Big Tobacco’s doubtful claim high taxes encourage cigarette smuggling finds support on Alberta’s Wildrose benches

Posted on November 20, 2015, 2:39 am
7 mins

PHOTOS: Young cigarette smokers in 1910. The tobacco industry and its friends on the Opposition benches think high tobacco taxes are a problem. Below: Wildrose Party Finance Critic Derek Fildebrandt, an advocate of this view; NDP Finance Minister Joe Ceci, whose Bill 4 will enable higher taxes on tobacco.

It looks as if Wildrose Finance Critic Derek Fildebrandt has been studying the Imperial Tobacco playbook for arguments against the Alberta NDP Government’s plan to increase taxes on the noxious weed.

Back in September, reported that a firm engaged by Imperial Tobacco Canada Ltd. of Montreal had registered to lobby a lone Alberta politician – none other than Mr. Fildebrandt himself – “to discuss Canada’s illegal tobacco crisis and its spread to Alberta.”

FildebrandtToronto-based lobbyist Temple Scott Associates named senior consultant Robert Elliott in its Aug. 4 filing with the Alberta Lobbyist Registry as the person who would meet with Mr. Fildebrandt, and only with the Strathmore-Brooks MLA.

In debate this week in the Legislature after Finance Minister Joe Ceci’s introduction of Bill 4, which contains various tax measures including amendments to the province’s Tobacco Tax Act, Mr. Fildebrandt soon trotted out one of Imperial Tobacco’s favourite arguments against higher tax on smokes.

“Every member of this House recognizes that higher tobacco taxes can discourage tobacco use, which is an important social good, and we can use tobacco taxes to pay for the accompanying health care costs that come with tobacco use,” Mr. Fildebrandt conceded. “However,” he soon went on, “that does come to a limit.” (Emphasis added.)

“We can see what’s happening in Ontario and Quebec right now, where contraband tobacco makes up between 33 per cent and 50 per cent of all tobacco sales in those provinces largely because high tobacco taxes have gotten to such a level that they incentivize a massive black market,” he explained. (Emphasis again added.)

CeciErgo, the Wildrose Opposition’s finance critic concluded, “raising tobacco taxes beyond a particular point could in fact reduce the revenue the government intends to collect from tobacco taxes.” After that, he handed the file off to Wes Taylor, the Wildrose MLA for Battle River-Wainwright, to make similar points.

To be fair, this line of argument is not new to Mr. Fildebrandt. Back in 2012 when he was Alberta spokesperson for the secretive Canadian Taxpayers Federation, a pro-business lobby group that purports to represent ordinary taxpayers, he wrote a paper on tobacco taxes that made many of the same tobacco industry arguments.

It should be obvious why the tobacco industry would like to keep taxes on its products as low as possible, however, and it’s not to discourage smuggling. The claim that tax increases contribute to a rise in smuggling of untaxed cigarettes is not unusual in this context. The trouble is, it doesn’t hold up under scrutiny.

Moreover, independent tobacco experts believe the industry claim up to 50 per cent of the market for the still-legal weed in Quebec and Ontario is in fact a significant exaggeration.

A 2015 study by the Ontario Tobacco Research Unit, which is funded by the Ontario Ministry of Health and Long-Term Care, dismisses the argument tobacco taxes contribute to contraband smuggling as a “myth.”

And the OTRU study shows RCMP seizure data indicates there has been a significant decline in contraband tobacco in Canada between 2008 and 2012. Smuggling rates in Quebec fell from 30 per cent in 2009 to 15 per cent in 2014, and sales in Ontario of all contraband tobacco products fell from just over 31 per cent in 2008 to just over 18 per cent in 2012.

According to estimates from other sources, contraband tobacco today accounts for less than 2 per cent of legal tobacco sales in Alberta, which has effective laws in this area, making a rise in smuggling here unlikely.

The OTRU report also quoted a European study that indicated that “the correlation between high prices and high levels of smuggling does not exist.” Norway, Sweden, Denmark and the U.K., which have among the highest cigarette prices in Europe, do not have a particularly severe tobacco smuggling problem.

And it also noted that Ontario and Quebec have the lowest tobacco taxes among all provinces in Canada, yet the number of consumers of contraband tobacco is the largest in those provinces – a fact conveniently overlooked by Mr. Fildebrandt in his remarks to the Legislature.

Interestingly, the OTRU study also harshly criticized a report by the market-fundamentalist Fraser Institute that is often quoted by Big Tobacco and its supporters.

OTRU said the Fraser Institute’s conclusion – which is similar to the claims of Imperial Tobacco, the CTF and Mr. Fildebrandt – “is not supported by the evidence cited in the report and missed substantial evidence from the literature.” Reaching conclusions unsupported by evidence presented is a common criticism of the Fraser Institute’s modus operandi.

