The shockonomics of tobacco-stained politics

2013-04-24 04.49.50 amNICK CATER

First published in The Australian, January 3, 2013

IF smoking was really costing the nation $31.5 billion a year, and that wasn’t just a cooked-up figure, then a responsible government would have no hesitation in banning tobacco.

That sort of money would easily give Wayne Swan his surplus. Indignant readers would be writing letters to the editor; why get worked up about the small change we sling Barrie Cassidy and his chums when taxpayers are spending 30 times as much to bankroll Marlboro Man?

It is not real money, of course; it is slippery economics, a number inserted into a report in some swanky glass-fronted building in Woden where not even the electric cables are allowed to smoke. The Department of Health was determined not to leave a single green dollar unspent in its efforts to remove the scourge of PVC from its new headquarters; all cabling is low smoke, zero halogen, Reduction of Hazardous Substances compliant.

2013-08-01 05.37.22 amIn fact, staff at the Department of Health and Ageing (known, somewhat fashionably, as DOHA, incidentally) should be thanking smokers for helping to pay for the $67 million fit-out five-green-star-rated building, for as every public-service mandarin knows, smokers are net contributors to the economy.

No wonder Sir Humphrey Appleby advised Jim Hacker against banning cigarettes in the first series of Yes, Prime Minister: “We are saving many more lives than we otherwise could because of those smokers who voluntarily lay down their lives for their friends. Smokers are national benefactors.”

Try telling that to NSW Health Minister Jillian Skinner. When asked to justify why smokers should be fined for lighting up within 10m of a children’s playground, she told The Sunday Telegraph: “Smoking-related illness accounts for about 5200 deaths and 44,000 hospitalisations per year in NSW. This costs about $8bn annually.”

Note the strategic deployment of the word “about” in that statement; the minister is hedging her bets. Her department’s 2010 report, The Social Costs of Smoking, reveals that “hospitalisations”, or patients as we once called them, due to smoking-related diseases, actually cost the NSW government $229.5m in 2006-07.

Sadly, not all of those patients would have survived, but the good news for health accountants hard-hearted enough to calculate these things is that deceased smokers are saving the health service $139.2m a year by not turning up at hospital. The net cost to the NSW taxpayer then is a mere $90.3m or, as the minister puts it, “about $8bn”.

Smokers make other demands on the NSW taxpayer, but the cost is defrayed by a much lamented but relatively undemanding cohort prematurely forced to quit the habit by the Grim Reaper. The ambulances dead smokers didn’t call in NSW that year would have cost $7.4m; the drugs they were not prescribed were worth $36m, and $230m went unspent on residential aged-care beds.

All up, the net bill was $115.8m, of which Skinner only had to find $47m. The balance came from the federal government, which also passed on the $254m in GST it collected from NSW smokers, meaning that the tobacco industry and its customers delivered a handy $208m dividend to the NSW government in 2006-07.

The federal government did even better: it spent a net $55.5m on healthcare for NSW patients with smoking-related illness, but recovered almost 30 times that amount in excise tax and Customs duty. NSW smokers therefore made a net contribution to federal coffers of $1.5bn, enough to pay for the ABC and still leave a lazy $300m or so to play with.

It would be wrong, however, to accuse Skinner of picking scary figures out of the air to justify a draconian and illiberal piece of legislation, designed to reduce the notional and probably negligible risk of a kiddie descending from the slippery dip into the fog from a smoking durry.

In fact, she plucked it out of the report, and sensibly rounded it down from the $8.4bn that her bureaucrats advised her provided “strong justification for future anti-smoking public expenditures”.

The loss (or profit as it turns out) to the Health Department represents only the “tangible” costs of smoking, the ones that can be measured reliably. As any student of shockonomics would tell you, there are also “intangible” social costs for which we must account, the costs that cannot be reliably measured by humans but can be by computers.

Looming large in the virtual intangible ledger is the income that dead smokers would have earned notionally in that year if not for their fatal habit.

The computer says 95,608 extra people would be alive today in NSW if they had not taken up smoking. These people would, we are told, be earning up to $4.3bn between them, which seems a rather large amount, since most of them would be getting on a bit by now and fewer than 17,000 would be of working age.

Naturally, in the rapidly growing field of shockonomics, there is an accounting stream to get around that little hurdle: the cost of household labour. Had these folk not sneaked out in a box, and stayed around to help empty the ashtray and generally keep the place looking tidy, they could have earned $3.163bn in 2006-07, according to computer modelling. Nobody thought to tell the computer that they would not have actually been paid for it, but when accounting for “intangible” costs, the transfer of cold, hard cash is immaterial.

The fact is, when you add it all up, that the selfish refusal of deceased smokers to make a productive contribution to the NSW economy reduced gross state product by 0.94 per cent in 2006-07 which, on the face of it, makes a $550 spot fine for some harried mum who tries to sneak in a quick smoke while the little darlings exhaust themselves on the swings seem perfectly reasonable.

The impression one gets from reading The Social Costs of Smoking, however, is that the authors at the Centre for Health Advancement, Population Health Division don’t actually believe this nonsense themselves. As they point out in the small print: “A problem with this approach is that estimates of tobacco-attributable costs contain certain (sometimes very large) components that are not measured in conventional national account measurements of GDP.”

You can say that again. Conventional economists estimate that the current unemployment rate among the dead is running at 100 per cent.

While not wishing to pass judgment on their willingness to work, these dear departed souls are, to all intents and purposes, unemployable. They would be a drain on the economy if they were alive, but regretfully they are not.

They use no roads, do not require their dustbins to be emptied and, remarkably, given their fatal lifestyle choice, are not a burden on the health service. They may be missed by many, with a pain that cannot be quantified, but their tangible net contribution to the economy, earnings minus spending, is about zero.

Which means the minister, if she had thought about it, would have told the health bureaucrats she would not be supporting a pointless, irritating piece of legislation promoted by do-gooders addicted to the sound of the cracking whip.

She would instead have listened to Sir Humphrey’s advice to Sir Jim, and would have told The Sunday Telegraph: “I think the crucial argument is that we are living in a free country and we must be free to make our own decisions. After all, government shouldn’t be a nursemaid. We don’t want the nanny state.”