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The CGD Podcast
The Tobacco Epidemic – Bill Savedoff
00:21:14
Tobacco related diseases cut short the lives of 100 million people last century, a number expected to surge to 1 billion this century, according to CGD senior fellow Bill Savedoff. Tobacco use has the makings of a staggering epidemic, one taking an...
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Foreign.
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Hello and welcome to the CGD podcast with me, Rajesh Merchandani. Now, today, I want to ask you a question. If you could implement a policy that would save lives, increase government revenues and reduce public spending costs, well, that would be a bit of a triple whammy, wouldn't it? Well, Bill Savadoff, who's a senior fellow here at the center and an expert on health policy, says that there is such a measure, taxes on tobacco. Bill is right here. Welcome. Thanks for joining us.
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Thanks, Rajesh.
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Let's get right into it now. I remember when I was growing up back in the UK and every year the Chancellor would give his budget and he would always raise tobacco taxes. A couple of pennies on tobacco every year. Smokers would groan. Government coffers would swell ever so slightly. These days, of course, fewer people in rich countries smoke, but. But the biggest growing markets for tobacco are in the developing world. Can you give us some kind of illustration of the numbers we're talking?
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So it's true that smoking has declined, prevalence has declined in countries like the us, uk, Europe, but it's growing in most of the rest of the world. And 80% of the world's smokers now live in low and middle income countries. And countries like China, the prevalence rates are well over 28%, 30%, and they're growing. So that means about 1.2 billion smokers.
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In the world, 1.2 billion smokers, and 80% of them are in low to middle income countries, which is like about 800 million people, right?
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That's right.
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That is a lot of people. And in terms of the projections for smoking related deaths, they're pretty stark as well.
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They are. The tobacco is one of these dramatic risk factors that has huge impact on health. And currently figures are about 2/3 of the people who smoke regularly are going to die prematurely from diseases associated with tobacco. That means on average 10 years of life for people. And if you look at what happened in the 20th century in countries like the US where smoking started rising very large amounts in the 20s, 30s, 40s, 50s, 20 years later, you have these rising rates of lung cancer. Over the course of the 20th century, about 100 million people died prematurely from tobacco related causes. At the current rate of increasing smoking in the low and middle income countries, we're talking about a billion premature deaths in this century.
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So 100 million last century and a billion this century. Premature death through smoking.
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Exactly.
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That is astonishing. You can't even imagine that kind of figure, can you? What kind of impact is that? Having will that have on developing countries?
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Well, it has a lot of effects. You can look at the direct costs of treating these diseases. So there's one estimate in India that about a quarter of public health expenditure goes to treating cardiovascular disease and cancers that are caused by smoking. There are indirect costs because people who smoke and get sick lose days at work. And then if you put a price on it, the value of lives or years of life that are lost are quite large as well. So one of the questions in my mind is looking at countries like China, which have this credible push to have economic growth. They're looking in the next 10 or 20 years at what working age? People, people in their 40s and 50s dying prematurely. And the question in my mind is, what does that do to their growth rates as well?
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And when you compare the effect of tobacco or what it does to people and the costs of dealing with that in terms of health policy and health costs to other measures that you've looked at in the past for saving lives and increasing people's lives, how does it compare?
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Well, that gets at how I actually started thinking about tobacco in the first place, because I was working on health policy in Latin America when I worked at the Inter American Development bank in the 90s. And there we'd look at interventions that were making improvements in child, you know, reducing child mortality or maternal mortality, dealing with hiv, aids, malaria, tb. And we're looking at interventions that are like, you know, if it made a 2 or 3% improvement in how we were dealing with these diseases, we were thrilled. This is a real big, important thing. And then I saw a presentation by Prabhat Jha from University of Toronto, where he laid out this projection of a billion deaths in the future. And it dwarfed anything that I had looked at in other health policies, both in terms of the burden of disease, how many people were affected, and in terms of the effectiveness of the tools we have. Because all the things that we're talking about doing, restricting advertising, restricting access of children to smoking in the first place, and things like tobacco taxes are incredibly cost effective and effective at improving health.
