The National Coronavirus Command Council (NCCC) need not wait for rulings to be delivered in the two cases before the court hoping to end the ban on tobacco products. It can pre-empt the embarrassment by acting swiftly to unban them.
Finance minister Tito Mboweni will deliver a Supplementary Budget on Wednesday. In a recent preview of what it might look like, Ed Stoddard, writing for Business Maverick, concludes: ‘New taxes will likely be off the board for now, though a hike in sin taxes is possible to placate the anti-booze and anti-tobacco brigade in the Cabinet.’
There are numerous excellent reasons to be sceptical of sin taxes. I addressed several of them in an article I wrote for Daily Maverick, entitled The case against sin taxes.
Sin taxes ineffective
They are not very effective in changing consumer behaviour, especially among heavy smokers or drinkers for whom it matters most. They are not used to defray expenses that so-called sinners cause to the public or the state. Taxation distorts markets and by withdrawing money from the economy, reduces the supply even of goods and services that are not taxed.
Sin taxes provoke lobbying expenses which are a deadweight cost to the economy. They negatively affect the number of jobs and the incomes of workers involved in the value chain of the taxed product. They incentivise people to seek out cheaper, lower-quality alternatives, or to turn to the black market for their fix. And the state’s own primary justification for such taxes, raising revenues, flatly contradicts its secondary justification, discouraging consumption of harmful products.
More broadly, it seems unjust to punish citizens for the harm done to the state’s finances by one of the world’s most draconian lockdown regimes, imposed by the government itself. It seems only fair to expect government to respond to a crisis largely of its own making by tightening its own belt.
Instead of trying to extort further taxes from traumatised and impoverished citizens, Mboweni’s budget should make up for shortfalls by reducing expenditures. It could reduce the public wage bill by as much as private wage earners have had to sacrifice, stop burning money by throwing it at wasteful, corrupt and dysfunctional public enterprises like South African Airways, limit the exorbitant luxuries to which government officials feel entitled, cut down on corrupt, wasteful and fruitless expenditure, and cancel costly plans for new public enterprises such as a state-owned bank, a state-owned drug maker, and even the National Health Insurance scheme.
To bolster revenues, Mboweni should unleash the market by slashing regulations, fees and taxes that even before the pandemic had choked South Africa’s growth to death, as I argued in a previous column. We need policies to deliver more than 5% growth, per year, every year, and government expenditure is not how we’ll get there.
Are there good reasons to want to ‘placate the anti-booze and anti-tobacco brigade in the Cabinet’, in any case? I would argue that there are not.
Poor reasoning behind tobacco ban
For a start, what people choose to consume for pleasure or to relieve stress is none of the government’s business. Morality in general is none of the government’s business. Citizens are adults, and adults don’t need nannies to tell them how to live their lives and punish them for imagined ‘sins’.
Moreover, the anti-smoking and anti-drinking brigade, led by the NCCC chair, minister Nkosazana Dlamin-Zuma, has not exactly covered itself in glory.
It faces two legal challenges against the prohibition on tobacco products, one brought by the Fair-Trade Independent Tobacco Association (Fita), and the other by multinational tobacco company British American Tobacco South Africa (Batsa). In both, the government’s case seems embarrassingly weak, almost as if it’s designed to expose the irrationality of its lockdown rules.
As I’ve argued before, and as Katharine Child brilliantly wrote for the Financial Mail, the science that lawyers for Dlamini-Zuma brought to the Fita case was shoddy at best. It was riddled with ‘flawed estimates’, ‘outdated science’, ‘incorrect study references’ and ‘false claims’.
There are suggestions (though the evidence is weak) that smokers might get more severely ill should they contract Covid-19, as Dlamini-Zuma has argued. However, there is stronger evidence that this effect would be cancelled out by the fact that smokers are much less likely to contract Covid-19 in the first place. The mechanism by which smoking is believed to be protective against Covid-19 is that nicotine downregulates the expression of ACE2 protein receptors on the surface of human cells, which are the same receptors that SARS-CoV-2 binds to. Fewer available receptors, less virus.
Although arguments in the Fita case concluded on Wednesday last week, the court has yet to rule on the matter. It seems likely, however, that the glaring holes in the minister’s defence will feature prominently in the judge’s opinion.
In the other case, Dlamini-Zuma argued against Batsa’s claims about the losses incurred as a result of the tobacco ban by saying that the illegal cigarette trade reduces the ‘adverse economic impact’ of the ban.
Black market boom
This trade has indeed boomed, but that actually renders the ban a failure. For the minister to appeal to the thriving black market in defence of the tobacco ban is risible. It makes a mockery of the rationality of government policy, and it makes a fool of her.
It is true that black markets mitigate the economic impact of a ban to some extent. That is, after all, their purpose. But they have enriched criminals at the expense of the legal industry. They have also exposed consumers to lower quality products, and to extortionate pricing at a time when many households are already under severe financial strain. Not to mention the fact that it has made criminals of three out of every ten South African adults.
That black markets do mitigate the economic impact does not support her defence of a continued ban on tobacco products. On the contrary, it supports the immediate resumption of legal trade, to diminish the harmful effects of black markets to consumers and government alike.
It seems reasonable to expect the judge in the Batsa case to also be scathing about the absurdities of Dlamini-Zuma’s defence.
The government can avoid all the egg on its face by a stroke of a pen. It can simply pre-empt the rulings of the court and lift the prohibition on tobacco sales. Government could use its bully pulpit to proclaim that the ban has achieved its purpose. Most people will never know it did no such thing.
Surely, if alcohol, casinos, churches, restaurants and cinemas are all permitted, there can be no reason to continue with a tobacco ban that wasn’t justifiable in the first place.
Once the ban is lifted, whether by a belated court order or a smart, responsive government that moves first, raising sin taxes would be a mistake.
To raise taxes on tobacco products just because it would be profitable to do so would make government no different from the criminal cartels. Instead, it should demonstrate why legal markets are better than black markets and follow through on the president’s regular expressions of sympathy by actually easing up on its long-suffering citizens wherever it is reasonable possible to do so.
The views of the writer are not necessarily the views of the Daily Friend or the IRR