“The retail prices of a packet of 20 cigarettes [Marlboro brand] overseas as of now are: HKD 117 in New York, HKD 94 in Ireland (and increasing next year); HKD 88 in England and increasing in 2012; HKD 85 in Australia (adjusted since they sell in packets of 25) and increasing in 2012; HKD 72 in Singapore for the past four years; and HKD 50 in Hong Kong,” he said. Middleton urged the Macau Government to set the tax to match Singapore levels. “Adults would still be able to afford it, many would quit and for sure it would put the cost of cigarettes beyond reach of the youth which is the object of excise taxation,” he stressed. He slammed Macau for having “one of the least effective anti-tobacco laissez-faire attitudes” even though it has the largest casino-betting turnover in the first world. Thereby Middleton went on to say that the MSAR fails in its duty of caring for the Macau public and youth. “Without replacement smokers [youth] their business is over,” he stressed.
‘Step forward’ WHO’s Mackay said the MOP 6 tax rise is a “good step forward, but still inadequate”. “Everyone working in public health knows that tobacco taxation is the most effective measure in reducing tobacco use among youth. The reason is very simple – it makes them too expensive for youth to purchase.” “If the Macau government is serious about reducing tobacco use, especially among the young, then tobacco taxes should be regularly and robustly raised. Macau is also, via China, a party to the WHO Framework Convention on Tobacco Control. Thus it has international obligations in terms of tobacco control legislation and taxation,” she said. Despite the low increase, the Smoking Abstention and Good Health Association director-general says it is “a very encouraging policy”. “This is a very good step. On January 1 we will have the new law that will make prevention more effective,” Johnny Au remarked, adding that it will have a significant impact on low-income people and students. Nonetheless, Au urges the government to keep an open mind for further increases in the future. “We suggest that the government should not revise the law on just one occasion, but from time to time,” he said. Following the WHO recommendation Au also calls for restrictions on tax-free cigarettes coming from different places. Speaking to Portuguese-language newspaper Ponto Final, pan-democrat lawmaker Ng Kuok Cheong said the increase is still very low.
Tobacco tax increase “too little”
This article is about the price of cigarettes in Macao as a cause of market failure. The government tackles the problem of this market failure through the implementation of an increase in tobacco tax. In this commentary, I will evaluate whether the intervention of the government was effective with their method of eliminating market failure.
Market failure is the failure of a market to allocate resource efficiently and to achieve allocative effciency, or to provide the quantity and combination of goods and services mostly wanted by society. The graph in figure 1 shows when allocative efficiency is achieved. This is when there are no externalities and the marginal private benefit curve (MPB) and marginal private cost curve (MPC) will determine an equilibrium price/quantity that reach a socially optimum level in which the price and output reflects on the full costs and benefits to society is where there is allocative efficiency. Allocative efficiency means that resources are being used to produce goods and services that are mostly wanted by society and demerit goods will not achieve that. In the article, there are two causes to market failure- the negative externalities of consumption and the oversupply of this demerit good.
Demerit goods are goods that are considered to be undesirable for consumers and are overprovided by the market. The government considers these goods to create a negative effect on consumers and the society. Therefore, the government will try to reduce the supply and demand for these demerit goods.
The consumption of cigarettes imposes negative externalities on our society. Smokers gain private benefits such as enjoying smoking cigarettes and private costs like damaging their own health. The private costs are less than the social costs experienced by the society who not only involuntarily experience passive smoking, but also contributes to air pollution. Other than the simple discomfort at the smell of cigarettes, the costs to third parties may include lung cancer, bronchial diseases, asthma etc. As there is a free market, smokers will maximize their private utility and continue at the level where MSC=MPB. The price that is paid for each packet of cigarette with account of the social cost will cause the MSC to exceed market price. There will also be an overproduction and overconsumption of cigarettes (Q1 to Q*) where the socially efficient output is at Q* in Figure 2. Because MSC is greater than MSB, a welfare loss in society occurs leading to market failure.
To improve the situation, the government is imposing a raise in the tax of tobacco from “MOP 4 to MOP 6”. The cause of a tax being imposed on the firm producing the good (tobacco) that has the negative consumption externality will result in a decrease in supply and an upward shift of the supply curve from MPC to MPC + tax in Figure 3. This will reduce consumption of cigarettes to the socially efficient level of output Q* but to the price to be even higher than before at P2. This may correct the negative externalities caused by smoking.
However, in this article, this government intervention is criticized to be “inadequate” as it does not drastically reduce the number of people smoking especially the younger generations. The inelastic demand for cigarettes means that a tax raise will not be able to reduce the quantity demanded for cigarettes/tobacco very much. While government revenue has increased from tax, the quantity demanded will not necessarily fall to the Q*. Younger generations are the future of this world and these negative externalities cigarettes would raise the premature deaths of smokers and people admitted into hospitals due to smoking. This causes the government to eventually run out of medical resources such as doctors, land for hospitals. Hence, local anti-smoking associations urge the government to raise tobacco tax even further to prevent the youth (and low income people) from buying cigarettes. Conversely, if taxes are increased too much, people may look for substitutes and other sources of supply. For example, there may be illegal production of tobacco and trading between borders, which will result in the formation of a black market.
Overall, in the short run, increasing tobacco tax would prevent a significant amount of people (especially the youth) to stop smoking, which not only decreases the amount of negative externalities of consumption from cigarettes but also gains private benefits for the smoker him/herself. A significant amount of tax increase would be able to reach the socially optimum quantity and allow allocative efficiency to be achieved.
Words: 748
