Crampton on smoking costs

November 7th, 2010 at 9:53 am by David Farrar

The Press publishes this very useful article from :

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 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.

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35 Responses to “Crampton on smoking costs”

  1. Michael (915 comments) says:

    The figures also don’t take account of the Super payments not being made to prematurely dead and excise collected from smokers.

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  2. Uplander (42 comments) says:

    I just logged on to say that Michael. Bother!!!

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  3. kaya (1,360 comments) says:

    This only serves to confirm that you should take any and all statistics with a pinch of salt. Whoever produces them will skew them to argue their point of view.

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  4. freedom101 (513 comments) says:

    If smoking reduces someone’s life expectancy from 75 to 65 then the saving to the taxpayer of 10 year’s super dwarfs all other measures of costs. Smoking is probably a net gain to the taxpayer. Smokers pay tax, and die earlier. Smoking diseases are generally horrible and relatively short, compared to the more subtle degenerative and expensive pathway that ‘healthy’ humans travel down.

    So, eliminating smoking is probably a very expensive outcome for the taxpayer.

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  5. Pete George (23,864 comments) says:

    I wonder how much could be saved by not spending money on meaningless cost benefit studies. In the modern age money is important, but it should not be the overriding deciding factor for everything. In any case, 300m, 1.9b, both big numbers and equally meaningless.

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  6. Puzzled in Ekatahuna (329 comments) says:

    We’ve been through all this before – it is now even less clear and just as meaningless –

    “Aside from missing the point of preventative health, Crampton also fails to do himself justice as an economist. He argues that smokers pay more in cigarette taxes than they cost the public purse—dying of cheaper diseases and collecting less superannuation.

    What are these mysterious ‘cheap’ diseases? Is it the 1100 lung cancer cases per year in New Zealand? Lung cancer is one of the most expensive forms of cancer to treat. Include the other conditions caused by tobacco, and the estimated cost of treating all the smoking-related disease in New Zealand tops $200 million dollars. He argues that dead smokers claim less superannuation, but if they are dead, they are not contributing to it either. Neither are they contributing to the economy.

    Lost production due to morbidity and mortality caused by smoking is somewhere in the region of $280m per year. Let’s not forget the costs of smoking breaks, enforcement of legislation, costs of extra health professionals to treat smokers, and the many others costs and we are soon racking up a hit to the economy of over $1.5 billion per year! Tobacco tax generates approximately $1 billion per year. Even a ‘real economist’ like Crampton can see that this is half a billion short of what smoking is costing the economy.”
    – Ben Youdan, Ben Youdan – ASH – Journal of the New Zealand Medical Association, 26-October-2007, Vol 120 No 1264 – The real cost of smoking: ASH’s response to Eric Crampton’s editorial 2007

    Any this wiser?

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  7. Tauhei Notts (1,689 comments) says:

    My mate, a retired G.P. says that if one wants to be a real scrooge then cigarette excise duty would be abolished.
    Why?
    Smokers die much earlier. The savings in superannuation are astonishing.
    Smokers cough then cark it, shortly after an awful heart attack. Non smokers live till their eighties or nineties and cost taxpayers huge sums in rest care home subsidies, medical costs, gold card subsidies and superannuation.
    Smokers will usually die before they get alzheimers and all the expense involved therein.
    It is unusual economics, but it is inarguable.

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  8. gazzmaniac (2,306 comments) says:

    And the younger generations have to pay for all this, but can we expect to get the same treatment in old age? I think not.

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  9. Fisiani (1,053 comments) says:

    There was an enquiry into this in the UK in the 1960’s. They were asked to estimate the savings to the British economy if smoking could be stopped. The enquiry findings were never published. Each smoker would on average live another six years in retirement. The supperannuation costs and loss of tax revenue would massively outweigh the savings in health. Their ultimate demise would be a slow expensive one consuming more health resourses in their final 12 months than in their first 50 years.
    Sadly we have to be pragmatic.
    Put the tax on tobacco up and up. The people with brains and willpower and access to cessation resources will stop.
    The thick, low willpower fatalists will delude themself that they are addicted. They seldom are. The technical term is psychologically habituated. They will pay high tobacco tax and pay income tax if employed. They will retire at 65 and 60 weeks later will sustain a massive sudden heart attack.
    Smokers are a boon to the economy. A cash cow. They stupidly finance the quality education of the non smokers.
    You dont have to be thick to be a smoker. Yes you do.

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  10. Crampton (213 comments) says:

    @Michael: The number was meant to be the costs to Vote.Health, so it’s no harm that it doesn’t count Superannuation savings. It’s just something we need to remember to add in if we want to have an overall measure of costs to the government.

