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Tobacco related diseases cut short the lives of 100 million people last century, a number expected to surge to 1 billion this century, according to CGD senior fellow Bill Savedoff. Tobacco use has the makings of a staggering epidemic, one taking an increasing toll on low- and middle-income countries. Bill and I discuss the health costs imposed on those countries and tax policies for curbing tobacco usage.
This week, Mayor Michael Bloomberg and former Treasury Secretary Lawrence Summers announced a new Task Force on Fiscal Policy for Health. This is not a task force about economic health but about human health. In particular, it is focused on preventing cancers, diabetes, and cardiovascular diseases, and on saving lives, by considering how taxes can effectively discourage major risk behaviors, namely smoking tobacco and consuming excessive amounts of alcohol and sugar. This is the first time such a high-level group of respected economic and fiscal policy opinion leaders has convened on this issue, creating an opportunity to acknowledge the importance of taxes for promoting health and to take action to save lives.
There is something fitting about discussing death and taxes in the same venue. After all, Benjamin Franklin put the two together in his famous quip that “there is nothing certain, but death and taxes.” Would he have been surprised to learn they are related? That is, in some cases, taxes can actually postpone death?
Even Adam Smith wrote that “Sugar, rum, and tobacco are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.”
But most economists today—and especially those involved in fiscal policy—are skeptical of tax policies that single out particular commodities for special treatment. Such skepticism is useful for avoiding unnecessary distortions in tax policies, but this skepticism becomes an obstacle when it leads us to ignore cases for which taxes can effectively solve a large-scale problem in distorted markets.
That’s where this Task Force comes in. While it includes world leaders in public health, most of the members are leading economists, finance ministers, and politicians from outside the world of public health who are open to considering how excise taxes can be a sensible part of fiscal policies. Masood Ahmed, CGD’s president and a former director at the IMF, will be in the Task Force which also includes Ngozi Ikonjo-Iweala (former Nigerian Finance Minister), Minouche Shafik (head of the London School of Economics), Nicola Sturgeon (First Minister of Scotland) and Mauricio Cardenas (Colombia’s Finance Minister), among other prominent intellectual and political leaders.
During the year, Task Force members will hear about extensive research showing that tobacco taxes are extremely cost-effective at reducing smoking and tackling the 7 million premature deaths attributable to this epidemic. They’ll hear the evidence, which is also strong, on how taxes affect alcohol consumption and its associated annual death toll of 3.3 million. And they’ll weigh new research from studies assessing the potential effectiveness of taxing sugar in relation to the growing numbers of people affected by diabetes and cardiovascular disease. When they’re done, they will have solid proposals to bring to their peers at governments around the world on using taxes to improve health while raising revenues.
I’m pleased to have participated in discussions leading to the formation of this Task Force and to be part of the team supporting their deliberations. I enter this process hopeful that the Task Force will be able to open minds around the world regarding the economic rationales behind taxing harmful products and making fiscal policies an effective instrument for a better world. Finance Ministers may not realize it yet, but the strongest tools for saving lives are actually in their hands.
CGD's experts across a range of issues will also be paying close attention the Annual Meetings.
Here's what they'll be watching:
Will the World Bank’s capital increase campaign be a success? Scott Morris has been keeping an eye on the World Bank’s campaign for a capital increase, but the United States has policy concerns about increased lending at the Bank, with specific skepticism about the Bank’s continued lending to large emerging market countries, like China.
Will the world take action on Myanmar and the Rohingya refugee crisis? Cindy Huang is calling for an international package for Bangladesh – similar to the Jordan Compact that is helping to address the Syrian refugee crisis. She says that for this package to succeed it must include assistance for the 800,000-plus Rohingya refugees now in Bangladesh, as well as provide robust support to the communities hosting refugees. It also must go beyond aid, including components like reducing trade barriers and facilitating private investment in Bangladesh.
Scott Morris is also watching this issue closely. The Bank has provided $2 billion in assistance to the government of Myanmar since 2010, and now a top United Nations official has said the Myanmar regime is perpetrating a “textbook case of ethnic cleansing.” Morris is raising important questions, including “how much certainty does the bank have that its projects are safeguarded against abuses in Myanmar today, that no projects are enabling discriminatory treatment toward the Rohingya population?” and "is the World Bank and major donors willing to use all the tools in their toolset to address the crisis, including sanctions?"
What will the World Bank’s new strong stance on the tobacco tax mean for developing nations? There are about 6 million premature deaths each year from the tobacco epidemic, and that number continues to rise. Two-thirds of those deaths are in developing countries. That's why Bill Savedoff has been working for many years to get the World Bank and the international community to support a tobacco tax. The World Bank is the only international organization of its scale that regularly works with Finance Ministries and has a mandate to improve health worldwide.
This week, the Bank published a new report that shows how tobacco taxes could have a major impact on global health (summary here). It states strongly: “There is a policy measure that can simultaneously save millions of lives, reduce poverty, and increase countries’ domestic resources for financing development. The policy measure consists of increasing excise tax rates on tobacco in order to reduce its affordability and, as evidence shows, lower its consumption... The report sets forth the public health, economic, and anti-poverty case for higher tobacco taxes; shows how some countries have already delivered ambitious reforms; and documents measurable results. It shows that, by implementing tobacco tax reforms now, policy makers can choose a fast road to healthier, more prosperous societies.”
At the Annual Meetings, Bill and I will be participating in discussions of this strategy to combat the tobacco epidemic and save lives with World Bank President Jim Yong Kim, Mayor Michael Bloomberg, and other high-level officials from across the globe.
Stay tuned to @CGDev on Twitter and sign up for our email updates to stay informed about what happens at the Annual Meetings.
