Nudge nudge, wink wink, nanny soaks the poor to fatten the budget
As the "beer up, cigs up" headlines of yesteryear illustrate, governments have long imposed taxes on consumer products as a quick fix to plug fiscal gaps.
It is probable such headlines could reappear next week as the Gillard government aims for its first budget surplus.
In 2010-11 it is estimated alcohol and tobacco excises raised $9.236 billion, and GST on processed foods (negotiated by the Australian Democrats who deemed them unhealthy compared with fresh food) raised $3.895bn for a total of $13.1bn in revenue.
To put this amount into perspective, these taxes raised more revenue last year than the $11.4 billion expected to be raised by the controversial carbon and mining taxes next year.
But where are the protests and ad campaigns against these odious taxes? While these taxes substantially add to federal government coffers, their policy rationale has gradually transcended the traditional revenue raising grounds for their imposition. Increases are now deemed necessary to make us healthier, reducing the costs on the public health system.
With the "nudge" theory of behavioural economics still all the rage in policy inner circles, tax increases attempt to redirect the pattern of consumer expenditures in ways more convivial with the preconceived policy preferences. But with nanny state rationales increasingly used to justify increased rates of tax on consumer products, it is more important than ever to ask the hard questions about their effects.
First, consumer taxes hit the poorest the hardest.
The available evidence shows that Australian households in the lowest income brackets pay up to three times as much in taxes on alcohol, food and tobacco as those on high incomes.
Perhaps the most disappointing aspect about this inconvenient tax truth is that social welfare lobby groups, such as ACOSS, have remained silent or even supported these tax increases despite them hitting low income earners hardest.
Numerous studies have also shown that raising consumer taxes rarely achieves stated health policy objectives.
Taxes often miss their target to assist those with the potentially biggest health problem because habitual drinkers, smokers and junk food eaters tend to be generally unresponsive to tax induced price increases.
People who exercise their consumption in moderation are also punished by higher consumer taxes imposed on health policy grounds.
In other cases, tax policy efforts to quell consumption of unhealthy products are thwarted because consumers switch between similar products.
The result of the federal government's alcopops tax experiment was that consumers switched from ready-to-drink pre-mixed drinks to beer, wine and spirits with no effect on binge drinking.
Reports both here and overseas have also illustrated that high commodity taxes create lucrative black markets for tax-free alcohol and tobacco.
Research suggests that the illegal tobacco market in Australia alone has grown to up to 2.3 million kilograms of tobacco consumed, or 12 per cent of cigarettes sold, representing hundreds of millions of dollars in lost tax revenue.
Most fundamentally, the problem with imposing taxes on consumers to pursue nanny state health objectives is that they infringe on the exercise of freedom of choice.
As philosophers in the classical liberal tradition have noted for centuries, the locus of decision making in a free society should reside within the individual.
It is the individual who should discover his or her own preferences about ways of living, and learn from their own mistakes and those made by other freely acting individuals.
According to this view, governments should not paternalistically interfere with actions by individuals that render no harm to third parties, even if they do harm one's health.
The Gillard government's argument that drinking, smoking and eating junk food raises health system costs for the abstinent is, if you'll pardon the pun, a smokescreen.
First, publicly subsidised medical treatment through Medicare promotes moral hazard in the form of bad health decisions made by individuals, since the costs of those decisions are borne by the community as a whole.
In any case, revenues raised from alcohol and tobacco excises are far in excess of even the most generous of estimates concerning direct healthcare costs of treating drinkers and smokers in public health facilities. The most recent government study in 2008 showed that total federal government revenue (excise, customs, wet tax) raised from alcohol was $4.1bn whereas for healthcare costs attributable to alcohol was $1.6bn. For tobacco, federal revenue (excise and customs) raised $5.7bn and healthcare costs were $500 million.
Second, private health insurers are prevented by legislation from varying members' premiums on the basis of health status including drinking and smoking history.
Allowing public health providers to directly charge fees for treatment and abolishing community rating of health insurance premiums would mean people more directly bear the costs of their own consumption decisions on their health.
The absence of policy respect for individual choices, including a refusal to adopt reforms making health costs more visible to consumers, has led Australia down the path of a "health harassment society".
Government regulated or financed product packages, billboards, and print, radio and television advertisements scream at Australians about the health risks of consuming certain products.
On top of these costly interventions, and indeed the threats of more to come such as plain packaging and floor prices, the consumer tax system is being reinterpreted as a prod to nudge people towards a better state of health.
Although the irony of pouring new nanny state policy wine into old consumer tax bottles seems to have escaped public health lobbyists and government agencies, isn't it reasonable all the same to ask if this effort is worth the cost?
Because at the very least, we know that every nanny state tax is doing damage to your wallet and your liberties.