Research by Dr Robert Branston, Deputy Director of the School of Management's Centre for Governance & Regulation, has spurred Irish health charities to call for a new system of State regulation of the tobacco industry.
Dr Branston's research shows tobacco firms enjoy profit margins of up to 55% after duties on sales in Ireland – around three times more than those achieved by food and drinks manufacturers. The combined profits of the three tobacco firms that control almost the entire Irish market totalled €104 million in 2011 from revenues of €226 million. This research builds on earlier work that Dr Branston carried out with Professor Anna Gilmore from the Department for Health.
The Irish Department of Health estimates that smoking-related illness is costing the State some €2 billion a year, compared to total tobacco tax receipts in 2011 of €1.42 billion.
The proposal by The Irish Heart Foundation and Irish Cancer Society would enable Government to curb excessive profits being made by multinational cigarette companies and make them pay more towards the enormous economic cost of smoking-related illness.
Speaking at the launch of the Irish Cancer Society/Irish Heart Foundation joint pre-Budget submission in Dublin, Dr Branston said that by reducing industry profits to normal levels of between 12-20 per cent, the State could take up to €65 million extra in tax from tobacco companies, without having any impact on the price of cigarettes.
The proposal was featured by five national Irish newspapers: The Irish Examiner, The Independent, The Daily Mail, The Star and The Irish Times. Dr Branston was also interviewed about his research on RTE TV and Newstalk Radio.
Dr Branston said the fact that just three global tobacco companies controlled virtually the entire Irish tobacco market; the lack of competition due to barriers to market entry amplified by tobacco control measures such as advertising and display bans; and the absence of substitutes for a highly addictive substance had created a market failure leading to excessive profits. Through a system of regulation, the State could reduce industry profit margins at a reasonable rate.
"Tobacco multinationals can continue to charge premium prices and make excessive profits because their products are very cheap to make, are highly addictive and competition in such a highly regulated market is so limited,” said Dr Branston. “This extreme profitability creates the incentive and ability for tobacco companies to fight tobacco control measures to the detriment of public health.”
Chris Macey of the Irish Heart Foundation said it was bizarre that although Ireland has regulators for everything from energy and electronic communications to broadcasting and taxi driving, there was none for an industry whose products kill half of all their users.
“There is no legitimate argument for the status quo because even apart from the health catastrophe of 5,200 people killed by tobacco-related illness a year in Ireland, the tobacco industry is a drain on the nation’s economy. It creates virtually no employment and on Department of Health estimates the taxpayer is subsidising tobacco companies to the tune of almost €6 for every euro of profit they take out of the country.”
Kathleen O’Meara of the Irish Cancer Society said that the extra €65m the State could generate through a tobacco industry regulator would pay for measures required to crack down on tobacco smuggling and to help smokers quit more than five times over.
“By combining higher taxes, tough anti-smuggling measures and improved smoking cessation services, we can achieve the win-win of a major reduction in smoking rates and huge extra revenue for the Exchequer,” she said.