Costs
Tobacco companies ordered to pay $15B in damages
Quebec Superior Court rules against 3 tobacco companies in historic class-action lawsuit
http://www.cbc.ca/news/canada/montreal/tobacco-companies-ordered-to-pay-15b-in-damages-1.3095963
Three tobacco companies have been ordered to pay $15 billion in damages after losing a historic court case.
Judge Brian Riordan on Monday ruled in favour of two groups representing Quebec smokers, ordering Imperial Tobacco, Rothmans Benson & Hedges and JTI-MacDonald to pay for punitive and moral damages.
“It’s a big day for victims of tobacco, who have been waiting for about 17 years for this decision. It was a long process — but arrived at the destination and it’s a big victory,” said Mario Bujold, executive director of the Quebec Council on Tobacco and Health.
The legal proceedings began in March 2012, 13 years after two class-action lawsuits were initiated by groups comprising about one million people. The lawsuits, which sought $27 billion in damages, were heard together in what was touted as the biggest civil case in Canadian history.
One suit, known as the Blais File, involves individuals who became seriously ill from smoking. The other, the Létourneau File, was launched by a group whose members say they are unable to quit smoking.
The groups alleged the companies:
Failed to properly warn their customers about the dangers of smoking.
Underestimated evidence relating to the harmful effects of tobacco.
Engaged in unscrupulous marketing.
Destroyed documents.
Payment distribution
The plaintiffs with cancer who began smoking before January 1976 will get $100,000 each. Those who first lit up after that date are entitled to $90,000.
Those with emphysema will receive $30,000 in moral damages if they began smoking before Jan. 1, 1976, and $24,000 if they started smoking after that date.
For the almost one million Quebec smokers who were unable to quit, the breakdown comes out to about $130 per person.
“I am so relieved with what has happened,” Lise Blais, whose husband Jean-Yves Blais initiated one of the lawsuits, told a crowd at a news conference.
“Did you stop to think what a cigarette is? It destroys you — your health is totally destroyed,” she said, holding up two photos of her late husband, who died in the summer of 2012 from lung cancer at the age of 68.
“He would be very happy. He is a winner. He likes to win — the same as I do,” Blais said. “Seventeen years is long, but I had my hope that we were going to win — and we did,” Blais said.
Bruce Johnston, a lawyer for the plaintiffs, said tobacco companies “lied for 50 years.”
“They lied to everyone … but they didn’t just lie. They colluded to lie,” he said.
Tobacco companies will appeal
JTI-Macdonald Corp. issued a statement minutes after the 4 p.m. ET ruling came down, saying it will appeal the judgment.
“The company strongly believes that the evidence presented at trial does not justify the court’s conclusions,” the statement said.
“Since the 1950s, Canadians have had a very high awareness of the health risks of smoking. That awareness has been reinforced by the health warnings printed on every legal cigarette package for more than 40 years.”
Imperial Tobacco Canada said it was extremely disappointed and will also challenge the ruling.
“Today’s judgment ignores the reality that both adult consumers and governments have known about the risks associated with smoking for decades, and seeks to relieve adult consumers of any responsibility for their actions,” said Tamara Gitto, vice-president of Imperial Tobacco Canada.
“We believe there are strong grounds for appeal and we will continue to defend our rights as a legal company.”
Gitto said a Gallup poll in 1963 confirmed that 96 per cent of Canadians were aware that smoking may cause lung cancer.
“Even though the judge expressly found that the public knew of the material risks associated with smoking for decades, he nonetheless holds Imperial Tobacco Canada and the two other tobacco manufacturers responsible.”
Rothmans Benson & Hedges also announced it will appeal the Quebec Superior Court’s decision.
In spite of an appeal, the judgment says that $1 billion must be paid out.
“The Court orders the provisional execution of the judgment notwithstanding appeal with respect to the initial deposit of one billion dollars of moral damages, plus all punitive damages awarded,” said the 276-page ruling.
The seven salvos of sin (taxes)
Tobacco kills one-third to one-half of all people who use it, on average 15 years prematurely. The World Health Organization (WHO) has a target of a 30% reduction in smokers by 2025; but this is one target that would be great to exceed. Alcohol-attributable cancer, liver cirrhosis, and injury caused 1.5 million deaths globally in 2010.
http://blogs.worldbank.org/health/seven-salvos-sin-taxes
Recently, the representatives of ministries of finance and ministries of health, as well as a host of civil society organizations and international organizations, met in Manila to consider lessons to be drawn from the international experience surrounding so-called sin taxes.
