The Costs Of Tobacco Control Policies Economics Essay

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Smoking continues to be the leading cause of preventable death worldwide. Since the health hazards of smoking are well documented, the industry of tobacco has shifted its defensive policy on economic arguments. On the other hand, it has been realised that certain economic measures are effective and efficient in tobacco control policies. In present paper, we first present and criticize the more important economic arguments that are used by the tobacco industry in order to influence national policies. Then, we attempt an economic assessment of tobacco control policies worldwide and we finally propose a set of Cost-Effective Interventions to reduce deaths and diseases caused by tobacco use in Greece.

JEL codes: I-180

Key Words: tobacco control, public policy, cost-effectiveness

1. Introduction

Tobacco is the single most preventable cause of death in the world today. This year, tobacco will kill more than five million people worldwide - more than tuberculosis, HIV/AIDS and malaria combined. Tobacco kills a third to half of all people who use it (Peto et al.,1996), on average 15 years prematurely (Peto et al., 1992), (Peto et al., 1996), ( U.S.D.H. & H.S. 2004), - more than five million people a year (Mathers, Loncar, 2006).

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By 2030, unless urgent action is taken, tobacco's annual death toll will rise to more than eight million. If current trends continue unchecked, it is estimated that around 500 million people alive today will be killed by tobacco (Levine, Kinder, 2004). During this twenty-first century, tobacco could kill up to one billion people (Peto, Lopez, 2001).

Unlike many other dangerous substances, for which the health impacts may be immediate, tobacco-related disease usually does not begin for years or decades after tobacco use starts. Because developing countries are still in the early stages of the tobacco epidemic, they have yet to experience the full impact of tobacco related disease and death already evident in wealthier countries where tobacco use has been common for much of the past century (Gilmore et al., 2004). Most tobacco users will want to quit but will be unable to because of their dependence on a highly addictive substance (U.S. CDC & Prevention).

As the epidemiological and medical evidence of the dangers of tobacco consumption has accumulated, the tobacco industry has shifted its defensive position to one based largely on economic arguments. At the same time, it has been recognised that certain economic measures are effective in tobacco control. This paper attempts to review the economics of tobacco policy worldwide and in Greece and critically evaluates the major economic arguments used by the tobacco industry to influence policymakers.

2. Smoking prevalence and tobacco control policy in Greece

More than half a million people die every year in the European Union as a direct or indirect consequence of smoking. This makes nicotine addiction the most important avoidable cause of disease and premature death in Europe as well.

Throughout most of Europe, where modern tobacco use began a century ago, rates of tobacco use by males and females have been converging for decades. Today, tobacco use rates are decreasing among European men while they are increasing among women, particularly in eastern, central and southern Europe. In the developing world, tobacco use rates for adult females remain relatively low, but could rise quickly among teenage females.

The European Region has only 15% of the world's population but nearly 33% of the worldwide burden of tobacco-related diseases (WHO, 2004). The annual number of deaths in the Region attributable to the consumption of tobacco products was recently estimated to be 1.2 million, and about 40% occur in Eur-A countries (WHO, 2002). About half the deaths affect people in middle age.

Greece has one of the highest percentages of adult tobacco use worldwide, and the highest adult percentage of current tobacco use among OECD countries (OECD, 2005).

In 2000, Greeks consumed 56% more cigarettes per person than the Eur-A average based on official statistics for production, import and export (not included is consumption of additional cigarettes available unofficially, for example, through smuggling across borders and bootlegging). The smoking prevalence is 47% for men and is increasing. For women it is 29% and also increasing (WHO, 2001).

Table 1: Smoking prevalence in Greece, 2000

Adult, 2000

Males

46,8 %

Females

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29 %

Overall

37,6 %

Another research, (Vardavas & Kafatos, 2007) calculates the overall smoking prevalence to 40 %, during the period 2002-2007.

