10% tax increase will make people quit smoking?

In the Finance Minister’s budget speech on 19 Feb, one of the announcements was an increase of 10% in excise duty for tobacco to discourage consumption. All the smokers naturally started swearing at this news and all the KNNCCB came out. But after one day of kao peh, everybody continued to buy cigarettes at the higher price.

This is not the first increase and it certainly won’t be the last. So will higher prices lead to more people quitting smoking? Yes, maybe for a small number. But the problem is that prices are still not high enough (smokers please don’t kill me).

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If you really want to discourage smoking, you need to go all the way. We should follow the example of the Australians. A pack of cigarettes in Sydney today costs S$31 (versus Singapore’s current cost of S$10 – S$13) and it will cost S$42 by 2020.

The Australians passed a new law in 2016 that will raise taxes on tobacco by 12.5 per cent every year on Sep 1 until 2020. It’s not because Australian politicians have more balls than our Singapore politicians.

Because when you do something like that, you will definitely piss off a sizeable proportion of your voters. In 2014-15, the percentage of daily smokers in Australia was 14.7% or about 2.6 million smokers, not a small number.

As you can see in the table below, whatever the Australians were doing before the new law was already working well and the daily smoking rate has gone down steadily over the years. With the new law, you can expect smoking rates to drop even more.

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There is more political will in Australia to increase tobacco prices as smoking increasingly becomes a anti-social activity among the population. So will Singapore ever increase cigarette prices to Australia’s levels? I think it may happen but it will take many years to do so.

And if our cigarette prices ever reach Australia levels, just like cars, it will be seen as only available for the rich, even though quitting smoking is for your own good. And that will present another set of problems for the government.