    @Puzzled: Do note that those other costs Youdan is citing, like the wages people fail to earn when they die early, are costs to the smoker, not costs to society. That’s the trick for getting really high “social cost” numbers. Add in what smokers spend on their cigarettes, what drinkers pay for their booze. Then you can get a big scary number. That’s not what MoH did here though; they just failed to account for that smokers dying of smoking saves MoH the cost of smokers dying of something else.

    We’d also want to note that smokers pay cigarette taxes for 30 or more years before dying of smoking. Put time discounting on the future costs and the fiscal effects get a bit clearer…

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  11. Jim (358 comments) says:

    @Crampton: surely there is a cost in shortening lifespans. People are a cost at each end of their lives – the first 15-20 years with childcare and education, and the last years with super and healthcare.

    I agree that some people are a cost from start to finish and anything that can hasten their death is good. However on average our productivity must outweigh our costs or we’re all screwed.

    Anything that compresses the productive portion of our lifespan is going to have a negative economic effect, surely?

    I’m thinking of two of my uncles, both heavy smokers, not siblings, who died in their 50’s of lung cancer. Both had been earning right up to the point the cancer became apparent – and would have done so for at least another 10 years.

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  12. CharlieBrown (1,059 comments) says:

    “So, eliminating smoking is probably a very expensive outcome for the taxpayer.”

    Yip very true. Now imagine if the racist party had their way and banned smoking altogether, the tourism income would dramatically drop.

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  13. Puzzled in Ekatahuna (329 comments) says:

    “I’m thinking of two of my uncles, both heavy smokers, not siblings, who died in their 50′s of lung cancer. Both had been earning right up to the point the cancer became apparent – and would have done so for at least another 10 years.”

    So how do you factor into the equation, that there assets [house and savings] are freed up earlier for the wider family or inheritances’ use ?

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  14. CharlieBrown (1,059 comments) says:

    Jim – One of the big lessons that can be learnt by crampton’s article is that both the MOH and groups like ASH are propoganda machines that use lies to pursue their “cause”. The people who push to make smoking harder are only trying to impose their will and beliefs on others, effectively stripping these people of their own decision making and liberty. That is what facists do, and like the most famous of facists did to the Jews in the early 30’s, they are managing to get alot of the population on their side to support their cause.

    Taking cost to society into account is irrelevant. It is a smokers decision whether they want to smoke. Their are countless other decisions that people don’t care about that also “costs society”. Buying fast food, or playing rugby are other examples.

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  15. Puzzled in Ekatahuna (329 comments) says:

    Sorry – ‘there assets’ should have been ‘their assets’.

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  16. Jim (358 comments) says:

    ‘So how do you factor into the equation, that there assets [house and savings] are freed up earlier for the wider family or inheritances’ use ?”

    That is missing the point, however as you raised this then consider those assets will be smaller than if they had lived another 10 years. These guys were at their maximum income.

    Let me put it another way. If everyone became hospitalised and died after only 1 year of productive work then the country would be bankrupt. That’s an absurd case but I’m trying to make the point that the shorter we work as a percentage of our lives then the more costly we are. At some point in our working life we reach break-even and beyond that point we are net-positive. Cut that short at any point (for the productive people) and everyone loses.

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  17. Johnboy (17,051 comments) says:

    Interesting stuff Jim. I have been net positive (debt, mortgage, hideously wealthy, etc.) for ten years and gave up smoking (40 a day) thirteen years ago.

    So far I have not carked it and I don’t cough as much in the morning as I used to.

    Where do you think I feature on the equation?

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  18. somewhatthoughtful (473 comments) says:

    I want smoking banned, but I also want marijuana legalised. So i’m inherently hypocritical. Thus my position on smoking has now changed: Keep it legal, but keep it highly taxed, and make weed legal as well, hell make all drugs with low harm legal (weed, mushrooms, LSD, Ecstasy) – it’s worked in Portugal

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  19. side show bob (3,410 comments) says:

    This stop smoking bullshit is nothing more then shiny arsed leeches trying to justify their pitiful lives and insure a place on the gravy train, sack the lot of fuckers. Obviously their work is counter productive to the over all tax take for the country. Why the fuck do we need a plethora of wasters telling us how to live our lives, and no never smoked never will.

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  20. somewhatthoughtful (473 comments) says:

    ^or people hate other people smoking around them because it’s a disgusting habit that no one has the right to force onto other people. either or

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  21. side show bob (3,410 comments) says:

    Fine then tell them somewhatthoughtful, most now days are more then aware their habit isn’t appreciated by everyone. I detest others being paid by the state to promote a view against something society has deemed lawful. Why should the state pay for propaganda and groups like ASH when cearley smoking pays more then it’s fair share of tax. I’m sorry but there are just to many in this country that get paid from you and I simply to tell us how we should live our lives. You may be happy with the situation, I’m not.

