Raising Revenue & Cutting Costs: Excise Taxes & Health

Transcription

1 Raising Revenue & Cutting Costs: Excise Taxes & Health Frank J. Chaloupka, University of Illinois at Chicago Economic Commission for Latin America and the Caribbean XXX Regional Fiscal Policy Seminar 27 March 2018, Santiago, Chile 1

2 Overview Health & Economic Impact of Non- Communicable Diseases Impact of Tobacco, Alcohol, and Sugary Beverage Taxes Taxes and Tax Revenues

3 Health & Economic Impact of NCDs

4 Leading Causes of Death Globally Source: World Economic Forum & Harvard School of Public Health, 2011 Other Conditions include communicable diseases, maternal/perinatal conditions, and nutritional deficiencies

5 Total Deaths by Income Sourc: 25 million 20 million 15 million 10 million 2.3M 10.2M 2.3M 6.8 M 3.7M 13.6M 0.5M 5.9M 0.9M 0.6M 3.3M3.0M 1.1M 3.3 M 3.0M High-income countries Upper middle-income Lower middle-income Low-income countries Group III - Injuries Low-income countries Group II Other deaths from noncommunicable diseases Group II Premature deaths from noncommunicable diseases (below the age of 60), which are preventable Group I Communicable diseases, maternal, perinatal and nutritional conditions Source: WHO 2010

6 Economic Consequences of NCDs Large economic burden from NCDs: Large, growing health care costs from treating NCDs Significant lost productivity Cause of poverty Account for much of inequalities in health

7 Significant Economic Costs Source: World Economic Forum & Harvard School of Public Health

8 Economic Costs of Unhealthy Behaviors Significant direct and indirect costs Tobacco use: > $1.4 trillion in 2012 Equivalent to 1.8% of global GDP Alcohol use: 2.1% - 2.5% of GDP Obesity: ~$2 trillion in 2014 Equivalent to 2.5% of global GDP Sources: Goodchild, et al., 2017; WHO, 2017; McKinsey,

9 Taxes, Prices and Unhealthy Behaviors

10 "Sugar, rum, and tobacco, are commodities which are no where necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.

11 Cigarettes (millions) Cigarette Price & Consumption Mexico, , Inflation Adjusted Prices (2015 pesos per pack) 49, , , , , Cigarettes (millions) Prices (2015 pesos) Sources: EIU, Euromonitor, and World Bank

12 Adult Smoking Prevaleence Price per Pack, 2013 BRL Adult Smoking Prevalence & Price 16 Brazil, Inflation Adjusted, Smoking Prevalence Price per Pack, 2013 BRL Sources: Ministry of Health, Brazil; EIU; World Bank

13 Cigarette Price & Youth Smoking Prevalence Chile, Source: Paraje, 2017

14 Who Pays& Who Benefits Turkey, 25% Tax Increase 9% 8.5% 9.7% 4% -1% -6% -2.2% -11% -16% -21% -20.4% -18.5% -26% -31% -36% -35.3% Change in Consumption Change in Taxes Paid Source: Adapted from Önder & Yürekli, 2014

15 Million Litres Price per Litre, 2016 UAH 475 Distilled Spirits Sales and Prices Ukraine, , Inflation Adjusted Sales Volume, Million Litres Real Price Sources: Euromonitor; World Bank; and author s calculations

16 Liters per Person Percent Obese Soda Consumption & Obesity Selected Countries % % 25% 20% % 10% 5% 0 0% Liters of Soda per Person Adult Obesity Prevalence Source: Soda consumption from Euromonitor, 2011; Obesity prevalence from OECD Health Data, 2005

17 % Change Soft Drink Consumption Soft Drink Prices & Consumption Percentage Change, , Selected Countries % Change Soft Drink Prices -20 Source: Euromonitor, 2015, and author s calculations

