The need to consolidate public budgets is perhaps already evident, even to those political parties that have long perceived resources as limitless and freely available. Investors worldwide eagerly await opportunities to lend to debt-ridden Slovakia.
Consolidation plans are beginning to emerge, the Financial Policy Institute at the Ministry of Finance has published the impact of austerity and tax measures on GDP, and almost all plans to tackle the disproportionate growth in spending by irresponsible governments in recent years include raising excise duties on tobacco products.
I, as a non-smoker, find this fascinating. There is no discussion at all.
Just a few weeks ago, the Ministry of Finance published preliminary information indicating its intent to draft new legislation for yet another tobacco tax increase. The last adjustment occurred in February of this year. Adequate justification is not usually part of these proposals, but it is clear from the text that the aim is to increase state revenue. If you thought until now that the tax increase was somehow related to the health effects of smoking, you were mistaken. The role of the Ministry of Finance is to collect money, not to make health policy.
Of course, the discussion may shift towards health implications in general. But somehow no one thinks to ask the question whether the current tax rate is high or low in this context.
Unfortunately, you will not find an answer to this question in the Slovak academic or expert literature. There are no current quantifications of health expenditure in relation to smoking. Nor will you find proper data on such a basic issue as the prevalence of smoking. Is it falling or rising?
The information available is conflicting, with some sources suggesting an increase in smoking rates, while others indicate stagnation or decline. According to excise duty statements, the number of cigarettes sold is decreasing by 11% over the past 5 years. While this outcome should please proponents of reduced tobacco consumption, it is noteworthy that increased cigarette prices have led to more people buying less taxed packaged tobacco, resulting in only a 6.6% reduction in cigarette consumption.
Some consumers have shifted to heated tobacco, which is considerably less harmful due to the absence of combustion fumes. Consequently, the negative consequences of smoking are diminishing. Remarkably, there is little discussion about the reduction in the indirect costs associated with passive smoking, a significant change in recent times.
So, should tobacco taxes be increased for health reasons? In this deliberation, we focus solely on the direct costs of smoking. Indirect costs, such as the loss of GDP, are economic nonsense because productivity and quality of life are the private capital of the individual. Smoking is a matter of choice, and one’s free or working time should not be appropriated by the state, contrary to what many politicians believe.
According to US data, the direct costs of smoking account for 6-7% of total health expenditure (2018 figure). The prevalence of smoking is lower there; in Slovakia we can estimate a 10-12% share.
This year, the government aims to collect one billion euros from tobacco consumers, representing 14% of public healthcare spending. In other words, smokers are already contributing more than their theoretical share of direct smoking-related costs.
This outcome may not be surprising when considering the high taxation on cigarettes. A significant portion of the price of a cigarette pack, 75%, consists of various taxes, with excise duty amounting to EUR 2.8. For a daily pack-a-day smoker earning a gross wage of EUR 1,000, the excise duty on tobacco equates to 60% of their total health contributions, including the employer’s share. To put it differently, a smoker pays roughly the same amount in excise duty alone as a non-smoker earning the same wage pays in income tax.
However, the Ministry of Finance is not interested in these figures. The ministry takes a “maximization” approach to tobacco tax. Across all government documents, proposals, and materials, the focus is on increasing tobacco taxes, with no mention of review, let alone reduction. The ministry sets taxes to strike a balance between discouraging cross-border shopping by smokers and ensuring that potential revenue is not lost. Moreover, tobacco tax revenue in Slovakia is not earmarked for the health sector, allowing the government or parliament to allocate these funds to various programs or projects, unrelated to public health.
As a result, there is a silence about the logic of tobacco taxation. It does not excite anyone that other excise duties on commodities that also have negative health effects, such as the tax on beer or the tax on mineral fuels, have not been increased for years, if not decades. There is even no tax on still wine.
However, smokers, who constitute a silent and unorganized majority, bear the brunt of these taxes. The Ministry of Finance appears to rely on the persistence of smokers’ habits. Defending smokers is socially unacceptable, and there is no political advocate for their cause. Most perplexingly, the fact that less harmful forms of tobacco consumption, like heated tobacco, are taxed more heavily than traditional rolling tobacco remains unaddressed.
Whether we like it or not, the forthcoming consolidation is very likely to rely on tax increases. In fact, Slovak politicians, unlike their Danish counterparts, for example, have missed the spending-cutting lesson. But it would also be useful to have the debate on tax increases openly, with data and arguments. Nowhere is it written that the less than a third of voters who are also smokers should contribute more to consolidation than other citizens.