The 50c tax increase on cigarettes will not generate €60 million in extra revenue unless there is a clampdown on the sale of illegal tobacco, a public health charity and cigarette manufacturers have warned.
While tobacco companies and anti-smoking groups differed on the merits of the price hike, they both agreed that tackling the black market sale of cheap cigarettes should be a priority for the government.
Michael Noonan, the finance minister, said increasing the cost of a packet of 20 cigarettes to €10.50 should realise €61.4 million next year. He said the money would be used to support new initiatives in the health sector to support young families with children.
Action on Smoking Health (ASH) Ireland said the failure to prevent easy access to cut-price tobacco could negate the measure’s positive effect on public health.
Dr Ross Morgan, the chairman of ASH Ireland, welcomed the increase but said that easily accessible untaxed cigarettes encouraged more people to smoke.
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“Smuggling of tobacco into this country is a major issue for the government. However, we must also be wary of tobacco industry efforts to use smuggling as a reason for not introducing effective measures which can improve the nation’s health. Smuggling increases consumption and addiction and therefore is of longterm benefit to the tobacco industry,” Dr Morgan said.
“There are many examples of jurisdictions where tobacco price has been increased for health reasons and smuggling simultaneously tackled and reduced such as Australia, New Zealand and Spain,” he added.
A statement from the Irish tobacco manufacturers advisory committee said the budget increase “serves to indicate the reliance that the government has on the tobacco industry as a major source of tax revenue”.
“It shows the extent to which it is prepared to risk driving smokers away from the legitimate market and into the hands of criminals who control the illicit trade,” it added.
Igor Dzaja, the general manager of the Japanese Tobacco Group in Ireland, which controls brands such as Silk Cut, Benson & Hedges and Camel, said that the government is unlikely to take in all of the projected €61.4 million.
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“We know that steep excise increases such as this stimulate the illegal trade. Yet every year we see the government being pushed to introduce these policies without any assessment of their impact and negative consequences. These excessive annual tax hikes continue to create fertile ground for the black market, so rather than raising revenues it is playing into the hands of criminal smugglers,” he said.
Mr Dzaja argued that the seizure of 14 million cigarettes during 15 revenue operations in the last two months showed that smuggling is still a problem in Ireland.
Caoimhghín Ó Caoláin, the health spokesman for Sinn Fein, said that he agreed in principle with an increase in cigarette prices, but only if it is coupled with measures to tackle smuggling.
“The increase might or might not dissuade people from smoking but it will definitely increase sales for criminal gangs. If we want to generate revenue from cigarettes the government should engage the offices they have at their disposal to tackle illicit trade,” Mr Ó Caoláin said.
During the debate on the measure, Joe Higgins, the Socialist party TD, quoted Mr Noonan’s past doubts about the effects of rising prices on consumption.
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Mr Higgins used a quote of Mr Noonan’s from a debate on the 2013 budget to accuse the government of hypocrisy: “I am not sure about the statistic that every €1 increase in the price of a packet of cigarettes reduces smoking. It is possible that what appears to be a reduction in consumption is simply a transfer of consumption to smuggled cigarettes.”
Euromonitor, which provides data on different markets, said one in five cigarettes in the country last year were untaxed.