Table 2: Smoking prevalence in E.U. countries, 2007

From newer data available, it is apparent that, during the period 2000-2006 the overall smoking prevalence in Greece has increased to 42 %, with Greeks to be considered the heaviest smokers (EU, DG SANCO, 2007).

Table 3: Number of cigarettes smoking in E.U. countries, 2006

3. Assessing Tobacco control policies in Greece

E.U. policy on tobacco tends to be covered by four broad areas: agriculture, taxation, public health and workplace health and safety. Much of the Community policy on tobacco control was initiated and developed by the Europe Against Cancer programme which began in 1987. In 1992, the Community Fund for Research and Information on Tobacco was created from a levy on the subsidies given to the growing of tobacco in the EU. From this fund, about five million euros was made available for public information projects on the dangers of smoking and a similar amount for research into developing less dangerous varieties of tobacco. (Council Regulation (EEC) 2075/92 OJ no. L 215 of 30/7/92 and Commission Implementing Regulation 2427/93 OJ no. L223 of 2/9/93)

A Council Recommendation on the prevention of smoking (COM (2002) 303) was adopted on 2 December 2002. This is a non-binding policy statement from the Council to the member states of the EU, covering issues that are not regulated at EU level, including retailing, vending machines, passive smoking, indirect advertising and disclosure of marketing budgets. It may be used for forming EU positions in international negotiations. A 2006 study of tobacco control across the EU ranked Finland as the most active country in terms of tobacco control strategies, while Germany and Greece were ranked least active and therefore lowest (Thyrian and John, 2006).

The results of another survey of tobacco control activity in 30 European countries, using the Tobacco Control Scale (TCS), were presented in 2007 (Joossens & Raw, 2006).

The TCS, which quantifies the implementation of tobacco control policies at country level, is based on six policies described by the World Bank (World Bank, 2003), which they say should be prioritised in a comprehensive tobacco control programme. The six policies are:

price increases through higher taxes on cigarettes and other tobacco products;

bans/restrictions on smoking in public and work places;

better consumer information, including public information campaigns, media coverage, and publicising research findings;

comprehensive bans on the advertising and promotion of all tobacco products, logos and brand names;

large, direct health warning labels on cigarette boxes and other tobacco products;

treatment to help dependent smokers stop, including increased access to medications.

Table 4: European countries ranked by total TCS score in 2007

The price of tobacco products in Greece, mainly cigarettes, is still relatively cheap compared with the price of cigarettes in other country members of the European Union (Joosens & Raw, 1998) and, therefore, easily accessible to adolescents, even those with limited spending power. On the other hand, taking into account the low price of cigarettes and the non-existence of any law forbidding the sale of tobacco products to minors, children are targeted by tobacco companies as they are more susceptible to tobacco advertising.

Many factors are responsible for Greece's current anti-tobacco policy failure (Huisman, Kunst, Mackenbach, 2005). Smoking is a personal habit, socially accepted and incorporated in the national culture of Greek people. Greece is also a tobacco producing country where the tobacco production in some regions is large. As shown above, with such a high smoking prevalence and with a culture and economy that supports in certain areas tobacco use, there is insufficient basis for the efficient implementation of anti-smoking policies. Tobacco policies that exist in Greece have been ineffective in combating a habit that affects the population so widely. Since tobacco-related diseases have a high health and economical cost, it is obvious that the strict enforcement of a nationwide anti-tobacco policy must be a priority on the national health agenda, if we are to ever effectively combat the high prevalence of smoking in Greece (Vardavas & Kafatos, 2007).

4. Tobacco industry's economic arguments to influence national policies

Many governments have hesitated to implement tobacco control policies because of concerns that these actions will have undesirable economic consequences. Below, we criticize some of the most popular concerns about the consequences of tobacco control for economies and for individuals, and then assess the cost-effectiveness of interventions.

