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August 12th 2014 print

Sinclair Davidson

Blowing Smoke on Plain Packaging

Those who know best -- or want us to think they do -- insist that cigarette boxes with gruesome images have been a raging success. The statistics say otherwise, but why bother with humble facts when there are careers to be built, profiles to be raised and fellow citizens whose behaviour needs regulating?

fagsOf the three major Gillard government initiatives – carbon tax, mining tax, and plain packaging – only the plain packaging policy is not slated for repeal. It should be. It isn’t — yet supporters have been waging an impressive campaign to maintain the policy.

Since December, 2012, all cigarettes in Australia have been required to be sold in standardised packages with large health warnings. The express objective of the policy is to reduce the attractiveness of smoking, particularly for younger individuals.

This policy is the latest in a long line of initiatives designed to reduce smoking. Since the 1990s we’ve seen bans on tobacco advertising, bans on point-of-sale advertising and then bans on point-of-sale displays, bans on smoking in public places, graphic health warnings, and so on. The ever-increasingly illiberal restrictions on smoking might lead us to imagine that the “war on tobacco” is being lost.

Yet, to the contrary, tobacco consumption has been in long-term decline for over fifty years. The Tobacco in Australia report shows that per capita tobacco consumption has been falling since the early 1960s and speculates that this might be due to UK and US government reports outlining the adverse health effects of tobacco consumption.

It is this downward long-term trend that confounds much of the analysis that purports to investigate the efficacy of specific policies to reduce tobacco consumption. In an econometric analysis of per capita tobacco consumption, Treasury find a highly statistically significant time trend in the data, but report that regulation is not a statistically significant indicator.

In other words, Treasury found no evidence that ever-increasing regulation plays any role in reducing tobacco consumption.

Unsurprisingly, however, it concluded that price does play a role: increases in excise are likely to reduce smoking rates. Since 2010 we have seen massive increases in tobacco excise over and above the regularly scheduled increases, and a change in the base of indexation. From this year onwards, tobacco excise will be linked to average weekly earnings, not CPI.

It is clear that the health lobby believe the optimal rate of tobacco consumption is zero and is happy to achieve that outcome at any cost. Nowhere else in public policy do we pursue such single-minded policy goals. We might like to live in a world where there is no crime – but everyone understands the costs of achieving such an outcome far outweigh the benefits.

In short, the health lobby faces very little public scrutiny in its claims. Recently, for example, The Australian published claims that the plain-packaging policy had failed to reach its stated policy aims. The response from the health lobby was immediate and savage. At the same time, any scrap of evidence that could possible justify the plain-packaging policy is seized upon and broadly disseminated.

Last month  the 2013 National Drug Strategy Household Survey results were released and showed the continued downward long-term trend in tobacco consumption. Yet this was interpreted as supporting the plain-packaging policy – as if the entire decrease in tobacco consumption occurred after December, 2012, and the 25% increase in excise witnessed in 2010 had never happened.

Then there is the misinformation: Sydney University research fellow and lecturer Becky Freeman wrote, “The number of 12- to 17-year-olds who have never smoked held steady at a near universal 95%.”  That figure, 94.7%, was identical to the 2010 figure, but very slightly down on 2007’s 95%. The big picture is this: basically 5% of individuals aged 12 – 17 experiment with tobacco. Notwithstanding anything the health lobby has done since 2007 that figure remains unchanged.

Then there is Simon Chapman telling us that the data relating to 12– to 17-year-olds simply wasn’t statistically significant. But that interpretation wasn’t entirely correct – as UK blogger “Dick Puddlecote” explained. In 2010, 2.5% of 12 – 17 year olds were categorised as being daily smokers, in 2013 that number had increased to 3.7%. With population growth factored in, that is an additional 150,000 teenage smokers under the age of 18. As Puddlecote says, “In reality, this is the only statistic which is relevant in the plain-packs debate when it comes to prevalence. Has plain packaging been successful in stopping kids from smoking, or not? It’s that simple.”

But it gets worse – the proportion of ex-smokers in the 12 – 17 age group has collapsed since 2010. In that year the proportion of ex-smokers aged 12 – 17 was 1.6%. In 2013 it had fallen to 0.3%. Young individuals who took up smoking had not given up. We’re told that the decline from 1.6% to 0.3% is statistically significant, but that the 0.3% is not statistically significantly different from zero. So, statistically speaking, nobody who started smoking in that age group has given up.

In 2013 the proportion of occasional smokers aged 12 – 17 is also not statistically significantly different from zero. The picture that emerges is that the 5% of young smokers in that age group who took up the habit over the 2010 – 2013 period are still smoking.

That’s not the impression that the health lobby has been at pains to convey.

Apart from the dearth of evidence that the plain-packaging policy is actually working, the major problem is that this approach to public health undermines intellectual property rights.

The government has argued that it hasn’t actually expropriated trademarks and intellectual property, just that it prevents that property from being used. That is a very fine distinction – but it does introduce sovereign risk into the Australian public arena. Investors cannot be sure that the Australian government won’t deny them the use of their intellectual property at some stage in the future. To the extent that intellectual property is an important driver of innovation and productivity the plain-packaging policy sends the message that Australia is not quite open for business, despite what Tony Abbott claims.

Given the long-term decline in tobacco consumption, and the absence of clear and unambiguous evidence that ever-more draconian regulation further reduces tobacco consumption, the government should repeal the plain-packaging legislation as imposing unacceptably high and unnecessary costs on the Australian economy – just as it has the carbon tax and hopefully the mining tax too.


Sinclair Davidson is a professor in the School of Economics, Finance and Marketing, a senior fellow at the Institute of Public Affairs, and he who must be obeyed at the Catallaxy Files blog.