The Newfoundland and Labrador provincial government has made great progress with their recent budget, especially with both the implementation of all-day Kindergarten and the transition of student loans to grants, which provide large net benefits for individuals who can avail of those services. However, it is also important to highlight some of the low points of the budget that have not received much attention. One such low point, which notably sticks out like a sore thumb in an otherwise sound budget, is the tax hike on cigarettes and tobacco products.
The six-cent per kilogram increase on tobacco and the three-cent per cigarette increase are both examples of “sin taxes”—that is, taxes levied on goods which society considers undesirable. In doing so, it is assumed governments wish to deter individuals from consuming these products. However, in the case of cigarettes and tobacco, such tax increases are not effective. Instead, they present negative consequences for all residents of Newfoundland and Labrador.
The most notable flaw with the implementation of sin taxes is that it is regressive, with studies showing that it hits poorer users four times harder than it does the wealthy. Combining this with the fact poorer individuals are nearly 50 per cent more likely to smoke than their wealthier counterparts, it shows that such a tax increase does more to hurt poor families than it does deter their consumption. As an inelastic, strongly addictive good, individuals are going to consume the products regardless of the price—except, in the case of the poor, they are going to lose their ability to consume other necessary goods, which could be as important as fresh fruits or vegetables for their kids.
There are also various long-term issues with increasing sin-taxes, and, as this is the second tax increase within the last year, we risk facing some of these issues. Perhaps the most severe long-term issue is the effect that sin-taxes can have on establishing a black market. As seen in the late 80s and early 90s, substantial tax increases on tobacco products led to an increased consumption of contraband tobacco products within Canada, and was not resolved until the federal government mandated many tax decreases on these products. While these increases may not have quite the same effect, we could even see similar effects on a smaller scale—such as residents of Labrador opting to cross borders to Quebec, where tobacco prices are cheaper. In both scenarios, the provincial government would be faced with decreased revenues, while failing to deter the consumption of these products as per their objective.
Ultimately, the provincial government did many rights within this budget, however, this tax increase was not one of them. The most equitable way to decrease tobacco consumption is to offer increased health care funding for tobacco cession funding. While they set aside $720,000 for this, that’s simply not enough to off-set the damage brought on by these sin taxes. The provincial government should be helping at-risk individuals quit smoking without the implementation of such a poor-punishing regressive tax.