Dáil Éireann díospóireacht -
Wednesday, 27 Jan 1988

Vol. 377 No. 1

Financial Resolutions, 1988. - Financial Resolution No. 1: Excise — Tobacco Products

The Taoiseach

I move:

(1) THAT in this Resolution—

"the Act of 1977" means the Finance (Excise Duty on Tobacco Products) Act, 1977 (No. 32 of 1977);

"cigarettes", "cigars", "hard pressed tobacco", "other pipe tobacco", "smoking tobacco", "chewing tobacco" and "tobacco products" have the same meanings as they have in the Act of 1977, as amended by the Imposition of Duties (No. 243) (Excise Duty on Tobacco Products) Order, 1979 (S.I. No. 296 of 1979), and by this Financial Resolution.

(2) THAT the Act of 1977 is hereby amended—

(a) in section 1 (1)—

(i) by the deletion of the definition of "cavendish or negrohead", and

(ii) by the substitution of "sweetened pipe tobacco" for "cavendish or negrohead" in the definitions of "hard pressed tobacco" and "other pipe tobacco", and

(b) in the First Schedule, by the substitution of "Sweetened pipe tobacco" for "Cavendish or negrohead".

(3) THAT the duty of excise on tobacco products imposed by section 2 of the Act of 1977 shall, in lieu of the several rates specified in the Schedule to the Imposition of Duties (No. 285) (Excise Duties) Order, 1987 (S.I. No. 19 of 1987), be charged, levied and paid, as on and from the 28th day of January, 1988, at the several rates specified in the Schedule to this Resolution.

(4) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).

SCHEDULE

RATES OF EXCISE DUTY ON TOBACCO PRODUCTS

Description of Product	Rate of Duty
Cigarettes	£39.60 per thousand together with an amount equal to 13.33 per cent. of the price at which the cigarettes are sold by retail
Cigars	£58.444 per kilogram
Sweetened pipe tobacco	£59.059 per kilogram
Hard pressed tobacco	£37.768 per kilogram
Other pipe tobacco	£47.476 per kilogram
Other smoking or chewing tobacco	£49.318 per kilogram

The purpose of this Resolution is to give effect to the excise duty increase of 4p including VAT, on a packet of 20 cigarettes in the most popular price category and to provide for pro rata increases in the case of other products. The new rates will take place from midnight tonight and the additional yield to the Exchequer resulting from these increases is estimated at £7.5 million in 1988 and £8.8 million for a full year.

As an aside, I should like to mention that the opportunity has been taken in the Resolution to delete old-fashioned terms which have, perhaps, unsatisfactory connotations. Those terms are "Cavendish" and "negrohead". In place of those old terms in future we are going to substitute "sweetened pipe tobacco", a major reform, I think.

Mr. Dukes

I must say, as a user of one of the most popular brands of cigarette, that I confess to feeling no great sadness over the increase which the Taoiseach is proposing. That is another day's work. For a revenue of £7.5 million in 1988 we are doing all the things mentioned in this Resolution, including the very obscure matter about "negroheads", "Cavendish" and "sweetened pipe tobacco". Could the Taoiseach indicate what the difference is between the extra revenue that would be generated this year by this increase of 4p on the packet of cigarettes and the corresponding increases on these other categories of tobacco and the extra revenue that would have been generated last year by a similar increase? The Taoiseach some years ago, indeed as far back as 1983, worried yearly about increases in duties on tobacco lest we might be running into a situation of diminishing returns. As I listened to him year by year worrying about such matters, I wondered why the returns had not gone out of sight, but that did not happen. It seems that the extra revenue that could be derived from an increase of this kind this year is substantially less than the extra revenue that would have been expected in any previous year. Perhaps the Taoiseach could give us some comparisons between the situation this year and the situation last year.

The other question on which I should like a little clarification is looking forward a little to the conditions that we face as we move towards a more complete harmonisation of excise duty under the plans proposed for the EC. There are, of course, several elements in the duties proposed here. For example, in the schedule to this Resolution we see that the rate of duty on cigarettes is £39.60 per thousand together with an amount equal to 13.33 per cent of the price at which the cigarettes are sold by retail. From long experience I know that these matters are absolutely fascinating when one is absorbed in them in the process of building up a budget but for the buyer of cigarettes they are less interesting. There is a question of the balance between the specific duty and the other part of the duty that has to be addressed.