What is a sin-tax? It is a tax that is levied on products or services that are socially costly, thus adding to their price and contributing to state revenue. These type of taxes are levied by governments to discourage individuals from partaking in such activities without making the use of the products illegal. To have so many countries from the East Asian region come together at the World Bank-organized event in Manila, sitting together, was itself a symbol of the emerging interest and consensus around issues concerning sin taxes.
Taking a cue from the catchy campaign around seven wins to advance the recent successful passage of a major Sin Tax Reform in the Philippines, and based on the discussion in Manila, I suggest we consider the seven salvos of sin taxes, as follows:
It’s mainly a health issue; it’s only secondarily a taxation issue. The health consequences of continuing to smoke are dire — tobacco is projected to cause 1 billion deaths in the 21st century, ten times what it did in the 20th century, or currently 5.4 million per year. Therefore, any delay is a costly delay; there should be a ‘bias for action,’ striving to make smoking less attractive to those susceptible to engaging in it. East Asia in particular has cigarettes that are affordable. They are packaged (including by single stick) to minimize access costs. This region accounts for a lion’s share of the world’s smokers. Indonesia, alone, accounts for 5% of the world’s smokers, with two-thirds of men and about 7% of women smoking, and quite heavily, as well as a distressing 18% of children age 10 to 14 years.
Market segments matter. The behaviors across the market segments are quite distinct, with noteworthy differences in elasticities across product categories and prices, for example. Smokers may be inclined to shift between (down) product categories, especially when a price increase is induced through the levying of an additional tax or increase in tax rate. Cigarette companies manage their product categories and packages to offer new attractions to smokers across the different market segments.
Arguments against increasing tobacco tax rates are spurious. The industry – represented by growers, manufacturers, distributors and advertising outlets – are collectively a special interest. They mount arguments to try to galvanize public opinion, or create some forms of fear. One of the most often used is the suggestion that increased rates lead to smuggling. In such circumstances, it is important to reframe the argument. The issue is improving tax and customs administration so as to stamp down on illicit trade, rather than being held hostage by such trade and some poorly specified notion of smuggling.
Earmarking can help. Generally, public finance practitioners do not like earmarking, as it can contradict the general efficiency objectives of the public budgeting process. But this is one area where I am prepared to support earmarking in its soft form.
Earmarking can assist in making the argument for sin taxes compelling to the public; it can build trust in the public budgeting system, something which is needed in many countries in East Asia. Definitions concerning the soft and hard forms of earmarking are not uniform. In fact, earmarking as an idea seems to be malleable and ductile. These are strengths, not weaknesses. Institutional development has shown numerous cases where jurisdictions have started with earmarking, but through time have moved away from that, as confidence has emerged in their public budgeting processes. Health promotion – based on the idea that prevention is better than cure – sprang to life in the 1980s; it has made a valuable contribution to public health and should be supported by earmarked taxes. Earmarked taxes can also be applied for general public health purposes. For example, Philippines, Thailand, Egypt, and the UK earmark sin taxes for health.
Tax design matters a bit. It is desirable to have automatic annual adjusters built into the law so that excise taxes keep pace with rising incomes and aspirations. It is also noteworthy, that as with many taxes, more tiers create more tears. In other words, the more tiers for differentiating the types of tobacco products (maybe origin, price or quality) the more complicated the tax structure and the more wiggle room given to the tobacco industry for maneuver. Indonesia probably has the most complex (and industry-friendly) tobacco excise regimes in the world. Specific design features can make practices like ‘front-loading’ more difficult for the tobacco companies to sponsor. The challenge to reduce smoking requires numerous other interventions, as well as the use of taxation.
Build an evaluation system into the reform package. The public sector worldwide is beset by good ideas, but around which governments often fail to build tracking systems to measure the changes in behaviors (good and bad). The best time to design these systems is at the start; the Philippines is a good example of doing that. Their sin tax reform is controversial; one way to manage that controversy is with good data about the effects of these reforms. This means building into the reform package, evaluation and data collection on both the effects on the taxation side and also the spending side.
