Noonan: No gain from further tobacco price rise

Hiking the price of a packet of cigarettes will produce no financial gain for the exchequer, Finance Minister Michael Noonan claimed.

He said yesterday he believes many people will quit or switch to products purchased through the black market or from abroad.

Mr Noonan was responding to a question about the gain to the State from increasing the excise on a pack of 20 cigarettes by between 10c and 60c.

He said a 10c price increase would result in a potential yield to the State of €16m and that would rise to €92m if the price increase was 60c.

However, he advised that the estimates were based on an assumption of no change in the behaviour of smokers following the increases.

“I am informed by the Revenue Commissioners that economic research conducted by Revenue has shown that further cigarette price increases, particularly at the higher end of the range, are unlikely to increase excise receipts from the sale of cigarettes,” said Mr Noonan.

“In economic terms, the demand for Irish duty-paid cigarettes has moved to become much more elastic in nature. This implies an increase in price will lead to a proportionately larger decrease in consumption of Irish duty paid cigarettes resulting in an overall decrease in cigarette excise receipts.”

Mr Noonan said that was due to a number of factors.

“Some people will reduce their smoking levels, others will simply substitute their consumption to non-Irish duty paid cigarettes. These can be either illicit or legally brought into the country,” said Mr Noonan.

He said Revenue and the National Tobacco Control Office of the HSE carry out annual surveys of the extent of the illicit cigarette market in Ireland.

While the analysis of the results of the 2013 survey have not been fully finalised, he said preliminary analysis indicated 11% of cigarettes consumed here last year were illicit and a further 5% were non-Irish duty paid but which were legally brought into the country.

“The comparable figures for 2012 and 2011 were 13% and 14% respectively with the legally imported non-Irish duty paid cigarettes at 6% and 7%,” said Mr Noonan.

Ahead of the budget last year, Health Minister James Reilly said he wanted the cost of tobacco to be raised in every budget over the lifetime of the Government.

He has an oft-stated aim of making Ireland a smoking-free country by 2025 which would mean cutting tobacco consumption levels from 21.5% to less than 5%.