I wonder if the Taoiseach will indicate if there is anything in the changes that are being made this year that in any way prepares us for the kind of situation that we are likely to face when we move towards a greater harmonisation of these duties at EC level, apart from the expectation that the total revenue would be substantially less if we moved to a full harmonisation.

The Taoiseach

I have a lot of useless information here and I will give it to the Leader of the main Opposition party for what it is worth. First, cigarettes account for approximately 93.5 per cent of total excise receipts from tobacco. Cigarettes are the main component. The excise duty on cigarettes and tobacco yielded £303.3 million in 1987, 21 per cent of a total excise yield of £1,390 million. Approximately 96.5 per cent of duty paid cigarettes are made in Ireland and approximately 42 per cent of the other tobacco products are made in Ireland. I am giving this information because it helps to give an idea of the structure of this particular excise duty. Unfortunately, I have not got the information as to what this rate of 4p would have brought in in 1987 but the Deputy could possibly relate the £7.5 million that I have mentioned for this year or £8.8 million in a full year to that £303.3 million in 1987. If there is any additional specific information I can give the Deputy perhaps he will let me know.

Mr. Dukes

I seem to detect a less than full treatment of the matters in the brief now that there is a non-smoker in the Department of Finance. I take it that the Taoiseach might not have all this information at his disposal ——

The Taoiseach

He is only a recent convert.

Mr. Dukes

Can I ask the Taoiseach, as a substitute for the other question that I asked, if he can give any indication of what the expected effect of this 4p per packet increase is on the volume of sales during the course of 1988?

The Taoiseach

I have some more information for the Deputy on the question he asked about the EC situation. The duty structure on cigarettes is laid down by EC directive and applies in all EC states. It combines both a specific and an ad valorem element. Our post-budget 1988 take will be £39.6 per thousand cigarettes plus £13.33 of the retail selling price. A specific component cannot exceed 55 per cent of the total tax content of cigarettes in the most popular price category. Irish manufacturers have requested that the specific element be kept as high as possible to inhibit the importation of cheap foreign cigarettes, as Irish cigarettes are of a high quality and a high cost. Proposals for the harmonisation of excise duties generally, including the excise duty on tobacco, are being discussed at present in the context of the completion of the internal market by 1992 and are expected to progress significantly during 1988. The point there is that our manufacturers prefer that the specific element in the duty be kept as high as possible as distinct from the percentage.

Mr. Dukes

I will repeat the last question. Has the Taoiseach any indication of what the effect of this increase will be on the volume of sales in 1988?

The Taoiseach

Marginal.

Mr. Dukes

A marginal reduction.

The Taoiseach

They will keep puffing away.

Mr. McDowell

From what the Taoiseach said about this increase having a marginal effect I take it that we are at the point of diminishing returns or near enough to the point of diminishing returns in relation to tobacco taxation, that the revenue elasticity of further taxation has got to the stage where it is nearly negative. Is that the case? Secondly, are health considerations in mind in relation to this increase or is it made entirely on the basis of maximising revenue?

The Taoiseach

We have always said year after year that we are getting to the point of diminishing returns——

Mr. Dukes

You have always said it.

The Taoiseach

——but it has never yet emerged in the case of tobacco. I would think that from now on the general campaign against cigarette smoking on medical grounds will have an effect. I would like to be able to say to the Deputy that we are doing this exclusively for health reasons but I am afraid I have to cross my heart and say that is not the position. We would like to think that the reason is a combination of both, the altruistic health purposes and the tawdry revenue reasons.

Mr. Dukes

You just need the money.

Mr. McDowell

I appreciate there may be a mixture of motives and I am not suggesting there is anything wrong with that but I wonder will the Government be prepared to indicate in the future that they will not be held back by revenue implications from pursuing a tax policy which is also motivated by health, in other words that they will not say we must keep the volume of cigarette sales up because revenue is an issue when it is Government policy on health grounds to drive down the volume of cigarette sales.

The Taoiseach

The Deputy could accept that all Ministers for Finance in recent years have had regard to the health aspects involved. I do not think any Minister for Finance could be accused of protecting the revenue from tobacco at the expense of health purposes.

Mr. McDowell

The Progressive Democrats indicated at the Whips meeting that they wanted some discussion of this issue and it was solely for the purpose of teasing out that issue and not for the purpose of opposing the resolution.

Question put and agreed to.