The Press publishes this very useful article from Eric Crampton:
You could be forgiven for thinking that the health system could save $1.9 billion if tobacco had never existed. That’s what the Ministry of Health says smoking costs the public health system.
But, you’d be wrong.
The ministry’s latest estimate of the cost of smoking has nothing to do with the costs that smokers impose on taxpayers or the costs that could be avoided if smoking were to disappear.
Rather, it’s a politically convenient number whose promotion has much to do with gaining voter support for anti-tobacco initiatives and nothing to do with real economic costs.
I was pretty surprised when this figure started being cited earlier this year. It was much higher than the previous estimate of $350 million dollars – a figure produced not by the Big Tobacco lobby but rather by Des O’Dea in a report commissioned by anti-tobacco crusaders Action on Smoking and Health.
So the costs have gone from $350, to $1.9b – how did they achieve this?
After sorting the population by age, gender, income, ethnicity and smoking status, they then compared the costs of providing health services to smokers as compared to nonsmokers for each group.
The excess costs of the smoking group were tallied up to produce the $1.9b figure.
So what’s the problem?
It’s easiest to think of smoking as bringing forward a whole lot of end-of-life costs.
Smokers die earlier than nonsmokers.
We know that.
And the costs to the health budget of somebody who is dying are rather higher than the costs of somebody who is healthy.
But everybody dies sometime and most of us will incur end-of-life costs that will be paid for by the public health system.
Suppose that a smoker will die at age 65 and a nonsmoker will die at 75. Comparing 65-year-old smokers to 65-year-old nonsmokers and calling the difference the cost of smoking then rather biases upwards the measured costs of smoking.
We ought to be comparing the health costs of a smoker dying at age 65 with the health costs of a nonsmoker dying at age 75.
Yes. This is what I assumed was done. But obviously it did not produce a big enough figure.
The figures assume that in the absence of smoking, smokers would never have imposed end-of-life costs on the health system. But for their smoking, all smokers in this scenario would have died of a sudden, and cheap, heart attack and would only have had average health costs up to that point. That’s clearly nonsense, but the $1.9b figure only makes sense if it’s true.
So the $1.9b is a useless figure. Sadly I doubt it will stop people citing it.
If smoking disappeared tomorrow, your taxes would have to go up to make up the difference. Thank the next smoker you meet for helping to keep your taxes down.
And be as sceptical of numbers coming from the Ministry of Health as you would be of numbers produced by the tobacco industry. Neither is a disinterested party.
Indeed.Tags: Eric Crampton, smoking, tobacco excise tax