Your Excellency, Finance Minister
Director of Policy & International Affairs
October 10, 2017
World Bank Annual Meeting Tobacco Tax Event
This Wednesday, you will be attending an event on tobacco taxes at the World Bank’s annual meetings, where President Jim Kim and Mayor Michael Bloomberg will be speaking. You will be attending this high-level discussion along with about 14 other Finance Ministers. While the meeting may look routine, it is actually one of the most important you will attend this week. You will be discussing how the Finance Ministry can save more lives than the Minister of Health—by raising tobacco taxes in a way that best discourages smoking.
Documentation shows that raising tobacco taxes has always led to reduced smoking and higher revenues. However, you may recall that the last time our Ministry debated this issue, the tobacco industry lobbied you to raise taxes slowly, to be cautious about the impact on evasion, and not to penalize the poor.
The report published by the World Bank last week—Tobacco Tax Reform: At the Crossroads of Health and Development—explains why the cigarette company advice we received made our tobacco taxes ineffective at reducing smoking. Indeed, the IMF’s guidelines on this topic left us with a great deal of uncertainty about what to do. By contrast, the World Bank report is forthright in explaining how to make tobacco taxes effective by designing them to alter smoking behavior and discourage young people from starting. What we need is to “go big, go fast” (implement large increases in tobacco taxes), “attack affordability” (raise taxes with inflation, or better yet, incomes), “change expectations” (make a long-term commitment), and “tax by quantity” (for simpler administration and more effective behavior change).
The report also provides us with answers to the tobacco lobby’s deceptions next time they show up:
The poorest people in our country are the ones who suffer most from the effects of smoking—reducing their life spans and household income. They are more likely than the rich to reduce cigarette consumption when faced with these taxes, and therefore more likely to benefit.
Cigarette companies have colluded to smuggle and evade taxes in Canada and elsewhere. When we raise tobacco taxes, the World Bank report explains how we can manage the risk of illicit trade and evasion. A key part of this will be monitoring the cigarette companies closely because large-scale smuggling is difficult without their complicity.
When you meet President Jim Kim, I suggest asking him the following questions.
Will the World Bank:
make tobacco taxes a regular part of the annual fiscal policy dialogue with member countries who have signed the Framework Convention on Tobacco Control?
promote regional action to improve tax enforcement?
provide backing to resist pressure from the tobacco industry?
include increased tobacco tax implementation in our next fiscal policy loan?
It is rare for our Ministry to have an opportunity to have such a big win on population health and still raise revenues. Now that the World Bank has come out with such clear and forceful advice, it will prove much easier to do.
Philip Morris International and other cigarette manufacturers are among the most profitable firms in the world, selling the world’s most lethal legal product. They prominently advertise their commitment to corporate social responsibility on everything from child labor to renewable energy. They’ve even conceded that smoking is dangerous and say they are committed to a smoke-free world. But none of these initiatives make up for breaching their most fundamental corporate social responsibility—one defined quite cogently by free-market-advocate Milton Friedman—to pursue their profits “without deception and fraud.”
A trove of internal tobacco company documents, going back to the 1950s, showed that cigarette company executives knew smoking was addictive and caused serious harms even as they lied under oath before the US Congress. After such an exposé, public shame should have been enough to modify their behavior even if they hadn’t been subject to costly settlements. But disclosures of unethical opposition to public health kept (and keep) coming.
In the 1990s, cigarette manufacturers secretly encouraged smuggling and had the audacity to use evidence of that smuggling as an argument to reduce tobacco taxes. Eventually, Imperial Tobacco settled with the Canadian government for $582 million and Rothmans settled for $534 million. Canada wasn’t alone. The United Kingdom and the European Union also had to investigate and negotiate settlements with tobacco companies for complicity in smuggling.
In 2011, when Australia decided to legislate plain packaging of cigarettes to reduce the appeal of smoking, Philip Morris opposed the policy through normal domestic policy procedures. It even appealed to the Supreme Court and lost. But rather than accept the public process, PMI paid legal fees for Ukraine, Honduras, the Dominican Republic, Cuba, and Indonesia to contest the policy at the World Trade Organization (WTO). Then it arranged to sell its Australian subsidiary to its Hong Kong operations, allowing it to sue Australia under a recently negotiated trade pact. Completely legal, but imposing an unethical burden on the public sector to try to protect public health.
This spring, Imperial Tobacco submitted comments to the Canadian Parliament arguing against a bill to introduce plain packaging. In the tradition of adversarial legal process, Imperial Tobacco marshals numerous arguments questioning process and evidence, raising doubts and pleading that legal companies are being made victims of tobacco control extremists. It directly attacks the plain packaging policy itself by stating “[t]here is no compelling evidence … to support making Canadian cigarettes all look alike.” They cite a 2014 research paper but neglect to mention: subsequent research, which shows that smoking prevalence declined more sharply after the policy than before; a review by the Australian government concluding that the policy was effective; or the Economics of Tobacco Control (pp. 296ff) which came out last fall. Most importantly, they never entertain the notion that in a context of uncertainty, the possibility of saving lives might justify an experiment that limits their business opportunities.
Perhaps the most significant social commitments publicly made by cigarette manufacturers is to avoid marketing to young people. Yet, today, Indian officials are struggling to force Philip Morris to comply with domestic laws prohibiting advertising to youths. Such efforts are described in internal company memos as aimed at “winning the hearts and minds” of people between the ages of 18 and 24. Other documents show that cigarette company support anti-smoking campaigns among youth in order to burnish their images and create favorable associations between smoking and maturity. The companies view these campaigns as successful without any evidence that they dissuade young people from starting to smoke.
Even a strong proponent of free-enterprise like Milton Friedman recognized limits to what businesses can do in pursuit of profit. In Capitalism and Freedom, he wrote:
There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. [emphasis added]