4.1. Tobacco control policies and the economy

Governments will lose revenues if they increase cigarette taxes, because people will buy fewer cigarettes

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Policymakers frequently argue against raising tobacco taxes on the basis that the resulting reduction in demand will cost governments' vital revenue. We must point out here, that in Greece the 9% of total taxes are coming from cigarette taxes.

On the contrary, tax revenues can be expected to rise in the short to medium term because, although higher prices clearly reduce consumption, the demand for cigarettes is relatively inelastic. So cigarette consumption will fall, but by a smaller proportion than prices will rise. A model developed for this reason concludes that modest increases in cigarette excise taxes of 10 percent worldwide would increase tobacco tax revenues by about 7 percent overall, with the effects varying by country.

Tobacco control will result in permanent job losses for an economy

A major reason for governments' inaction over tobacco is their fear of creating unemployment. This fear comes from the probability that control measures will result in thousands of job losses across the country. It is estimated that the 10% of overall agriculture population in Greece are engaged in tobacco farming. This total includes seasonal workers, part-time workers, and family members of farmers. Additionally, 250.000 people are engaged (directly or indirectly) in the process of tobacco - cigarette production. Yet a closer inspection of the arguments, and the data on which they are based, suggests that the negative effects of tobacco control on employment have been greatly overstated. Tobacco production in Greece may brings the country in the second position among E.U. countries, but only the 35% of cigarette domestic consumption comes from the Greek production, which keeps on shrinking. In Greece, at the time being heavily dependent on tobacco farming, in the face of gradually declining demand, the graduate shifting to alternative farming and the existence of an internal market big enough to ensure their jobs for many years to come, it is almost certain that there would be little or no negative effect on total employment, and there might even be job gains if global tobacco consumption fell. As demand for tobacco products falls, jobs lost in tobacco farming, manufacturing and distribution, are offset by new jobs created in other sectors in response to changed expenditure patterns. This is because money once spent on tobacco would be spent on other goods and services, thereby generating more jobs.

Governments should not raise cigarette taxes because such increases will have a disproportionate impact on poor consumers

There is concern that, as taxes are raised, poor consumers will spend more and more of their income on cigarettes, resulting in significant family hard-ship. However, numerous studies show that people on lower incomes are more responsive to price changes than people on high incomes. As their consumption falls more steeply, their relative tax burden will fall compared with that of the richer consumer, even though their absolute payments will still be greater.

Higher tobacco taxes cause massive increases in smuggling

It has been argued that higher taxes will contribute to increased cigarette smuggling and associated criminal activity. However, econometric and other analyses of the experience of a large number of high-income countries show that, even in the face of high rates of smuggling, tax increases bring increased revenues and reduce cigarette consumption. Therefore, while smuggling is undoubtedly a serious problem, and while steep differentials in tobacco tax rates between countries are an incentive to smugglers, the appropriate response to smuggling is not to reduce tax rates or forego tax increases.

4.2. The cost-effectiveness of tobacco control interventions

The policymakers ask whether tobacco control is cost-effective relative to other health interventions. For governments considering intervention, such information may be a further important factor in deciding how to proceed.

The cost-effectiveness of different health interventions can be evaluated by estimating the expected gain in years of healthy life that each will achieve in return for the requisite public costs needed to implement that intervention. According to the World Bank (World Bank, 1993), tobacco control policies are considered cost-effective and worthy of inclusion in a minimal package of healthcare. Existing studies suggest that policy-based programs cost about $20 to $80 per discounted year of healthy life saved (one disability-adjusted life year, or DALY).

