The State of Tobacco Policy in Canada: The Case of Plain Packaging

In Canada, tobacco is one of the most regulated and controlled industries, and smoking, because it is hazardous to one’s health, is one of the most heavily regulated behaviours. It thus provides a good example of how far risky behaviour is being regulated and taxed in Canada. The case of tobacco may also hint at how government might next regulate and tax other industries like alcohol, fast food, and sugary beverages.

Media release: Plain packaging: Inconclusive evidence suggests Canada should wait
 

Links of interest

Où tracer la ligne d’un «choix de société» qui va trop loin? (The MEI's Journal de Montréal blog, September 29, 2016) Is plain packaging the best option to lower smoking rates? (The Globe and Mail, October 10, 2016)	Interview (in French) with Youri Chassin (Martineau-Trudeau,  CHOI-FM, September 29, 2016)	Interview with Youri Chassin (CTV News Montreal, September 1st, 2016)

The State of Tobacco Policy in Canada: The Case of Plain Packaging

Executive Summary

In Canada, tobacco is one of the most regulated and controlled industries, and smoking, because it is hazardous to one’s health, is one of the most heavily regulated behaviours. It thus provides a good example of how far risky behaviour is being regulated and taxed in Canada. The case of tobacco may also hint at how government might next regulate and tax other industries like alcohol, fast food, and sugary beverages.

Chapter 1 – The History and Current State of Tobacco Policy in Canada

• Canada is among the countries in the world where smoking prevalence is the lowest. In 2013, 14.6% of Canadians aged 15 and over were smokers.
• Overall Canadian smoking prevalence has declined from 49.5% in 1965 to 14.6% in 2013.
• In 1999, the prevalence among 15- to 19-year-olds was 28.3%. In 2013, this prevalence had fallen to 10.7%, of which just under half smoked daily.
• Most estimates of the share of the illegal market in total Canadian tobacco consumption for 2010 seem to cluster between 15% and 20%.
• The high level of tobacco taxes is generally recognized as a main cause of the high level of tobacco contraband in Canada.
• The proportion of tobacco taxes in retail price varies between 54% and 70% in Canadian provinces, and total federal and provincial tobacco tax revenues amounted to approximately $8.2 billion in fiscal year 2015.
• Tobacco tax rate increases can generate lower increases (or even decreases) in tax revenues when the tax base shrinks too much in reaction to the increased tax rate.
• Provincial governments have prohibited smoking in virtually all workplaces, and in venues open to the public. Packaging is also strictly controlled, including graphic health warnings covering 75% of packs.

Chapter 2 – Plain Packaging: A Debate about Facts and Values

In practice, cigarettes have all but completely disappeared from the public view with display bans. Nevertheless, the current federal government is contemplating the imposition of plain packaging, which consists of making packs as unattractive as possible: nondescript colour, same size and shape, and no distinctive brand colours, logos, or other design elements.

2.1 Does Plain Packaging Work?

• The government of Australia implemented plain packaging on December 1st, 2012. The same requirement was adopted in the United Kingdom and France in May 2016.
• On February 26, 2016, the Australian government published a Post-Implementation Review (PIR) that contains the most up-to-date analysis available and shows, to a point, that plain packaging has a positive impact in reducing smoking rates, but many qualifications still remain.
• The main difficulty is that the respective impact of plain packaging and new health warnings are impossible to disentangle from one another.

2.2 Overview of the Debate on the Impact of Plain Packaging

• An overview of the ongoing debate about plain packaging impact, full of nuances and methodological disputes, shows the gap that exists between the answers science can give and the certainty politicians seek.
• The effect of plain packaging combined with new and enhanced graphic health warnings is likely to be a statistically significant decline in smoking rates.
• From existing literature on its mechanisms, plain packaging is more likely than not to have caused a decline in smoking rate in Australia after its implementation in 2012.
• The best estimate of the amplitude of the impact from the two packaging measures is a reduction of 0.55 percentage points.
• Higher taxes are most probably more effective than plain packaging, if adequately enforced.
• There are some dissenting voices regarding the direction of the impact of plain packaging on smoking rates, possibly caused by downtrading. Further research is called for.

2.3 The Impact on the Illegal Trade

• The Australian experiment raises questions about its impact on illegal markets.
• The isolation of the Australian market increases the cost of smuggling.
• It is best not to pass judgment on the level of activity in tobacco illegal markets, due to the amount of uncertainty that exists.

2.4 The Moral Issues Surrounding Plain Packaging

• Plain packaging in Canada would add to an already heavy tax and regulatory burden.
• There is a danger that plain packaging will be imposed on other industries.
• From an economic viewpoint, undermining private property rights carries high social costs in terms of economic efficiency and economic growth.
• Until now, courts have rejected claims of expropriation filed by the tobacco industry.
• Plain packaging attacks the value of the brands and looks more like a fight against the tobacco industry than a public health policy.
• Other anti-tobacco measures are justified by invoking “externalities,” but plain packaging focuses on the very individual relationship between a smoker and the product he wants.
• In a free society, the rational approach to regulation should be to not infringe carelessly on personal choice and individual liberty. If the evidence is inconclusive, the normal course of action should be to refrain from legislating.

This Research Paper was prepared by Youri Chassin, Economist and Research Director at the Montreal Economic Institute.
Read the Research Paper (in PDF format only)