It should not be necessary but I would remind Deputies that supplementary questions and the answers thereto are limited to one minute.
Other Questions. - Tax Yield.
Paul Nicholas Gogarty
Ceist:51 Mr. Gogarty asked the Minister for Finance the price elasticity which exists regarding increased revenue to the State in relation to tobacco, alcohol and petrol. [25576/02]
I am advised by the Revenue Commissioners that the estimated effect, based on pre-budget excise levels, of a one cent increase in the tax revenue (including VAT) on tobacco, alcohol and petrol is as follows:–
|
Product |
Yield |
|
Petrol |
€18.9m |
|
Diesel |
€17.6m |
|
Beer |
€8.4m |
|
Cider |
€1.1m |
|
Spirits |
€4.3m |
|
Spirit based “Alcopops“ |
€0.34m |
|
Wine |
€0.46m |
|
Tobacco |
€2.8m |
In arriving at these Revenue figures various price elasticities are assumed. For every 1% increase in the price, consumption is estimated to fall by the following percentages:
|
Tobacco |
0.27% |
|
Beer |
0.48% |
|
Full Strength Spirits |
1.00% |
|
Low Strength Spirits (Alcopops) |
0.48% |
|
Wine |
1.05% |
|
Cider |
0.48% |
|
Petrol |
0.26% |
I thank the Minister for his answer. In relation to price elasticity of each of the products mentioned, is it not the case that the State gains more money, despite the social and health grounds cited by the Minister in various budgets? One key example of this relates to tobacco. The Office of Tobacco Control has stated that a price increase of €2.50 could go on a box of 20 cigarettes with the State continuing to earn income from that excise duty despite the consequent fall in demand for that product. Can the Minister be taken seriously regarding increases imposed for social and health reasons only when the revenue to the State begins to decrease?
I do not necessarily agree with the Deputy. However, I am glad he mentioned the increase in excise duty on tobacco. As I said earlier, I have not heard much comment about this in the past week from people either inside or outside the House in the context of the national pay talks. The effect of all of the changes I made in indirect taxes is 0.85% of which half, or 0.43%, relates to the 50 cent on the pack of 20 cigarettes. Another 0.18% relates to the changes I made regarding drink. That makes up more than two thirds of the 0.85%. Prior to the budget I heard many people advocating an increase of €2.50 in the price of a pack of 20 cigarettes. That would have increased the CPI by nearly 2%. One can only imagine the furore there would have been in the context of the talks. One would not want to give the impression that the Exchequer or the Minister for Finance may be looking at this in a particular light. I have been advised for a long period of time to make massive changes in the price of cigarettes. However, nobody seems to have seen that in the context of the talks. I do not mind the unions not taking it into account, but I thought commentators would have referred to it. I thought we were moving away from that, but nobody seems to be so doing.
One thing intrigues me. That is the 1% elasticity on spirits. I was taught – I do not know whether that has changed in the Department of Finance – that a 1% price increase would result in a 1% volume fall. However, the Minister has projected quite a considerable increase in revenue from spirits as a result of the 20 cent on the glass of spirits. How did the Department of Finance work out that there would be extra revenue? More generally, is it the Minister's view that price and tax should be used as a tool for driving down the consumption of tobacco? Would the Minister support, philosophically, such a long-term future role for taxation in the fight against tobacco? Does he support a policy of increasing the price of cigarettes to reduce consumption?
I looked at this matter before deciding to increase the price of cigarettes by 50p in a budget some years ago. I was assured by experts in the subject that the increase would reduce the consumption of cigarettes. I have been a reformed smoker for some years and I appreciate that smoking is a most debilitating habit that costs the State hundreds of millions of euro. The theory explained to me was that while an increase in the price of cigarettes would not necessarily help people to give them up, it would stop people from starting to smoke. The figures I have seen since, neither prove nor disprove the theory. I recall that the increase had an effect on the CPI index of about 0.78% and everybody wanted compensatory increases as a result. I have to balance a number things when framing a budget, as was seen last week. I have listened to Deputy Richard Bruton's advice and I do not think the evidence is clear, as the 50p increase some years ago did not reduce consumption. However, there is a theory that price increases stop people from starting to smoke.
During the debate between the Minister and his colleague, the Minister for Health and Children – we know how much they like each other – in the run-up to the budget, the Minister, Deputy Martin, indicated that additional increases in the cost of cigarettes would be ring-fenced for use in the health services. There has been no indication, whether in budget documents or in speeches by the Ministers, that such ring-fencing will take place. Additional tax receipts arising from the increase in the price of cigarettes will be added to the general tax fund, rather than being allocated specifically to the health funds, which will suffer from substantial cutbacks in 2003. There will be a reduction in the number of employees in the health sector.
Deputy Burton is correct to say that this increase has not been ring-fenced. The previous increase was ring-fenced, but this one will go to the Exchequer.
Is the Minister saying the Minister for Health and Children was misinformed? Deputy Martin said in the run-up to the budget that it would be ring-fenced.
Matters of taxation are matters for the Minister for Finance.
The Minister for Health and Children is spending the Minister for Finance's money.