Tobacco and sugar taxes make for a healthy exchequer

The Government has said that the proposed new sugary drinks tax will, if it works, gradually involve lower revenue over the years as people use less of these products. The same “health” rationale is used in relation to tobacco tax, but while fewer people smoke it still earns over €1 billion a year for the exchequer .

Tobacco has been hit in 20 out of the last 24 budgets. It is the most reliable of the so-called old reliables.

However in recent years consumer use has started to adjust, in a way that is hitting the exchequer. The ever-rising price of cigarettes has driven consumers away from so-called premium brands and towards lower priced products. The share of premium products has fallen from about 84 per cent in 2011 to 55 per cent now, according to estimates based on AC Nielsen data, while the share of mid-price and lower price packs has risen from 16 per cent to 45 per cent over the same period.

Industry figures suggest that this switch to lower cost products translates to over €21 million in lost revenue to the exchequer.

Prudent

Not surprisingly, the mandarins in the Department of Finance have taken note. They have suggested that “it may be prudent” – code for saying there may be some cash to be made – to raise the minimum excise duty, a fixed lower amount which must be applied on a pack no matter what its price. They suggest that this minimum rate be lifted so that it is equivalent to the excise on a premium pack – currently about €6.41.

This would push up the cost of a lower priced pack by 22 cent, assuming producers wanted to maintain their margin, to €8.97. Premium products sell for about €10.50, up from less than €6 in 2013. Over the same period the numbers smoking have fallen from almost 30 per cent to less than 20 per cent.

For smokers, it closes off one route to saving a bit of money. For the exchequer, with duty on an average pack likely to rise too, it could all raise a nice bit of cash.