Cigarettes in the firing line for Budget 2017

Are fizzy drinks going to become another “old reliable” – the name given to tobacco, booze and petrol when it comes to budget time because they have so often been hit over the years for new revenue?

Well maybe not immediately, as the indications are that the budget may outline the shape of a new fizzy drinks tax, but it may not be introduced until 2018, the same time as a similar tax is due in the UK.

This means the hard-pressed exchequer will have to look elsewhere to raise funds to help pay for new tax reductions or spending hikes elsewhere. And all the indications are that smokers will have to pay up – again.

Cunning plan

An interesting passage in the pre-budget tax papers points to one source of extra revenue. Ever conscious of ways to raise new cash – sorry, protect public health – officials pointed to the need to increase the tax take on lower priced cigarettes in Budget 2017. The context of this is the increasing trend to buy lower priced packs, which may increase with the move to plain packaging, that will limit the “branding” ability of mainstream players.

The cunning plan devised by the officials is to make sure that the tax take on the lowest-priced pack of cigarettes – currently selling for €8.75 – is the same as that paid on a pack which sells in the most popular price category of €10.50. This would involve a 17 cent increase in the tax take on the lowest price pack, bringing it up to €6.41. This could be achieved by the Government by increasing the minimum excise duty on a pack.

If the tobacco companies wanted to maintain their profits, this would be passed on to consumers. While there is no estimate of how much this measure would raise, tobacco tax is a big earner, raising well over €1 billion for the exchequer, despite declining consumption. Each 10 cent overall rise would raise an additional €14 million in 2017. With higher tobacco tax mentioned in the Programme for Government as one way to pay for lower USC, this “ old reliable” looks certain to be hit again in October.