If Labor Wants To Tax “Bad Things” They Should Start With Pollution

Labor’s approach to tobacco excise is sound public health policy. But if the party is really going to start taxing “bad things”, it shouldn’t stop with smokes, writes Ben Eltham.

“Beer, cigs up” runs the classic newspaper headline, beloved of subeditors everywhere.

Labor’s Catherine King and Chris Bowen were making some headlines of their own today. The ALP wants smokes to cost more. The ALP has released a policy calling for a big rise in the excise on tobacco.

The tobacco hike will raise significant amounts of extra revenue. With the current rate of excise a pack of 25 cigarettes now costs about $25 and will cost around $30 in 2020. Under Labor’s proposed policy it would cost $40.80 in 2020. The windfall to the Treasury will be $3.8 billion a year for the first four years, and perhaps $47 billion across a decade.

Labor is promoting it as an alternative revenue measure to raising the GST.

The tobacco hike also signals a shift in Labor’s rhetoric on tax. In the words of Chris Bowen, the ALP wants “a tax system which focus on encouraging less of the bad things, and more of the good things.”

This certainly sounds good in the abstract. It is also consistent with Labor’s core beliefs in social democracy. Poor people do indeed smoke more than rich people. That means they tend to get sicker and die earlier. Encouraging more Australians to quit is surely a policy nearly all of us can get behind.

Labor has always harboured diverse attitudes to social vice. Labor’s first cabinet contained a number of hard-drinking radicals, such as Defence Minister Andy Dawson.

The modern ALP is much less tolerant of such vices. A public health perspective tends to dominate, which sees tobacco and alcohol as harms to be minimised.

Tobacco is a toxic and addictive drug. But for many people it is also one of life’s great pleasures. And because it is addictive they will continue to purchase it, perhaps even on the black market. Tobacco consumption is relatively inelastic even if higher taxes do lead to lower consumption over time.

In that sense, tobacco taxes are inherently regressive. Poorer smokers will feel the brunt of such tax increases most in the short term, even if the end result is less smoking.

Labor is at least honest about this. As Bowen said today on ABC radio, “it’s true that poorer people have higher rates of smoking and that’s something we want to fix, because it’s a big contributor to poorer people having lower life expectancy, they’re dying earlier.”

Indeed, you could even label the tobacco excise “courageous.” There is no doubt that the tax rise will be quite unpopular, particularly among Labor voters. The ALP is being brave in advancing a policy that will cost it support but save lives. But there is also a sense that the assault on tobacco risks cementing Labor’s image as a party of technocrats, divorced from the everyday lives of working Australians.

The policy of “encouraging less of the bad things” would be a lot easier to take seriously as a genuine reform measure if the party would announce other policies on various other “bad things”, such as sugar, gambling, greenhouse gases, and air pollution.

Take sugar. Refined sugar and its high-carb relatives such as corn starch are at least partly responsible for the explosion in obesity in Australia, an explosion that may be even more harmful on a population level than smoking. Taxing food by its sugar content, especially sugary drinks and processed food, is a move that many health experts would welcome.

Perhaps a sugar tax is on the drawing board for Labor. If so, we haven’t heard about it.

Alcohol is another “bad thing”. A report out yesterday by the Australian College of Emergency Medicine showed that an estimated one in eight of all emergency department presentations in a single week last year were alcohol-related. That equates to perhaps half a million presentations annually. Labor raised alcohol excise in office. But the ALP stopped short of genuine alcohol tax reform. Introducing a true volumetric alcohol tax and raising the excise rate could raise billions and reduce alcohol-related harm.

And then there’s gambling. Any number of studies have shown that gambling, particularly poker machines, is a vice that hits poorer punters hardest. But bruised by the devastating PR campaign from Clubs Australia during the Gillard years, Labor is going nowhere near higher gambling taxes (which, to be fair, are largely a state responsibility). Labor seems to have given up on mandatory pre-commitment, for so long a prized goal of anti-pokies campaigners.

There are quite a lot of bad things, when you think about it. They don’t get much worse than greenhouse gases, which are already rapidly warming the planet and costing Australia billions in hotter summers and lower rainfall.

We know Labor thinks greenhouse gases are harmful – the party spent most of the Rudd-Gillard years telling us. Climate change is forecast to impose crippling costs to Australia’s future economy. And by increasing the frequency and severity of heat waves, a warmer climate will kill. Older Australians too poor to afford proper home insulation or air conditioning are most at risk.

But the ALP currently has no formal policy on how to reduce carbon emissions. We think it will be an emissions trading scheme, like Kevin Rudd’s Carbon Pollution Reduction Scheme. But no details are out there. How will it work? What will it cover? What will the price of a tonne of pollution be? We don’t know, because Labor won’t tell us. Just this morning, Bill Shorten was still deflecting questions on carbon policy.

If Labor really wanted to get on with taxing bad things, carbon pollution should surely be top of the list.

Another obvious target is corporate tax dodging. Labor has unveiled some important policies in this regard, but many would argue that they don’t go far enough. Negative gearing, for instance, is a tax concession that rewards landlords for losing money on their property investments. Is that a bad thing? In a recent discussion paper the ALP-linked McKell Institute inched towards a policy to crimp negative gearing handouts.  But Labor has stopped short of a negative gearing policy.

Then again, at least Labor is trying. The Coalition of Malcolm Turnbull remains as wedded to a regressive and inequitable tax system as ever.

The Coalition also seems determined to lower corporate taxes wherever possible, and to retain the hugely unfair capital gains tax discounts that mean income from investments is often taxed at a far lower rate than income from wages.

We learned yesterday that the hundreds of private companies that the Coalition is trying to exempt from publicly reporting on their tax obligations include some of the richest families in the country – and some of the biggest Liberal Party donors.

And the Coalition has no plans to raise tobacco excise. After all, the Liberal Party is still quite happy to accept tobacco donations. $70,000 flowed in from Phillip Morris just this year. I’m not saying they’re connected, but you could say there’s a bit of a correlation.