Written Answers. - Smoking Ban.
Paul McGrath
Question:
17
Mr. P. McGrath
asked the
Minister for Finance
his estimate of the impact of the proposed smoking ban in the workplace on the excise receipts from tobacco and from alcohol, in aggregate and in proportionate terms, assuming unchanged levels of taxation of these products.
[30113/03]
The possible effect of the proposed workplace smoking ban on tax receipts was reviewed in assessing tax revenue prospects for 2004. However, it is hard to predict with a high degree of confidence what will be the effects. The consequences of a smoking ban on tax revenues are thus difficult to estimate. Substantive research in this area is restricted to a small number of countries where such bans already exist.
My Department's economic assessment of the international research on the impact of similar bans around the world – such as in Australia, Canada and the US – are that regulations restricting smoking tend to reduce tobacco consumption and sales. Therefore, some downward pressure on indirect tax receipts from the sale of tobacco products can be expected. However, distinguishing the effects of a smoking ban from the long-term secular decline in cigarette consumption has proved difficult.
In terms of the impact on alcohol, the ban may also lead to a fall in bar sales in the short term. However, the net impact on indirect tax revenue may be offset to some degree by a transfer of consumption to the off-licence trade. While the excise yield would be unaffected if this were to happen, there would be negative implications for the VAT yield. The research indicates that any short-term negative effects on alcohol sales will dissipate in the medium term.
Consumption of stamped tobacco products is expected to fall by more than 10% this year compared to 2002. This is due to a number of factors including the increasing unacceptability of smoking by society and the apparent downward trend in the number of smokers. Alcohol consumption is also expected to show a fall this year due to the economic downturn and price resistance by consumers to the increasingly high cost of going out. Further trend decreases in tobacco consumption and in the consumption of beer are expected in 2004. It is also possible, however, that any decrease in indirect taxes from falling tobacco and alcohol consumption could be offset to some degree by increased consumption of other VATable goods and services.
My Department has taken all of the above factors into consideration in the projection of tax revenues for 2004. For the purposes of forecasting excise duties it has assumed a further 6% fall in tobacco consumption and a 2% decrease in the consumption of beer. The forecasts for indirect taxes take account of the long-run secular decline in the consumption of these products, the introduction of the smoking ban and the displacement of some consumption into other taxable products. I believe this is a reasonable set of assumptions in light of all the uncertainties regarding the impact of the smoking ban. However, it could be wide of the mark since there is no previous experience of such a policy change to go on.
As a very broad pointer to the potential effect on excise receipts, the Revenue Commissioners has calculated that for every 1% fall in tobacco consumption, all other things being equal, the yield from excise would be expected to fall by about €11 million. Similarly, for every 1% fall in the consumption of beer, all other things being equal, excise receipts would be expected to fall by about €4.5 million.