It’s a special time for tobacco taxes. The global move toward universal health coverage, the growing awareness associated with smokers’ health, the revenue need and the institutional appetite for these forms of taxes have probably never been stronger. Cigarette taxes can boost tax intake considerably. Even at current low rates, Indonesia collects more than 1% of GDP in cigarette tax revenue. For countries looking at the transition from lower middle-income status to higher income status – to escape the so-called middle-income trap – arguably, it is a reform that shows institutional maturity and a society that is making the transition to the generally higher performing public institutions associated with higher incomes. The Philippines case showed that, notwithstanding an entrenched industry and integration with growers, real reform can take hold.
The Tobacco Dilemma: Corporate Profits or Customers’ Health?
For those of us who have been impacted by the death of loved ones due to the negative health consequences of smoking, the recent announcement by Larry Merlo, the CEO of the U.S. pharmacy chain CVS, to stop selling tobacco products in the chain’s 7,600 stores, was a ray of hope and a step toward a future when public health concerns trump short-term profit motives.
http://blogs.worldbank.org/health/tobacco-dilemma-corporate-profits-or-customers-health
CVS’s decision should be applauded and emulated as a good corporate example of the adoption of “shared value” principles,which combine social and economic concerns. Indeed, this was not only a courageous decision to help prevent more societal harm caused by tobacco addiction, but also a business-savvy decision for a man who lost his father to lung cancer.
While the company stands to lose about US$2 billion in annual revenues (1.6% of its total sales of US$123 billion), he is positioning CVS for the long term as an important health care provider, not just for selling prescription drugs but also for offering basic health services such as flu vaccination and preventive care for chronic conditions in its fast-expanding “MinuteClinics” network.
Governments, private and non-governmental stakeholders, and international donors will do well to fully understand the business rationale of CVS and rethink their development strategies and assistance programs to make tobacco control a national and international priority. As Mr. Merlo noted in a recent interview with the Financial Times, selling tobacco in CVS stores “had become a contradiction to the health outcomes that we were trying to achieve.”
So, if governments, private and civil society actors, and international donors are committed to maximize the well-being of the population, they must redouble multisectoral efforts towards tobacco control to avoid falling into the same contradiction that CVS faced.
Let’s be clear. As World Health Organization (WHO) experts pointed out years ago, tobacco is the only consumer product that eventually kills half of its regular users if they follow its manufacturers’ recommendations. So how to stop this “legalized” carnage across the world?
Besides corporate actions such as CVS’s decision,which will contribute to further reduce the social acceptability of smoking, the 2003 WHO Framework Convention on Tobacco Control (FCTC)—ratified by the majority of the world’s countries—offers a number of anti-tobacco measures, including high taxes on tobacco products and regulations to protect people from exposure to tobacco smoke in public places.
The good news is that the effective application of the FCTC measures is both good for public health and for the economy at large. On one hand, these measures could yield cost-effective prevention for up to one-third of the world’s cancer cases— a positive step since cancer treatment is already unaffordable in many countries. On the other hand, as suggested in a 2012 analysis conducted for the U.S. government by the Congressional Budget Office, an increase of 50 cents per pack in the U.S. excise tax on cigarettes and small cigars (adjusted each year to keep pace with inflation and, in the long term, with the growth of people’s income), and the resulting impact on people’s behavior and health, would increase U.S. federal revenues by about US$41 billion and reduce spending by US$1 billion through 2021.
Almost US$38 billion of the additional revenues would come from the higher excise tax, and another US$3 billion in revenues would stem from improvements in health, primarily from additional earnings as better health allows people to work more and be more productive. Spending on the U.S. government’s largest health care programs, Medicare and Medicaid, would also decline slightly during that period as people’s health improved, while spending on Social Security would increase slightly as more people lived longer.
CVS CEO Merlo’s decision comes on the heels of another courageous position taken by Lt. General Ian Khama, President of Botswana. In spite of strong opposition from the tobacco industry, President Khama announced in his State of the Nation speech on November 4, 2013, a 30% increase in the tobacco levy on top of the 48% excise tax on tobacco adopted by the five Southern Africa Customs Union (SACU) countries, of which Botswana is a member.
Taking into account public health and economic evidence, and building upon these examples of bold leadership, we need to continue to keep pushing tobacco control across the world as a moral and development imperative. And only then we will truly honor the legacy of our loved ones who suffered and were lost because of lung cancer and other tobacco-related diseases.