18 Impact of Sugary Drink Tax on Sales Mexico, Colchero MA, Guerrero Lopez C, Molina M, Rivera J. Beverage sales in Mexico before and after implementation of a sugar sweetened beverages tax PLoS ONE. 11(9). Changes in sales of sugar-sweetened beverages in Mexico before ( ) and after the tax ( ):

19 Figure 17.3 Tobacco Control Policies and Cost Per Healthy Life-Year Gained, by WHO Region Note: HLYG = healthy life-year gained. Source: Based on calculations from World Health Organization CHOICE model,

20 Tobacco, Alcohol & Sugary Drink Taxes

21 Cigarette Taxes as Percent of Retail Price July 2016 WHO, 2017

22 Alcoholic Beverage Excise Taxes by Beverage Type WHO, 2017

23 Sugary Drink Taxes, August

24 Excise tax per pack (constant 2012 Rands) Excise revenue (billions, constant 2012 Rands) Taxes & Tax Revenues, South Africa 12 Excise Tax per Pack and Excise Tax Revenue South Africa, Inflation Adjusted, Excise tax Excise revenue Sources: Blecher & Van Walbeek, 2014

25 Cigarette Excise Tax, 1000 Sticks Tax Revenues, Billions Cigarette Tax and Tax Revenues Ukraine: Average excise rate for cigarettes increased 10-fold Cigarette Tax Revenue increased 6-fold Average excise per 1000 cigarettes, UAH Tobacco excise revenue, bln UAH 3.5 Source: Syvak and Krasovsky, 2017

26 Taxes and Tax Revenues Canada, Source: tobacconomics, 2017

27 Additional tax revenue (million dollars-ipc march 2016=100) The Laffer Curve Argentina Tax rate Source: Tobacconomics, 2018

28 Percent of Total Tax Revenue Tobacco tax revenue as a percentage of Total tax revenues South America % 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Argentina Brasil Chile Colombia Uruguay Source: tobacconomics, 2018

29 3.5% Alcohol tax revenue as a percentage of total tax revenues Selected Central American & Caribbean Countries % 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Panama Nicaragua Honduras Guatemala El Salvador Costa Rica Source: ECLAC, 2017

30 Pesos per Pack 35 Cigarette Excise Tax per Pack Philippines, Low Medium High Premium

31 Million Cigarettes Pesos per Pack (2016 pesos) 105,000 Cigarette Sales and Prices Philippines, , Inflation Adjusted , , , , , , , Cigarette Sales, Millions Price (2016 pesos) Sources: Euromonitor, World Bank, and Authors Calculations

32 Billion Pesos Incremental Revenues for Health and the Poor, Philippines, Department of Health Budget, Billion Pesos Allocation for Health Insurance Premiums for the Poor, Billion Pesos Source: Adapted from Jeremias Paul, 2017

33 Billion Pesos Incremental Revenues for Health and the Poor, Philippines, Department of Health Budget, Billion Pesos Allocation for Health Insurance Premiums for the Poor, Billion Pesos Source: Jeremias Paul, 2017

34 Tobacco Taxes and Revenues The Addis Ababa Action Agenda states: price and tax measures on tobacco can be an effective and important means to reduce tobacco consumption and health-care costs, and represent a revenue stream for financing development in many countries

35 Summary

36 Conclusions Higher tobacco and alcohol taxes, new sugary beverage taxes significantly reduce consumption Reduced consumption leads to fewer NCDs, less spending on health care, increased productivity, and improved development At the same time, tax increases/new taxes will generate significant new revenues in short to medium term

37 For more information: Tobacconomics

38 Extra Slides

39 Common Oppositional Arguments Industries and allies use several common arguments in opposition to tax increases: Won t have the intended impact in terms of reducing use and consequences Will lead to extensive tax avoidance and tax evasion Will harm poor and working class consumers Will lead to massive job losses

