Global Policy Forum

By Gordon Fairclough

Diplomats from more than 150 countries will gather in Geneva later this month to draft a treaty designed to curb cigarette smoking world-wide. The public-health rationale for such an accord seems clear. Four million people will die this year from lung cancer and other smoking-related diseases, according to the World Health Organization. By 2030, the agency predicts, the annual loss of life will more than double, making cigarettes the leading cause of premature death around the globe, outstripping malaria, AIDS and other scourges.

But getting countries to sign a tough treaty could be a hard sell, says the story. Tobacco is a big money spinner for national treasuries, which stuff their coffers with excise taxes and duties on cigarettes and corporate-income tax paid by manufacturers. And many politicians around the world fear that less smoking will mean lower revenues, lost jobs and economic dislocation - all notions that tobacco-industry lobbyists have tried to reinforce.

Some countries make more money from a pack of smokes than do the tobacco companies. More than 70 percent of the average retail price of Marlboro cigarettes in the EU goes into governments' pockets. In Brazil, the government's take is about 65 percent. Tobacco taxes accounted for about six percent of federal-government tax revenue in Germany last year. For the roughly two dozen governments that still manufacture cigarettes, dependence on tobacco revenue can be even higher. China, whose government is the world's largest cigarette maker, derives about 13 percent of its annual income from tobacco sales and taxes.

All that can make governments reluctant to take aggressive action against smoking. Economists at the World Bank and the WHO, which is leading the charge for the Framework Convention on Tobacco Control, however, say governments' fears are overblown. Less smoking, they say, will bring unprecedented health benefits without busting budgets or harming economies. "Tobacco control is not going to kill the economy. That's a myth," says WHO economist Emmanuel Guindon. In fact, two recent World Bank studies conclude that the main anti-smoking remedy pushed by the WHO, higher excise taxes, would boost government revenue from tobacco.

Because smokers are hooked on cigarettes, they are less responsive to price increases than consumers of many other goods. That means that in the short to medium term, tax revenue would increase as consumption declines. In developing countries, where people have less disposable income than in the industrialized world, the World Bank estimates that a 10 percent price increase would reduce consumption by about eight percent on average.

World-wide, the public-health benefits of tax increases would be significant, the World Bank says. A recent Bank report estimates a sustained 10 percent increase in the real price of cigarettes around the globe would prompt 40 million people to quit and deter many others from starting to smoke, saving about 10 million lives while, at the same time, boosting government revenue by an average of seven percent. The effect on government budgets over the long term, however, could be different. The Bank figures tax increases will have twice as great an impact on demand in the long run as in the short run. And other measures advocated by the WHO, such as more effective warning labels, health-education campaigns and smoking bans, also will cut into governments' tax take.

What about jobs? Tens of thousands of people work in factories that make cigarettes, and millions more are employed growing, harvesting and processing tobacco leaf. But the World Bank says: "The negative effects of tobacco control on employment have been greatly overstated." For the vast majority of countries, the tobacco business amounts to only a small part of national economic output. And money not spent on tobacco would be spent on other goods and services, generating more jobs in other industries. In Bangladesh, formal-sector employment would rise 18 percent if people stopped spending money on cigarettes, the Bank estimates.

The Bank concedes that agrarian countries heavily dependent on tobacco-leaf exports could be hard hit. Zimbabwe says the tobacco-control treaty being pushed by the WHO presents "a serious economic and social threat to the future" of the country, where tobacco is a leading export and a major source of foreign exchange. "Even under the most optimistic scenario," says Prabhat Jha of the WHO's economic advisory service, any drop in smoking rates is likely to be gradual, giving countries time to diversify their economies. There are 1.1 billion smokers in the world. Just keeping that number from rising, Jha says, would be a big victory.

GPF Note: Find the World Bank Report "Curbing the Epidemic: Governments and the Economic of Tobacco Control" here.

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