Monday 10 September 2018

The taxes of sin

One of the high points of the Celtic Tiger was the Plastic Bag Levy in 2002. Ireland was the first country in the world to do this and it reduced the consumption and disposal of flimsy one-use plastic bags to 10% of what it was before.  That's a billion fewer items of indestructible litter . . . the remaining 100 million bags generated €10 million through the levy which could go some way to supporting disposal issues. Those are economic benefits, but the psychological effects were also empowering. We had collectively decided that streets disfigured with wind-blown shabbiness was insupportable and we collectively stopped it over-night. It was an example of sin tax, which I've been reading about: The Price is Vice in The Economist. It's not always obvious: you have to use your cotton shopping bag 130 times before it's greener than plastic - big cotton in the Kazakh SSR dried up the Aral Sea after all. Tim Minchin sings canvas bags.

Sin taxes are a double whammy. We The People decide that some actions are against nature or against the common good or self-destructive and tax that action a) to deter people from doing it and b) to pay for the consequences if they choose to do that bad thing. Two years after the bag levy, the ban of smoking in public places in Public Health (Tobacco) Act 2004 was pushed through by Health Minister Micheál Martin. [been blobbed before] That was framed as protecting innocent bar-staff from the effects of passive smoking. Every budget, the excise duty on cigarettes goes up and up, doubtfully raising enough tax [about €1 billion in 2017] to pay for the additional burden on the health service from the effects of smoking. The total spend on Health in the same year was about €15 billion.

You might think that a 5c levy on a flimsy plastic bag would have no effect but it did. You might think that booze and smokes are price elastic and consumption will be the same regardless of price because folk are addicted. In 2011, the Irish Revenue did an analysis [well actually they scanned the literature] of the economics of tobacco taxation and concluded that there is a deterrent effect: 1% increase in the cost reduces demand by 0.6%. This why it is always an item on the budget - smokers are the cash-cow that keep on giving that €1 billion to help keep SS Ireland afloat.

My favorite book for Quant and Critical Thinking about numbers in the real world is Mathsemantics. Edward MacNeil wrote the book from his experience running an economic consultancy. A key question his company would be posed was "Should we build a new airport at Freedonia or continue to rely of the existing hub 60 minutes drive away at Centralia". One of the stop-and-think questions on his quiz for potential employees was "Would it make a difference if the airport was 10 minutes further away from the business district?". You might think, with me, that as it takes the better part of 2 hours from leaving the office to being emplaned ready for take-off, 10 minutes wouldn't matter a damn. But you'd be wrong both conceptually and and in economic terms. The key insight is that you don't have to fly: you can decide that phone-time is sometimes as good as face-time; you can make a policy to go visit your outstation 5 times a year instead of 6. The airport's revenue depends on person-embarkations: if the airport was nearer if would generate more cash, so it might, in the long term, be worth spending more on the closer site.

The Economist concludes likewise: sin taxes can make it easier for us to do right by ourselves, by our community and by the planet. A price increase can give us pause, that pause can let us think and that think might, just might, stop us reaching for that last slice-of-pizza, cigarette, tinny, twinkie.

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