Plain packaging ploy likely to go up in smoke

Bookmark and Share Economics & Deregulation, Trade & IP Unit, Health and Nanny State | Tim Wilson
The Australian 30th April, 2010

Turning public debate from the failed emissions trading scheme to universally despised tobacco emissions is a media masterstroke from Kevin Rudd, but the cost could leave a singe in taxpayers' pockets.

During the government's announcement of plain packaging for cigarettes, Rudd and Health Minister Nicola Roxon celebrated it as a world first because no other government has taken similar action. But other governments haven't done so because of the risks involved.

Only last year the British government rejected plain packaging, arguing that "no studies have shown that introducing plain packaging of tobacco would cut the number of young people smoking".

And while the moral and political arguments for attacking tobacco companies may be sound, there are legal risks involved.

The British government also identified that "given the impact that plain packaging would have on intellectual property rights, the government would need strong and convincing evidence showing the health benefits".

Even with strong evidence about the efficacy of plain packaging, the British government could have exposed itself to legal claims by tobacco companies for expropriating their property rights. The Rudd government has ignored this message.

Under Australia's Constitution and international trade agreements, the government cannot strip or devalue property without compensation on "just terms", and that includes intellectual property rights such as trademarks.

Some commentators have argued that banning a trademark's display is not tantamount to taking a tobacco company's trademark. International IP rules say the point of trademarks is to assist in the "capability to distinguish the goods or services". Introducing plain packaging would devalue a trademark and may require the commonwealth to compensate tobacco firms.

Although the cost of Rudd's reckless move is unknown, rough calculations by the Institute of Public Affairs show that taxpayers may be required to fatten the profits of tobacco companies by up to $3 billion a year.

The federal government is not the only body in Australia that is cavalier about our IP regime.

Recently, the South Australian parliament passed legislation to enforce the plain packaging of R18+ films unless they are stocked in areas inaccessible to children. This strips the companies of the value of their trademarks.

However, the difference is that plain packaging of R18+ films is unlikely to lead to serious legal and financial consequences.

The risk of having to compensate tobacco companies with taxpayers' dollars is objectionable not just legally but morally.

The Rudd government also has shown contempt for parliament, given that the Senate's community affairs committee is investigating the legality and efficacy of a plain packaging bill, with submissions due today and the committee set to report in August.

Now these submissions and the recommendations of the parliamentary inquiry may as well be thrown on the junk heap.

It's clear that the objective of Rudd and Roxon's announcement is to distract public attention from the government's numerous policy backflips during the past week.

But this smokescreen is unlikely to be effective.

The tobacco tax hike, effective from midnight, is supposed to discourage new smokers from taking up the dirty habit and encourage existing smokers to quit, while funding the Rudd government's new federal hospital plan.

But collecting an additional $5bn in tobacco taxes is inconsistent with the objective of trying to get smokers to stop paying those taxes.

The Rudd government's tobacco tax increases appear to be a repeat of its failed alcopops tax. When it introduced the alcopops tax last year, it claimed it was designed to discourage consumption of the beverages, but the government's additional tax calculations were based on consumption continuing unchanged.

Considering the facts, it's hardly surprising that many Australians are looking at the government's plain packaging plan and tobacco tax grab as a distraction that is quickly going up in smoke.