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So let's talk about tobacco taxes. How exactly would they work then? We have them in rich countries, but in terms of bringing them into developing countries, what are we looking at? What are we talking about?
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The way tobacco taxes work is that a 10% increase in tobacco tax, 10% increase in the tobacco price, reduces the amount of smoking that people do. Some people will actually quit once prices get high enough, and other people will reduce how much they consume. Our best estimates right now, in a developed context, a 10% increase in price will reduce smoking by about 4%. In a lot of developing countries, it's more like a 10% increase in taxes or prices would reduce consumption by as much as 8%. What that means is that a tax increase does two things for you. It reduces the number of people who are smoking, reduces their consumption, and improves health outcomes. At the same time, it actually does generate revenues. So the government ends up having more money currently, even though smoking goes down. Even though smoking goes down. So it's like it goes down, but not by enough to offset the money that you take in from the tax.
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Now, a lot of people don't like the idea of higher taxes in any aspect of their lives. And tobacco companies certainly don't like the idea of taxes on their product. And they have been pretty vocal in opposing taxes on tobacco. And there are four arguments that they give to do this. Let's just work our way through them. The first is, what is the impact on jobs and exports of developing countries? If you increase taxes on tobacco, you reduce the amount of people working in the industry. Their second argument is about government revenues. What's the actual impact on government revenues? They also say, well, there's a disproportionate burden on poor people of increasing taxes on smoking. And they point to an increase in smuggling. Let's take those four arguments one by one. Let's start off, what are the tobacco firms saying about the impact on jobs in the tobacco industry if you increase taxes and increase the price of cigarettes?
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So the key thing there is that when the tobacco industry uses that argument, they're focusing purely on the impact of jobs within the tobacco industry or in the farming and cultivation of tobacco. But what that completely misses that if people are not spending their money on cigarettes, they spend money on something else. And so the interesting thing is that most of the studies that look at these, at the dynamics of this change is that you end up spending money in other sectors that are actually more labor intensive and generate more jobs net than if you kept the money spent in tobacco. So for most countries, shifting demand away from tobacco into other products is actually going to improve employment rather than reduce it.
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Okay, argument two the tobacco companies come up with is they say that there isn't much impact really on government revenues. What have you and other researchers found?
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This goes back to the argument about how much consumption declines when you raise the price. And it's true that if you had you have some products where if you raise the price, it reduces consumption so much that the revenues don't increase. But the actual empirical studies demonstrate that what economists call the elasticity, the responsiveness of consumers to the price increase is such that you actually do get revenue increases. The argument's also a little bit problematic because the primary purpose of the tax on tobacco is to get people to stop smoking and to prolong their healthy lives. And so at the extreme, if we raised tobacco taxes 10% and everybody quit smoking, it would be a huge public health success. Government revenues wouldn't go down at all, they wouldn't get tobacco tax revenues, but all their other taxes are working. So even at the extreme, the increase in the tobacco tax is a huge benefit for countries because it's the health benefit that's really the primary goal.
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What happens though, if the government starts to rely on that tax revenue and then it does start to go down, the tax take goes down because more and more people give up smoking?
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Well, that's the problem that people have about. Some people argue that tobacco tax revenues can make governments dependent on continuing tobacco sales. And that's something that we have to be vigilant against. And it's why the argument about raising tobacco taxes really has to be presented as the primary purpose is health, the secondary purpose is revenue. And in practice, what we're talking about is a transition toward a tobacco free future where in the interim we're getting money from these tobacco products, but governments shouldn't be relying on them as their long term source of revenues.
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This has always been the issue. When I go back to my story of growing up in the UK and seeing the Chancellor deliver his budget, adding 1p or 2p to cigarette prices every year in the budget, you'd often think, well, what kind of deterrent is that actually going to be? It's a small enough rise that people who are addicted to smoking will pay it and the government gets the extra revenue. So that goes back to a little bit about what you were saying there.
