New Year Predictions from Australia

There is nothing quite like Christmas holiday in Sydney, Australia. My fiancée is an Aussie so we get to spend a few weeks of the winter escaping the cold/wet/grey of Shanghai for summertime with Santa. What invariably strikes me every time I go to Oz is something that should be emblazoned on the cover of every local Australian guidebook; don’t mess with the animals! No matter what wonderful strange creature one haps upon, one may rest assured that it will be equipped with claws, spikes, poison, horns, teeth…and attitude. I mean, even the cute little platypus has a poisonous spike on its back leg. Spiders that prey on small insects have venom strong enough to kill a rhino – basically a 50,000 times overkill capacity. You find this hard to believe? Try typing in “ways Australia…” into Google and seeing what’s first on the suggestion list!

Fishing off the beach means hooking a number of species that should carry warning labels. When I went out fishing with my father-in-law and the neighbour (experienced fisherman) I quickly learned to ask two questions when unhooking the fish: 1) “Is it poisonous” and 2) “Does it have spikes”. The answer was usually “no” and then “yes”. The bream I am holding in the picture below was caught a few minutes after my tussle with a good-sized flathead – which had introduced itself by sticking gill-barbs into both of my thumbs. While the flathead is purportedly non-poisonous, both my thumbs are still slightly numb some three weeks after the event. Australia, the only place I know where you need a Kevlar wetsuit to go to the beach.

That’s not fish blood (or a flathead – there was too much blood on my hands to snap a selfie)

But, this is not a fishing blog. It’s about my habit of gazing through the eyeglasses of economics when I am travelling. One of the aspects that continuously struck me during my holiday in Oz with Bell (fiancée) was the frustrating experience of trying to enjoy a good cigar.

Now, I know that there might PC issues here in speaking to young people about nasty personal habits which are in fact textbook examples of negative externalities. Agreed. However, I do smoke the occasional cigar and I do so with what is its complementary good; Cognac or Whiskey. Again, I am in no way encouraging nasty habits but commenting from a personal standpoint what is my prediction in terms of tobacco: Australia will be the first country in the world to ban tobacco. It will happen within the next 10 years. Remember, you heard it here first!

The basic government ‘solutions’ to goods that result in negative externalities in consumption are a) reduce supply, and/or; b) reduce demand. Let’s look at some of the ways Australia is reducing smoking.

Decreasing demand

1. Negative advertising: this includes TV and newspaper ads – and the new plain packaging (no logos, names or colours!) together with some VERY explicit photographs of the physical damage caused by smoking.  This seems to have had quite an effect according to recent studies; smokers feel far less comfortable in lighting up while looking at a package such as below.

2. Decrease the availability of complement goods; in short, smoking in pubs, bars and restaurants is banned. Even outdoors there are very few smoking areas remaining. Even parks….

3. Campaigns aimed at younger potential customers. This is something my home country of Sweden did quite successfully in the 1990’s – our ‘Non-smoking generation’ where older (cool and hip) school kids would come into lower school classes to talk about how un-cool smoking is. It took a few years but the results were quite remarkable.

4. The Australian government ever stricter rules on who is allowed to sell tobacco and how it is allowed to be displayed. Rather than eye-height rows of cigarettes, the poison-sticks are now behind military green metal cabinet doors. You cannot point to a pack – you have to ask for a specific pack. This makes for an increased effort on the part of the smoker!

Decreasing supply

1. ‘One day, at the airport….’ I walked in to get my usual packs of Cuban cigars on my way to Australia and Bell. At the checkout counter, the lady asks for my boarding pass…I hand it over…she looks at it and says “Sorry. I can’t sell you tobacco.” So, it turns out that Australia has banned travellers from buying tax free tobacco en route to Australia! I’ll never quite figure out how Bell managed to convince the salesperson – she bought me 8 boxes!

2. The main brunt of the supply-side effort here is tax. This follows the economic ‘truism’ told to me by my economics professor in Uppsala; “If you want less of a good, tax it!” It works. Guys, it WORKS! The price of a pack of cigarettes in Australia is around AUD20 – which is more than USD16! The tax is close to 50% of the sales price. Even though the Australian government estimates a PED for cigarettes of 0.4, an increase in the price by 13.7% (the latest increase) means that a pack a day will run to over USD7,000 a year! The government estimates some 200,000 to 250,000 fewer smokers as a result.

Keeping in mind the dangers of extrapolating (e.g. predicting the future based on past events) cigarette consumption, the Australian government seems to have a pretty clear plan; increase the amount of quitters and decrease the amount of young people taking up the habit. Ultimately, smokers will be in such a minority that it will be politically feasible to ban tobacco entirely.

Now back to my prediction; why might Australia be able to ban cigarettes? Let’s pose the question differently; why will the Australians succeed where other draconian (= harsh) measures have failed – notably Sweden in 1997, where the result of huge tobacco taxes resulted in a flourishing black market (anybody surprised?) and very nasty criminal gangs that also side-lined into prostitution, guns, drugs and protection racketeering. Just look up ‘prohibition’ and ‘mafia’ in 1930s USA!

Sweden failed to limit supply because it is surrounded by a goodly many countries that grow tobacco and also have home-grown organised crime gangs looking for business opportunities. Sweden’s membership in the EU as of 1995 also meant more open borders and limits to border control of vehicles coming from other EU countries. Basically it is very hard to control contraband (= trafficking in illegal goods) in a geographically open country.

Australia, on the other hand, is an island. Yes, I know, don’t write to me and complain; I am well aware that it is geographically defined as a continent. It’s still an island. A big island surrounded by water. Anybody who has seen the bins at an Australian airport knows the Aussies mean business about what is banned from being brought into the country. Extending this to tobacco, I can well imagine tobacco-sniffing dogs or electronic sniffers to root out tobacco in passing through customs – and since most people arrive via air, Australia will have de facto control over any potential black market activity.

Leave some space for “Tobacco” on the sign

Right about now, the more well-read of you are thinking “Well, what about smuggling in to Australia via the sea?!” Have a look at the following article and ask yourself if the Australians are capable of blocking sea-smuggling.