China: Hong Kong Tax Sees Applause Hopes Go up in Smoke

Source from:  The Standard  03/12/2014

The tax on a pack of cigarettes has been raised this year by HK$4, taking the levy from HK$34 to HK$38.

Are activists happy about it? Not quite.

Noting that manufacturers increased their prices by HK$1 as well, Council on Smoking and Health chairwoman Lisa Lau Man-man complained that the government move failed to achieve its goal.

What is the goal anyway? To fight smoking, the World Health Organization recommends a 70 percent tax in the final retail price of each pack.

The retail price of a pack that now costs HK$55 would see HK$38 go toward taxes, taking the rate to 69 percent, still 1 percent short of the target and obviously a big deal to those who want to fight Big Tobacco.

But if raising prices can help fight cigarette smoking, does it make any difference whether it was done by the tobacco company or the government?

The tax hike was too little and leaves room for manufacturers to raise prices and thus profits, Lau said.

In fact some manufacturers lowered their prices to HK$45 per pack. But Lau declared it an effort to make cigarettes more affordable to those with less to spend.

According to Lau's logic, tobacco firms are always in the wrong, no matter whether they increase prices or not.

I can see the anti-smoking campaign is not only about health but also a leftist movement against big multinationals. I think Lau could not deny that she hates big companies as much as she hates people smoking.

Everyone is free to love or hate but institutionalizing such sentiment in public policy is another issue. Today we target Big Tobacco. Tomorrow the target could be anyone.

Breast-feeding advocates, who hate multinational milk powder companies, would love to introduce a tax on infant formula so mothers are coerced into feeding their babies with the natural substitute.

Although, hypothetically, putting a tax on anything could lower its consumption, let us not forget about the economics of substitution.

The substitute for infant formula powder is breast milk. For cigarettes with heavy taxes, however, the substitute is illicit ones with duty not paid.

Public policy should be based on sound logical reasoning, not blind faith in any guideline issued by bureaucrats who know nothing about the local situation some thousands of miles away. Simon Lee is a business consultant. Enditem