Another study (Ranson K. et al, 2002) provided conservative estimates of the global and regional effectiveness and cost-effectiveness of tobacco control policies. Using a static model of the cohort of smokers alive in 1995, they estimated the number of smoking-attributable deaths that could be averted by: (1) price increases, (2) nicotine replacement therapy (NRT), and (3) a package of non-price interventions other than NRT. Even with deliberately conservative assumptions, tax increases that would raise the real price of cigarettes by 10% worldwide would prevent between 5 and 16 million tobacco-related deaths, and could cost US$3-70 per DALY saved in low-income and middle-income regions. NRT and a package of non-price interventions other than NRT are also cost-effective in low-income and middle-income regions, at US$280-870 per DALY and US$36-710 per DALY, respectively. In high-income countries, price increases were found to have a cost-effectiveness of US $83-2771 per DALY, NRT US$750-7206 per DALY and other non-price interventions US$696-13,924 per DALY. Tobacco control policies, particularly tax increases on cigarettes, are cost-effective relative to other health interventions. The abopve estimates are subject to considerable variation in actual settings; thus, local cost-effectiveness studies are required to guide local policy.

Table 5: Range of cost-effectiveness values for price, NRT and non-price interventions (US dollars/DALY saved), by region

Table 6: Cost-effectiveness of non-price anti-tobacco interventions in high-income countries

5. Conclusions - Proposals

The best results are achieved when a comprehensive set of measures to reduce the use of tobacco are implemented together. Many countries have succeeded in reducing smoking prevalence dramatically, and consequently reduced cancers, heart disease and other circulatory diseases, respiratory diseases, and low birth weight incidence (Jha and Chaloupka, 2000).

Price increases are the most effective and cost-effective deterrent - especially for young people and others with low incomes, who must, of necessity, be highly price responsive. A price rise of 10% decreases consumption by about 8% in low- and middle-income countries. Higher taxes will generate additional government revenue. In almost all countries, as people switch expenditures from tobacco to other goods, there will not be net job losses.

Most measures to reduce supply are ineffective (prohibition, youth access restrictions, crop substitution efforts and trade restrictions). Control of smuggling is the exception, and is the key supply-side measure to pursue.

Many smokers want to quit, and could use help. Most people who quit do so without help, but nicotine addiction makes quitting very hard. Quit rates can be substantially increased through advice from health care providers, telephone "quitlines", formal and informal support-groups, and cessation therapies including nicotine-replacement (NRT). Over-the-counter (non-prescription) sales improve access to NRT. There are many potential opportunities for cessation advice and support: e.g. as part of TB treatment.

Health warnings on cigarette packages should be large (cover at least 30% of the surface area and preferably 50% or more), clear (e.g., black on white), in local languages, and have a set of specific required messages that change periodically. Information on the adverse health impact of tobacco use and the benefits of quitting should be widely disseminated.

There are only rudimentary estimates of the costs of implementing a comprehensive tobacco control program. The evidence from the high-income countries suggests that such comprehensive programs can be delivered for very small sums of money. High-income countries with very comprehensive pro-grams spend between 50c and $2.50 per capita per year on these programs. In this context, tobacco control in low-income and middle-income countries is likely to be affordable, even in countries where per capita public expenditure on health is extremely low. The World Bank's 1993 World Development Report, Investing in Health, estimated that to deliver an essential package of public health interventions that includes tobacco control, governments would need to spend $4 per capita in low-income countries and $7 in middle-income countries.

Efforts to reduce smoking face formidable obstacles: nicotine addiction; social pressures; aggressive cigarette marketing and promotion; other pressing health problems; overestimates of the economic importance of tobacco; and the vested interests of those who live and profit by cigarette sales. But there are many good success stories that could be replicated with political will, and broad support. Modest action could save millions of lives and avert much disease, including among poor people, without long-term harm to economies.

It is of course important to recognize that, if the ultimate aim of tobacco control is to benefit human health, then ideally the policymaker might wish to see tobacco consumption fall to such low levels that, eventually, tobacco tax revenues would begin to fall, too. This ultimate loss of revenue could be considered as the measure of success of tobacco control-or society's willingness to pay for the health benefits of reduced smoking. But this is a theoretical possibility rather than a probable scenario. Based on current patterns, the number of smokers is expected to grow in low-income countries over the next three decades. Equally important, governments would be free to introduce an alternative income tax or consumption tax that would replace the revenue from tobacco taxes.