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I think, yeah, the practical answer to that is that the Chancellor might have been doing that to get the tax revenues. But in Britain, smoking has declined. So there are people still smoking, but the decline has been really, really remarkable.
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I wonder if that's to do with taxation rather than social stigma.
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Well, it's a little bit of both. But when we compare different kinds of interventions for tobacco, there's a list of about seven main instruments that countries have signed onto in the International Framework Convention for Tobacco Control. But most of the studies that have looked at this, the tobacco tax is the one that represents the strongest impact on reducing Smoking in Brazil. They did a study that demonstrated that more than 50% of the decline in smoking in Brazil could be attributed actually to tobacco taxes. Certainly it was helped by the fact that they prohibited smoking in public places. There were changes in advertising laws and restrictions on selling to children and minors. But the tobacco tax seems to be, if you can do one thing, the tobacco taxes are the big, big item, okay?
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The third argument the tobacco companies use is that taxes on tobacco are regressive on the poor. They disproportionately affect the poor. And when I was reading your work here, this is what really occurred to me, that poor people spend a high proportion of their incomes on cigarettes. You increase that price, you hurt them even more.
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So this is another argument that I see as a red herring. It's a very useful argument for the tobacco companies, which don't seem to care about poor people more generally, but somehow, when it affects their bottom line, suddenly, this is a big argument. In many countries, poor people do smoke more than richer people, and the tobacco taxes are, you know, would be an expense, an additional expense for them. When you look at the responsiveness, though, poor people actually reduce smoking more when they're faced with a price hike than a rich person. And that makes sense. A rich person looks at an extra dollar on the pack and says, well, I can afford that. The poor person, it's like, wow, I can't afford that. I either have to quit or I'm going to have to buy fewer smokes. So what ends up happening is if you look at the impact of these price hikes and you compare our who benefits and who pays, the poor benefit more than the rich because more of them reduce smoking, and therefore they live longer and they live healthier lives. So the benefits to them are disproportionately higher. And when you look at the tax take, the majority of the revenues are paid for by richer people than poorer people because they're the ones who continue to smoke in higher proportions.
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Okay? One other argument the tobacco companies use is that if you are to raise the price of cigarettes, and that's going to encourage smuggling. And that's something that's also something that seems sort of fits in with one's intuition on the subject.
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So price differences obviously create an opportunity for smugglers. The evidence is that over the last 10, 15 years, as countries have increased tobacco taxes, some countries have increased tobacco taxes a great deal. The share of cigarettes that have actually been smuggled has remained the same, about 9 to 11%. That's the sort of general figure so tobacco tax can encourage smuggling, but there are other factors that actually are much more important than the tobacco tax price. And it has to do with the effectiveness of tax administration and the effectiveness of controlling borders and customs and those kinds of things. And what's particularly ironic about this argument from the tobacco companies is they are the ones who have been responsible for most smuggling. If you look in the 1990s and the cigarette companies were producing cigarettes in certain countries, like Canada, Britain, they would say that they were exporting them. The cigarettes would somehow disappear and reappear in the same country. Canada was going back and forth between the US So essentially to get the magnitude of smuggling that you would need to have an impact on the tobacco tax or the consumption, you have to have the complicity, if not the actual responsibility of the tobacco companies themselves. And the eu, uk Other countries had huge settlements with the tobacco companies about their responsibility for smuggling in the 90s. And now they're turning around and saying that smuggling is the reason you shouldn't tax our industry. I don't think they have much credibility on that score.
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So we've gone through the four arguments and you have rebutted them adroitly. So if tobacco taxes are such a no brainer, why aren't more countries implementing them already?
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So there the story's kind of, you know, glass half empty, half full. A lot of countries have increased tobacco taxes substantially, but they're primarily in Europe. There are increasing numbers of low income and middle income countries that are introducing tobacco taxes. Brazil and South Africa in particular have done a very good job on the score, but most have not. And the tobacco lobbies are very strong. In Uganda, for example, when they proposed a tax increase, the tobacco lobby came back and was able to get them to eliminate it. Two or three years later, another proposal was made. Civil society was able to organize and counteract the lobbying efforts. In some countries, when the tobacco industry knows they're going to miss, they're going to lose the debate on the tobacco tax increases. They then work with the Finance Ministry to try to convince them to introduce taxes which are complicated, difficult to enforce, or allow them to manipulate the market in ways that favor them. So it's a constant struggle against the tobacco lobby to come up with taxes which are actually very straightforward and simple to administer and very large so that they have the right impacts.
