Labor policies in the frame: itwas a case of smoke and mirrors

HENRY ERGAS
JUNE 18, 2014
THE AUSTRALIAN
NOT every nanny encourages her charges to take up alcohol and tobacco. But then again, not every health minister is like Nicola Roxon.
Replacing assertion for analysis, she left the country lumbered with policies that at least so far, have imposed substantial costs while doing little to improve public health. Roxon’s signature policies hardly lacked ambition. Plain packaging, she boasted, would “reduce the consumption of ­tobacco by about 6 per cent and reduce the number of smokers by 2 to 3 per cent”.
In fact, Australian Bureau of Statistics data shows tobacco consumption increased by 2.5 per cent in volume terms in the year immediately after the introduction of plain packaging.
True, there was a large fall in this year’s March quarter; but even putting aside the notorious unreliability of quarterly data, tobacco taxes rose 12.5 per cent in December 2013, reducing consumption in the short run, much as tax hikes have in the past.
Of course, some of the growth in expenditure on tobacco leading up to the tax rise may have been due to wholesalers stocking up before prices increased. But while consumption rose in December, the rise was not unusually marked, as would normally happen with stockpiling. The stockpiling explanation is therefore unconvincing.
An ounce of thought would have shown plain packaging might not work as advertised. After all, given a choice between a high-quality and a low-quality variety of a good, economics suggests people will value each unit of the high quality good as equivalent to several units of its lower quality counterpart.
A burger from a gourmet diner, for example, may be worth three from a fast food outlet.
As a result, a policy which eliminates the diner, leading consumers to replace it with purchases of fast food, will not necessarily reduce total consumption of burgers: on the contrary, it may increase it.
In exactly the same way, removing the option of buying one expensive pack with an attractive label, instead of two cheaper packs without, can increase tobacco consumption and the risk of cancer by inducing consumers to replace more of the inferior variety for less of the (now prohibited) superior alternative.
But models of “vertical product differentiation” (the economist’s term for this kind of situation) are a dark continent as far as Roxon is concerned; and if Julia Gillard’s former economic adviser, Stephen Koukoulas, took that course, his criticisms of this paper’s analysis suggest he slept through it.
And before plain packaging there was the alcopops tax. It did reduce consumption: but at the expense of an offsetting switch to beer and spirits.
To make matters worse, the tax may have led young people to cut back on small scale alcopops purchases, instead saving up for more harmful binges.
It would be unfair, however, to blame Roxon alone. In both cases, she was merely taking her cues from Kevin Rudd and Gillard in completely ignoring the need for proper cost-benefit assessment.
Little wonder the results are enough to make you take up drinking to Olympic levels. And while you’re at it, why not have a plain packaged cigarette as well?