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Canada Makes Smoking Hazardous To The Wallet...


Economic Trends

CANADA MAKES SMOKING HAZARDOUS TO THE WALLET...

All Americans who are impressed by Canada's ability to hold down health care spending, take note: While providing full health-insurance coverage to its citizens, the nation is also seeking to reduce the demand for health care by mounting a massive attack on a major cause of medical problems, tobacco. By December, Canada expects to have reduced per capita use of cigarettes by an impressive 25% in just three years.

Ottawa's war on smoking involves a two pronged assault. The first is to undermine the lure of smoking in the public's mind. Virtually all cigarette advertising has been banned even printing cigarette brand names on T-shirts. Health warnings are now required to take up 20% of the front and back of all cigarette packs and will be even larger next year. And smoking has been prohibited in all public areas and work sites under federal jurisdiction, as well as on all flights by Canadian airlines.

Part two of the government's attack is to raise prices. Since 1984, the federal tax on a pack of cigarettes, including sales tax, has been hiked from 42 cents to $1.94 (Canadian). Provincial taxes have also jumped, bringing the average total current tax bite to a huge $3.69. The average retail price of a pack of cigarettes in Canada is now about $5.50.

Rising prices have sparked a sharp decline in smoking. Economists calculate that the price elasticity of demand for cigarettes is about 0.4%, which means each 10% rise in their real price induces a 4% drop in consumption. "That's just about what we've been finding," says David Sweanor of Canada's Non-smokers' Rights Assn. He calculates that by the end of this year, per capita adult consumption of cigarettes will be down a huge 43% from its 1980 level.

Over the long run, Canada expects an even more precipitous drop in smoking. The reason: Most smokers acquire the habit in their teenage years, and studies show that the teenage price elasticity of cigarette use is about 1.2%--that is, a 10% rise in price induces a 12% drop in the number of teenage smokers.

"The responsiveness of teenagers to cigarette price hikes," says Sweanor, "suggests that smoking in Canada will become less and less prevalent as new generations of nonsmokers mature."GENE KORETZ


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