In other words – notwithstanding whomever Mr. Fildebrandt talks to now or what he’s written in the past – empirical evidence in which we can have confidence suggests the Wildrose Party’s arguments against higher taxes on tobacco are just so much smoke in the wind.

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11 Comments to: Big Tobacco’s doubtful claim high taxes encourage cigarette smuggling finds support on Alberta’s Wildrose benches

  1. Steve Cumming

    November 20th, 2015

    Not to detract from your main point, Mr. Climenhaga, but some of your numbers seem off:

    “Smuggling rates in Quebec fell from 30 per cent in 2009 to 15 per cent in 2014, and sales in Ontario of all contraband tobacco products fell from just over 31 per cent in 2008 to just over 18 per cent in 2012.

    Nationwide, contraband tobacco today accounts for less than 2 per cent of legal tobacco sales in Canada, and Alberta has effective laws in this area, making a rise in smuggling here unlikely.”

    Given that relative size of the total populations of Ontario and Québec, it seems impossible that contraband rates of 15% or so in those two provinces could result in a national rate of 2%.

    The Canadian Taxpayers Federation and the Fraser Institute are agents of influence of a foreign power, or of factions therein, intent upon subversion of the realm. They should be exterminated.

    • David Climenhaga

      November 20th, 2015

      I will revise this slightly to reflect my error in saying Canada when I should have said Alberta. Thank you for pointing this out – as you know, I rely on my readers to be my editors.

  2. Martin d'Entremont

    November 20th, 2015

    Cough, hack, … thanks for having my back Derek, cough, hack.

  3. anon

    November 20th, 2015

    The Cdn $ has fallen by almost 30% relative to the US $ in the last couple of years This makes purchasing cigs in the US more expensive, so smuggling is less viable. It also means we can raise tobacco taxes even more with little incentive for smuggling to increase.

  4. jerrymacgp

    November 20th, 2015

    There’s a certain inconsistency, or maybe cognitive dissonance, at work here. Small-‘c’ conservatives like the Wildrosers are supposed to be hard-core, hang-’em-high, throw-away-the-key law & order types. Tobacco smugglers, and their customers, are lawbreakers. Why don’t the ‘Rosers insist on increasing enforcement of laws against tobacco smuggling, perhaps using some of those increased tobacco taxes to pay for it, and on harsher sentences for those that are caught & convicted? That at least would be consistent with their messaging in other areas of the law.

    In addition, higher taxes on tobacco, the only legal product on the market that is hazardous when used exactly as intended by the manufacturer, are congruent with the Right’s “user-pay” philosophy… those that use the product pay for the social costs it creates.

    Maybe logical thinking is an exclusively lefty phenomenon… I’m just sayin’ … 🙂

    • Linda Marshall

      November 21st, 2015

      You silly – conservatives are only interested in being tough about the laws they don’t themselves break.

      Kinda like the way so many defenders of “traditional” marriage are themselves divorced. Known down south as ItDoesn’tCountIfYouAreARepublican.

  5. Curious George

    November 20th, 2015

    It is my sincere hope that Mr. Fildebrandt keeps on talking as I am left in awe with the superior and free advertising that he provides for the current government (and also a sincere thank you to Mr. Jean for for his ongoing support in this matter).

  6. political ranger

    November 21st, 2015

    Good piece David. One small niggling objection though, to an otherwise well-crafted argument.
    You say “… Alberta, which has effective laws …”. There is just no evidence for this David, none. Furthermore, to the extent that any such law has a potential to effectively curtail some law-breaking activity, Alberta does not enforce any such laws, and never has had any intention to do so.
    It will be interesting to see what the Notley crew does about law making; it’s fair to say that we do expect some ‘effective’ regulation on a whole suite of issues. However intelligent and progressive any such laws and regulations are, that in itself is such a novel and untested policy in these here parts, they will still have to be enforced.
    Unless Notley et al brings in some ‘outside’ help, like she had to do to get trusted and competent senior bureaucrats, her Ministers are going to have to rely on the same good ol’ boys and girls Klien and his mob put in place. And they are not pre-disposed to enforcing anything, let alone a regulation they don’t understand, or if they do, believe in.

    • pogo

      November 22nd, 2015

      So you’re saying that Albertans (home of the libertarian right wing of the big bird that is Canada) just decided that it would be fine to ban smoking everywhere, and they went along with that without effective legal penalties? Hey, maybe so. But everywhere I’ve been, the restaurant and hospitality industry has pushed back in very serious ways, along with the tobacco companies.
      The fact that “hordes” like Derek Fildebrandt still cash cheques from what should be a moribund industry, is another marvel of libertarian capitalist freedom!
      Bring us more champions of death to lead us to the good life!

  7. November 21st, 2015

    Consider the source:

    The last time ‘Big Tobacco’ complained about smugglers it turned out to be big tobacco doing all the smuggling.


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