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  22. Jim (358 comments) says:

    @Johnboy. You don’t sit anywhere on the equation until a line is drawn under your life and the sums are done. :) Sounds like you’re in no hurry for that to happen though.

    Remember though: those of us that are net positive have to make up for all those that cost the country.

    For the record; I’m not so much interested in the outcome as I am in the economics of it. I don’t like it when made-up numbers (original topic) are used to justify an argument either. Genuinely curious about how this type of thing could be costed.

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  23. Kimble (3,958 comments) says:

    Jim, its easy.

    For starters, work out how much tax is paid on cigarettes, multiply by the usage, and a time frame of a few decades (nobody dies after their first cigarette), then adjust for inflation, on the other side consider the difference in healthcare cost of someone dying early from lung cancer than later from something else, dont forget to multiply the smoking cost by the percentage that smoking specifically contributed to their death seperate from other lifestyle choices (diet, exercise regime). If you like you can also consider the costs to society of providing education, defense, etc that have not been recouped over the persons working life (and it is arguable whether there will be any cost in excess of this amount).

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  24. Rex Widerstrom (5,013 comments) says:

    And for the smokers who don’t die on schedule at 65 and instead expect to spend the next decade having expensive operations to hack cancerous and diseased bits out of them? The “Logans Run” solution, presumably B-)

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  25. Jim (358 comments) says:

    @Kimble “If you like you can also consider the costs to society of providing education, defense, etc that have not been recouped over the persons working life (and it is arguable whether there will be any cost in excess of this amount).”

    That’s where I’d differ. It’s not just about whether you have covered your own costs. You’d have to consider the lost potential future productivity. That could be significant.

    I’d love it if individuals only had to cover their own costs. On that argument I could have stopped paying tax years ago.

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  26. Crampton (213 comments) says:

    @Jim: The MoH $1.9 billion figure is meant only to be the costs to the health care system. So superannuation savings or forgone earnings don’t factor in.

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  27. Crampton (213 comments) says:

    @Jim (later): lost potential productivity is a cost borne by the worker, so oughtn’t be treated differently from the price he pays for a cigarette. If you want to count the lost productivity costs, then you have to count how much the smoker enjoys smoking.

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  28. Kimble (3,958 comments) says:

    Jim – “It’s not just about whether you have covered your own costs. You’d have to consider the lost potential future productivity.”

    As Eric said, that is private loss. The public loss would be the money spent by others on this person that has not been covered by benefits provided by that person.

    Crampton – “If you want to count the lost productivity costs, then you have to count how much the smoker enjoys smoking.”

    And given that the dangers of smoking have been known for decades (long enough that most people smoking today started somking with that information available to them) then the enjoyment smokers get from smoking would be the value they place on those years of their life they are giving up. How much is a year of life worth to the person living it? I would say it is many, MANY times their value to society.

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  29. Jim (358 comments) says:

    @Crampton: “If you want to count the lost productivity costs, then you have to count how much the smoker enjoys smoking.”

    Now you’ve totally lost me there. Does that mean that someone who decides not to work at all, who lives off government assistance, is not a cost to NZ as long as that individual places a sufficiently high value on their free time?

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  30. CharlieBrown (1,059 comments) says:

    Lets not forget about all those smokers who don’t get cancer and die of a non-smoking related cause.

    Jim – have you not heard the phrase “A happy worker is a productive worker”? So Jim – taking your position on smoking, I guess you want to ban fast food, alcohol, sun exposed jobs due to the cost on the health sector – or at least increase the tax on these industries.

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  31. Jim (358 comments) says:

    @CharlieBrown: I didn’t take a position on smoking; I was just interested in how one should accurately cost this.

    I don’t want to ban anything. People being wholly responsible for their own actions suits me just fine (so long as those actions don’t disturb others). Saving people from themselves is something that the government should stay out of.

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  32. CharlieBrown (1,059 comments) says:

    Jim- my apologies, Seems I wrongly assumed your position.

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  33. Crampton (213 comments) says:

    @Jim: Rather, I’m saying that if you want to say that it’s a cost to the country that a smoker has a few more sick days, then I should also get to count as a “cost to the country” if you decide to take your four weeks’ leave rather than working through.

    Someone who decides to smoke and consequently winds up earning less because he’s taking more sick days off work is making a consumption/work choice that’s not much different than someone else’s choice to take more holidays and earn a little less. Neither of those is a cost to other people.

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