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That's not the only reason though, isn't it? I mean, there's a problem with trying to implement or advocate for tobacco taxes within a country. In the first place, it's down to what you call in your work the fragmentation of responsibilities.
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Right. So this is where if you're going to counteract the tobacco lobby, who's going to do it, who's actually in government or in aid agencies or the World bank actually has the remit to confront this issue and to raise tobacco taxes. And as I pointed out, there's this fragmentation of responsibilities. There are people who work on fiscal affairs and financial matters and macroeconomics who are thinking about tax revenues or tax policy. There are people in the health ministries or in aid agencies, in the health departments thinking about health systems, health services, health programs, tobacco taxes fall in the crack between the two of them. And it takes a lot of effort to convince a fiscal policy person that this is a tax worth raising. It's not the first thing on their agenda to raise with a country or to raise within their own ministry. Ditto. On the other side, the health people are concerned with a whole range of system issues, services and things like that. And tobacco, again, it sort of falls to the wayside. It's the lowest priority.
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And this speaks to this whole issue of beyond aid that the center for Global Development here does a lot of work on, thinking that other departments, not just international development agencies, should be concerned with policies that are development friendly as well. So a tax ministry might be actually the one to think about. Okay, maybe we introduce tobacco taxes because they're important for development as well.
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Yeah. And the way we've written about this and thought about this is a lot to do with the way the World bank and the IMF are operating. So they've made, they made progress. The fiscal affairs people and the health people are talking to each other. And the IMF actually has technical staff to help countries when they want to raise tobacco taxes. This happened recently in the Philippines. But what doesn't happen is that when a World bank or an IMF team goes to a country and they're talking about their fiscal, their tax policy, tobacco taxes aren't on the list. Right there in front is something that would be such a big win win for the country.
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So this work is aimed at those big institutions as much as governments.
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Exactly. I mean, these are agencies that could bring it up to the issue. I mean, ultimately these things are domestic policies and the countries themselves have to be the ones who are committed to and want to do it. But the. It's falling between the cracks within the countries themselves. And so this is one place where external actors can actually help out by bringing attention to an issue that is very cost effective. As you were saying. At the beginning, it saves lives, it raises money, and it really should be one of the highest priorities.
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Realistically, practically, how are you going to take this work off the paper and, and into reality? Are there moments or there events happening this year that you think will be a good time to kind of bring this to people's attention and influence governments and multilateral institutions? And how confident are you that you can actually make it go?
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Well, I think the discussion around the Sustainable Development Goals is one obvious thing going on this year, and particularly in Addis Ababa, where we're talking about financing development. And that comes up in two different directions. One is if you're looking for the domestic revenues that countries can put into whatever it is that they're investing in to achieve these goals, tobacco tax revenue should be one of the prominent things that they do. It brings them revenues that they need to make the investments, but it also helps health in a tremendous way. The other side is from the international community providing this kind of support and funding. The technical expertise, the political support, even the protection from litigation by the tobacco companies is something that the us, uk, Europe, Japan, all these countries could play a role in. And China plays a big role as well. It's a major producer of tobacco. It relies on tobacco for its own revenues. Inside China, there's a debate about how much to accept this or not. So it seems to me it's that international forum around the Sustainable Development Goals that would be an optimal time to tackle this question.
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Well, let's hope some of the key players are listening to this. Bill Savadoff, great to speak with you on the CGD podcast. Thanks for joining us.
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Thanks a lot.
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You can read about Bill's work on our website, www.cgdev.org. and don't forget, please do join me again. Rajesh Merchandani with the next CGD podcast from the center for Global.