Cigarettes and Alcohol

Finance Minister was going to give smokers a break in Budget 2019 - but changed his mind

The department said the last-minute shift was for health reasons.

THE FINANCE MINISTER considered giving a reprieve to smokers in October’s Budget after seven consecutive years of excise duty increase.

Internal department records reveal how Paschal Donohoe said he was “not currently minded to implement a further increase” when asked for his views on a tax rise for tobacco.

However, cigarettes did ultimately take another hit in Budget 2019 with a 50 cent rise in the price of a box of 20 cigarettes and similar rises for other tobacco products.

The minister’s submission said that there were “moves” in the market towards the use of lower-price and value-sized packs by smokers.

It said: “Surveys conducted by Revenue indicate an increase in the consumption of illicit cigarettes from 10% in 2016 to 13% in 2017.”

Another 9% of the cigarettes consumed in Ireland had been bought legally abroad, it said.

The Revenue Commissioners had also suggested that further tax hikes on tobacco products might not generate extra money for the Exchequer.

They said predicting how much money tobacco would bring in had become increasingly difficult because of a practice known as “front loading”.

This was where cigarette manufacturers had brought old branded product to market in Ireland in anticipation of the introduction of plain packaging.

The submission also said Ireland’s anti-tobacco drive was working, with the number of cigarettes “cleared for consumption” down by 27% between 2008 and 2017.

Roll-your-own tobacco had become increasingly popular they said, but it still made up just a small part of the market accounting for 10% of excise duty paid.

In a statement, the Department of Finance said the minister’s reversal over increasing excise duty on cigarettes came because of health policy.

It said: 

Increasing tobacco products taxation is an important public health policy measure to continue the downward trend in smoking rates in Ireland.”

For alcohol products, Donohoe heeded the advice of officials who warned Brexit and cross-border shopping could counteract any tax increase.

“I am currently minded to make no changes,” said the minister. “Will review in final days before Budget.”

Officials said there was now a “significant price differential” between how much was paid for booze in Dublin and offers available north of the border in Newry.

A submission for the minister said: “Revenue conducted a cross border (Dublin & Newry) price survey on excisable goods bi-annually. In its May 2018 survey … it was found that there are significant price differences.”

It highlighted how a bottle of whiskey was €3.57 cheaper, vodka €4.52 cheaper, while common brands of wine were between €1.72 and €2.15 cheaper.

The submission also said Brexit posed particular risks to the industry with the possibility of disruption of trading links and supply chains.­

The Department of Finance said the decision to make no change on alcohol was driven mainly by “concerns [on] cross border trade”.

An increase combined with the prevailing weakness of sterling could have encouraged cross border trade and a subsequent reduction in the excise yield.”

Opportune time

On the doubling of the betting tax, the Department said the tax had not been increased since 1975 and had consistently been cut over the years.

The minister was told ahead of the Budget that the “opportune time” had arrived to double betting tax amid ongoing pressure to increase tax on gambling.

Donohoe doubled the rate from one to two percent in this year’s budget and was afterwards met with fierce opposition from the bookmaking industry.

His officials had warned that alternative proposals to tax punters directly or the profits of bookmakers would not be possible this year.

The finance minister approved the rate increase – only seeking clarification on what share of betting revenue was accounted for by the greyhound and horse-racing industry.

In the departmental submission, officials said the one percent tax increase could yield an extra €50 million in tax each year.

The submission said: “Implementing betting tax increases prior to 2015 would have run a significant risk of simply undermining domestic bookmakers.

But given that remote operators and betting intermediaries are now well embedded in the scope of the betting tax regime, it may be an opportune time to consider rate increases.”

In a statement, the Department said: “Given the increased concerns regarding the social costs of problem gambling, it is now appropriate to increase the rates to better reflect the negative externalities involved.”

The Department has also committed to a review of the measure in 2019 to see what impact it’s having.

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