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Big Tobacco's doubtful claim high taxes encourage cigarette smuggling finds support on Alberta's Wildrose benches

Derek Fildebrandt

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It looks as if Wildrose Finance Critic Derek Fildebrandt has been studying the Imperial Tobacco playbook for arguments against the Alberta NDP government's plan to increase taxes on the noxious weed.

Back in September, AlbertaPolitics.ca reported that a firm engaged by Imperial Tobacco Canada Ltd. of Montreal had registered to lobby a lone Alberta politician -- none other than Fildebrandt himself -- "to discuss Canada's illegal tobacco crisis and its spread to Alberta."

Toronto-based lobbyist Temple Scott Associates named senior consultant Robert Elliott in its Aug. 4 filing with the Alberta Lobbyist Registry as the person who would meet with Fildebrandt, and only with the Strathmore-Brooks MLA.

In debate this week in the Legislature after Finance Minister Joe Ceci's introduction of Bill 4, which contains various tax measures including amendments to the province's Tobacco Tax Act, Fildebrandt soon trotted out one of Imperial Tobacco's favourite arguments against higher tax on smokes.

"Every member of this House recognizes that higher tobacco taxes can discourage tobacco use, which is an important social good, and we can use tobacco taxes to pay for the accompanying health care costs that come with tobacco use," Fildebrandt conceded. "However," he soon went on, "that does come to a limit." (Emphasis added.)

"We can see what's happening in Ontario and Quebec right now, where contraband tobacco makes up between 33 per cent and 50 per cent of all tobacco sales in those provinces largely because high tobacco taxes have gotten to such a level that they incentivize a massive black market," he explained. (Emphasis again added.)

Ergo, the Wildrose Opposition's finance critic concluded, "raising tobacco taxes beyond a particular point could in fact reduce the revenue the government intends to collect from tobacco taxes." After that, he handed the file off to Wes Taylor, the Wildrose MLA for Battle River-Wainwright, to make similar points.

To be fair, this line of argument is not new to Fildebrandt. Back in 2012 when he was Alberta spokesperson for the secretive Canadian Taxpayers Federation, a pro-business lobby group that purports to represent ordinary taxpayers, he wrote a paper on tobacco taxes that made many of the same tobacco industry arguments.

It should be obvious why the tobacco industry would like to keep taxes on its products as low as possible, however, and it's not to discourage smuggling. The claim that tax increases contribute to a rise in smuggling of untaxed cigarettes is not unusual in this context. The trouble is, it doesn't hold up under scrutiny.

Moreover, independent tobacco experts believe the industry claim up to 50 per cent of the market for the still-legal weed in Quebec and Ontario is in fact a significant exaggeration.

A 2015 study by the Ontario Tobacco Research Unit, which is funded by the Ontario Ministry of Health and Long-Term Care, dismisses the argument tobacco taxes contribute to contraband smuggling as a "myth."

And the OTRU study shows RCMP seizure data indicates there has been a significant decline in contraband tobacco in Canada between 2008 and 2012. Smuggling rates in Quebec fell from 30 per cent in 2009 to 15 per cent in 2014, and sales in Ontario of all contraband tobacco products fell from just over 31 per cent in 2008 to just over 18 per cent in 2012.

According to estimates from other sources, contraband tobacco today accounts for less than two per cent of legal tobacco sales in Alberta, which has effective laws in this area, making a rise in smuggling here unlikely.

The OTRU report also quoted a European study that indicated that "the correlation between high prices and high levels of smuggling does not exist." Norway, Sweden, Denmark and the U.K., which have among the highest cigarette prices in Europe, do not have a particularly severe tobacco smuggling problem.

And it also noted that Ontario and Quebec have the lowest tobacco taxes among all provinces in Canada, yet the number of consumers of contraband tobacco is the largest in those provinces -- a fact conveniently overlooked by Fildebrandt in his remarks to the Legislature.

Interestingly, the OTRU study also harshly criticized a report by the market-fundamentalist Fraser Institute that is often quoted by Big Tobacco and its supporters.

OTRU said the Fraser Institute's conclusion -- which is similar to the claims of Imperial Tobacco, the CTF and Mr. Fildebrandt -- "is not supported by the evidence cited in the report and missed substantial evidence from the literature." Reaching conclusions unsupported by evidence presented is a common criticism of the Fraser Institute’s modus operandi.

In other words -- notwithstanding whomever Fildebrandt talks to now or what he's written in the past -- empirical evidence in which we can have confidence suggests the Wildrose Party's arguments against higher taxes on tobacco are just so much smoke in the wind.

This post has been revised to clarify that the figure of less two-per-cent illegal tobacco sales is a reference to Alberta, not all of Canada. It also appears on David Climenhaga's blog, AlbertaPolitics.ca.

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