40 Tax Avoidance & Evasion

41 Tax Avoidance & Evasion Do NOT Eliminate Health Impact of Higher Taxes Source: Schroth, 2014

42 Tax Avoidance & Evasion Do NOT Eliminate Revenue Impact of Higher Taxes Cook County Cigarette Tax and Tax Revenues - FY01-FY06 $1.75 $1.55 $1.35 $225,000,000 $205,000,000 $185,000,000 $165,000,000 Tax per Pack $1.15 $0.95 $0.75 $0.55 $0.35 Chicago tax rises from 16 to 48 cents Chicago tax up to 68 cents, 1/1/06 Chicago smoking ban, 1/16/06 $145,000,000 $125,000,000 $105,000,000 $85,000,000 $65,000,000 $45,000,000 Tax Revenues $ Fiscal Year $25,000,000 Tax Revenues

43 Illicit trade share as % of legal cigarette consumption Illicit Cigarette Market Share & Cigarette Prices, % Latvia 45.00% 40.00% Pakistan Bolivia Lithuania Malaysia Dominican Republic y = x R² = % 30.00% Iran PeruEcuador Ireland Brazil South Africa 25.00% Egypt Poland Bulgaria Tunisia Estonia Venezuela 20.00% Nigeria Slovakia UAE Mexico Austria Canada Costa Rica Uruguay Cameroon India Croatia Colombia Bosnia France 15.00% Philippines Kenya Guatemala Saudi Arabia Romania Vietnam Turkey Greece United Kingdom Serbia Georgia Indonesia Portugal Netherlands Sweden 10.00% AlgeriaMoroccoSlovenia UkraineChina Azerbaijan Spain USA GermanySwitzerland Argentina Finland Singapore Norway Uzbekistan 5.00% Hungary Italy Macedonia Chile Australia Israel Begium New Zealand Russia Thailand Denmark Kazakhstan South Korea Japan 0.00% Belarus Price USD Sources: Euromonitor, WHO

44 Drivers of Illicit Tobacco Corruption Weak tax administration Poor enforcement Presence of informal distribution networks Presence of criminal networks Access to cheaper sources Sources: NRC/IOM 2015; NCI/WHO

45 illicit cigarette trade volume Smuggling and Corruption, Latvia Dominican Republic Pakistan Iran Bolivia Ecuador Bulgaria Malaysia Brazil Lithuania Peru South Africa Poland Estonia Mexico Nigeria Venezuela Guatemala Slovakia United Arab Emirates Canada Egypt Croatia 0.16 India Uruguay Philippines Romania Turkey Saudi Arabia Kenya Vietnam Hungary France Austria Sweden Algeria Georgia Costa Rica United Kingdom Morocco Netherlands Uzbekistan AzerbaijanIndonesia Portugal Germany Greece Bosnia China United States Ukraine Argentina Macedonia Slovenia Belgium Singapore Serbia Tunisia Norway Switzerland Finland Colombia Italy Russia Israel Spain Thailand Chile Australia Japan Belarus Kazkhstan South Korea New Zealand Denmark Ireland y = x R² = Transparency Index Sources: Euromonitor, Transparency International

46 Figure 12 Estimated Volumes of Cigarettes Consumed in the U.K. Duty paid, illicit, and crossborder shopping, Source: HM Revenue & Customs, 2014

47 Combating Illicit Tobacco Trade Illicit trade protocol to the WHO FCTC Adopted November 2012; currently in process of being signed/ratified; provisions calling for: Strong tax administration Prominent, high-tech tax stamps and other pack markings Licensing of manufacturers, exporters, distributors, retailers Export bonds Unique identification codes on packages Better enforcement Increased resources Focus on large scale smuggling Swift, severe penalties Multilateral/intersectoral cooperation

48 Beverage Tax Avoidance & Evasion Little evidence of significant tax avoidance & evasion low taxes relative to prices costly to avoid/evade taxes Illinois recent experiences with beer taxes IL raised tax from 7 cents/gallon to 18.5 cents/gallon, August 1999; again to 23.1 cents/gallon September 2009 Iowa 19 cents/gallon throughout Indiana cents/gallon throughout Wisconsin 6.45 cents/gallon

