nudge policies accept that consumers are quite rational in the decisions they make. Rather than accepting this as an indication that individuals have got their lives quite sorted, thank you very much, nudge policies are enacted to change the incentive structures facing individuals. Nudge policies manipulate the world and force people to act differently in it. They are intentional distortions of reality. But, they work. Of course they work. People are rational and adapt rationally to changes. That’s why we survive as a species. That’s what makes such policies unbelievably cruel.

Branding has significant effects on consumer decision making. It demonstrates consistency and quality, or the absence of such, and allows consumers to identify unquantifiable factors like taste preferences  – all forms of reputation – but is almost completely constructed by the branding a company puts out. In blind taste tests, smokers often can’t tell their preferred brand from others.

Plain packaging has made price the main means of separating brand from brand. The Australian’s graph above shows the most growth in sales of loose tobacco, the cheapest form of legal tobacco.

This graph shows the growing market dominance of low-end British American Tobacco Australia brands.

[Source: KPMG “Illicit Tobacco In Australia” FY 2013, p11. Click image for link.]

That’s a massive shake-up in a short time, and a significant acceleration in 2013 over and above the 2011-12 trend.

In short, all signs point to The Australian having the long end of the stick. Plain packaging is a giant own goal and is responsible for more cigarettes being smoked in this country. If this press release from South Australia’s Minister for Health, Mental Health, and Substance Abuse showing a shocking 2.7% rise in smoking rates in South Australia is anything to go by, that might actually mean more Australians are taking up smoking.

It almost looks like plain packaging is a pro-smoking policy! We wonder if that’s permitted under the various tobacco advertising acts.

Nevertheless, this debate is all totally removed from major growth market for tobacco – the black market. In fact we can circumvent the above statistical debate entirely by investigating what’s going on in the illegal tobacco trade. It’s now the source of 13.9% of all tobacco consumed, and isn’t caught in the ABS’s data. Oh, and it’s up from 11.8% of total consumption in 2012.

[Source: KPMG “Illicit Tobacco In Australia” FY 2013, p6. Click image for link.]

59 millions sticks pales in comparison to those numbers.

The threat of plain packaging in the UK has illegal tobacco smugglers literally rubbing their hands together with glee. LITERALLY. There’s no doubt that standardising packaging makes all brands much easier to counterfeit, but it also makes branded packages smuggled in from countries with no or much lower excise taxes (and thus prices) even more attractive to consumers. Remember, branding is what keeps smokers from reverting to the cheapest smokes on the market.

Tobacco smugglers are obviously bad guys, but you might not realise quite how bad they are. This report from the US’s Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) found

traffickers in the United States and the United Kingdom are providing material support to the Hezbollah and the Real IRA (RIRA), among other terrorist groups. In addition, law enforcement research indicates that groups tied to al Qaeda, Hamas, PKK (the Kurdish Workers Party), and Islamic Jihad (both Egyptian and Palestinian) are involved in the illicit trafficking of cigarettes.

Yeah. Plain packaging and insane tax hikes create market opportunities so obvious, yet so infrequently considered by authorities, that actual terrorists take advantage of it.

Thanks Roxon & Plibersek!

Just in case you’re wondering, MyChoice Australia has never taken a dime of tobacco money. We won’t be accused of guilt by association and we won’t give nanny statists any excuse to dismiss us when we expose their desire to micromanage your life.

We have also never taken taxpayer dollars, which would be far more ethically indefensible than taking money earned by tobacco companies.

UPDATE 23/6: While plain packaging does indeed remain the Worst. Policy. Ever., Fairfax has jumped into the debate and joined the chorus of leftists trying to prove that tobacco consumption didn’t rise in 2013 over 2012 levels.

I say Fairfax is weighing in because – despite invoking the heft of the Commonwealth Treasury – their source is actually just a quote on a Health Dept web page that was secretly created some time last week. It says,

The Commonwealth Treasury has further advised that tobacco clearances (including excise and customs duty) fell by 3.4% in 2013 relative to 2012 when tobacco plain packaging was introduced.

And… that’s it.

No data.

No source.

Just this oft-quoted quote with no actual origin.

There’s also not a lot of certainty around what tobacco clearances actually measure, and how they measure them.

Broadly, tobacco clearances, or rather, tobacco with a clearance is tobacco that’s been imported and is ready to sell, meaning it gets taxed at the border by Customs, or it’s been imported loose and is rolled into cigarettes by a tobacco company, and is taxed by the ATO per stick. This is theoretically equal to tobacco legally sold and thus equal to legal tobacco consumed.

It’s not, though, as this email from Treasury specifies [with thanks to Catallaxy Files]:

Excise and customs clearances are different from consumption data, as the taxing point is not the point of final sale

Again, the debate over these 59 million cigarettes is all a bit pointless when some 2.4 billion illegal cigarettes were smoked in 2013. 

Even with all the misinformation floating around, at least some thought is being paid to one of the most obvious State overreaches in recent memory.

UPDATE 24/6: Today’s edition of The Australian provides a better explanation of the “3.4% decline in tobacco clearances” statistic from Treasury/Customs, invoked as a poorly-matched metaphor for tobacco volumes consumed,  from the companies who actually deal with the volumes of cigarettes consumed;

“From Philip Morris’ perspective the final quarter of 2012 saw an artificially high rate of tobacco clearances due to our replacement of branded stock on retailers’ shelves with plain-packaged stock,” Philip Morris spokesman Chris Argent said. 

“Assuming a similar approach by other companies, it is therefore not surprising Treasury’s tobacco clearances in 2013 may have been below the inflated 2012 clearances, nor is it incompatible with industry data that shows a 59 million rise in stick sales for the 2013 calendar year.”

… BAT spokesman Scott Mc­Intyre said: “The InfoView figures relate to the number of cigarettes sold into the market place. Treasury clearances are not cigarette sales; they are tax paid, per stick, but not actually sold in market — (they are) two different measures.

“Treasury figures could be distorted due to timing, seasonal differences, and mainly due to the introduction of plain packaging in the lead-up to 1 December 2012, which saw a lot of branded stock taken back and duty needing to be refunded, which didn’t take place until early 2013.”

This is exactly why the Treasury explained, in the email in our last edit, that ‘excise and customs clearances are different from consumption data, as the taxing point is not the point of final sale’.

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2 thoughts on “This week in plain packaging: Worst. Policy. Ever. [UPDATE]

  1. Freda

    ”Yeah. Plain packaging and insane tax hikes create market opportunities so obvious, yet so infrequently considered by authorities, that actual terrorists take advantage of it.

    Thanks Roxon & Plibersek!”

    AND TONY-TAX-TILL-YOU-DROP-ABBOTT (taken over from KEVIN-TAX-TILL-YOU-DROP-RUDD).

    1. I’m glad that you’re on the right side of reality and agree that Tony is a problem. There’s a lot of Liberals who STILL want to pin Tony’s tax hikes on Rudd.

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