49 160% Percent Change in State Beer Taxes Revenues, Il, IN, IA & WI, % 140% 120% 100% 80% 60% 40% 20% 0% -20% 3.5% 2.8% -3.5% IL IA IN WI Source: Brewers Almanac, 2013, and author s calculations

50 Percent Change in Beer Taxes Revenues IL, IA, IN, WI % 22.7% 20% 15% 10% 5% 0% IL IA IN WI -1.0% -5% -3.6% -4.2% Source: Brewers Almanac, 2013, and author s calculations

51 Impact on the Poor

52 Tobacco & Poverty Source: NCI & WHO 2016

53 Impact on the Poor Concerns about the regressivity of higher alcohol & tobacco taxes, food/beverage taxes Most excise taxes are regressive, but tax increases can be progressive Greater price sensitivity of poor relatively large reductions in use among lowest income populations, small reductions among higher income populations Health benefits that result from tax increase are progressive

54 Who Pays& Who Benefits Turkey, 25% Tax Increase 9% 8.5% 9.7% 4% -1% -6% -2.2% -11% -16% -21% -20.4% -18.5% -26% -31% -36% -35.3% Change in Consumption Change in Taxes Paid Source: Adapted from Önder & Yürekli, 2014

55 Progressivity of Tobacco Tax Increase Source: World Bank, Fuchs et al., 2017

56 Impact on the Poor Need to consider overall fiscal system Key issue with taxes is what s done with the revenues generated by the tax Greater public support for tax increases when revenues are used for prevention & control programs and/or other health programs Net financial impact on low income households can be positive when taxes are used to support programs targeting the poor Concerns about regressivity offset by use of revenues for programs directed to

57 Philippines Sin Tax Reform Source: Paul, 2016

58 Impact on the Economy

59 Excise Taxes and Jobs Industries argue that production and consumption of their products makes a significant economic contribution employment in farming, manufacturing, distribution, retailing, and related sectors multiplier effects as income earned in these jobs is spent on other goods & services

60 Excise Taxes and Jobs Industry-sponsored studies tell only part of story: Focus on the gross impact: New tax or tax increase will lead to decreased consumption of taxed product Results in loss of some jobs dependent on production of taxed product Ignore the net impact: Money not spent on taxed product will be spent on other goods and services New/increased tax revenues spent by government Offsetting job gains in other

61 Tobacco Taxes and Jobs Many published studies assess impact of reductions in tobacco use from tax increases and/or other tobacco control measures: Variety of high, middle, and low income countries Use alternative methodologies Generally find that employment losses in tobacco sector more than offset by gains in other sectors

62 Tobacco Taxes and Jobs Concerns about job losses in tobacco sector have been addressed using new tax revenues: Turkey, Philippines among countries that have allocated tobacco tax revenues to helping tobacco farmers and/or those employed in tobacco manufacturing make transition to other livelihoods Crop substitution programs, retraining

63

64 Thousands of employees, Mexico, ; Guerrero-Lopez, et al., 2017

65 Thousands of employees, Mexico, ; Guerrero-Lopez, et al., 2017

66

67

68

69

70 Noncommunicable diseases are a growing global crisis, especially in low-and-middle income countries. There s substantial evidence that taxes and fiscal policies are essential to confronting this health threat. This Task Force will explore which policies can make the biggest difference and help them spread, saving millions of lives. MIKE BLOOMBERG We have strong evidence from around the world that raising taxes on products like tobacco, sugar sweetened beverages and alcohol is highly effective at reducing harmful consumption and saving lives. I m grateful for the commitment of this impressive group of leaders, whose expertise and experience will help the Task Force bring attention to the enormous potential of fiscal policies for health. LARRY SUMMERS