'HIGHLY IRRESPONSIBLE': Trudeau Liberals' tobacco, vape tax increase likely to drive illegal market

Finance Minister Chrystia Freeland hopes the federal government will rake in $1.7 billion from an increase in sales tax on tobacco, but many point out the move will fuel the illegal market. Tabled in the House of Commons Tuesday, Freeland’s budget Fairness For Every Generation, which misses deficit spending targets by 95%, proposes an increase of $4 per carton of tobacco, with an additional $1.49 “automatic inflation increase.” It went into effect Wednesday. Further, a 12% tax increase will be applied to all vaping products, effective in July. Prime Minister Justin Trudeau’s Liberal government hopes to accrue an additional $1.36 billion over five years with the tax hike on tobacco, and $310 million on vaping, for a total of $1.67 billion. The Trudeau Liberals say the intention behind their move to pump up taxes on smoking and vaping is to discourage people from partaking. However, there is some concern tax hikes aren’t the way to go because it will encourage people to buy these products illegally, thereby driving the illegal tobacco market. "Increasing taxes on tobacco only pushes more people to buy contraband tobacco which funds organized crime," Sara MacIntyre, Convenience Industry of Canada Council (CICC) VP of Western Canada told the Western Standard."It was a highly irresponsible move by the federal government. It will certainly not result in more revenues as consumers will go to the illicit market."CICC President and CEO Anne Kothawala added the Trudeau Liberal administration "continues to miss the point on this issue, further increasing taxes will result in more Canadians turning to the illicit market where anyone at any age can purchase illegal products at significantly cheaper prices than in the legal market.""While government thinks that raising taxes on tobacco and vape products will generate revenue, the reality is that this measure will do nothing more than supercharge the contraband tobacco and nicotine product market, which currently costs the government more than $2 billion in uncollected taxes," she said."Continued inaction on the growing illicit market will contravene the government’s overall public health objective of restricting youth access as illicit products are more accessible, often at the click of a mouse, with no age restrictions."Sebastien Dolan, director of regulatory affairs for Imperial Tobacco, slammed the Trudeau Liberals for grabbing at “low hanging fruit.”“The feds just announced a huge, huge spending increase. They have to fund it somehow,” said Dolan"They’re running a huge deficit and so why not increase tobacco taxes? It’s often a no brainer for them, despite the unintended consequences that they very well know it will have.”Kory McDonald, Director, External Affairs, Rothmans, Benson & Hedges, said the Trudeau government's "decision to increase tobacco taxes above and beyond the rate of inflation will only expand Canada’s growing contraband tobacco market, putting more money in the pockets of organized crime while making our communities less safe.""As more and more consumers buy illegal tobacco to avoid these new taxes, government revenue will only go down, not up, meaning less revenue for vital public services.”The company's manager of illicit trade prevention Danny Fournier noted Canadians don't need more tax on tobacco, "what’s really needed, is federal leadership, coordination and resources to put an end to this organized criminal activity that’s directly linked to gun and drug trafficking, and potentially putting cigarettes in the hands of kids.”Contraband cigarettes are manufactured on key native reserves in Ontario and Quebec, made from raw leaf bulk tobacco smuggled into Canada and onto the reserves. The Six Nations reserves in Southwestern Ontario and the Kahnawake reserve in Quebec are Canada’s manufacturers of contraband tobacco, according to a study by Canadian research firm Ernst & Young, commissioned by the CICC. From these two centralized locations, “the contraband is distributed to other reserves, particularly the Tyendinaga Mohawk Territory in Ontario and Kanesatake in Quebec, as well as reserves in Northern Ontario and other provinces nationally through a network of sellers, both large and small, the larger of them involved in other organized criminal activity.”The study cited the COVID-19 pandemic as a unique opportunity to ascertain just how active the illegal tobacco market is because lockdowns halted sales on reserves, driving people to buy cigarettes legally. Sales nationally leapt 24% in June 2020, with some provinces up 45% from the same time a year prior. The contraband tobacco market currently makes up for about one-third of consumption in Ontario, and about 30% federally. These cigarettes are sold at a substantially reduced price, about one-tenth of what is available behind the counter at a convenience store. CICC posed recommendations following the study, with the number one suggestion being “No tax increases.” “The first pillar of a successful plan to combat illegal tobacco is a prudent tax policy that keeps legal tobacco costs from rising until illegal tobacco can be significantly removed from the market. Provinces and the federal government should institute a freeze on any tobacco tax increases,” wrote researchers. Conservative health critic Stephen Ellis pointed out this cash grab to fund the Liberal-NDP coalition government’s free prescription drug program is “really about the preservation of the costly coalition” and their conspiring to delay the federal election. Meanwhile, Dr. Cynthia Callard of Physicians for a Smoke-Free Canada told the Western Standard she acknowledges concerns that the illegal tobacco trade is a problem, but thinks the federal tax is “not going to drive illegal supply” because it’s “too small an amount of money.” If there is to be any behaviour change, it will be choosing to not buy tobacco in the first place, Callard says. “We should be concerned about illicit supply and there is a fair amount of illicit supply of tobacco in Canada. And it is a problem from a health perspective and a community perspective,” said Callard. “This particular tax increase, it's not enough” to spur the illicit tobacco market, said Callard. “This tax increase is not going to drive illegal supply. It’s too small an amount of money.”“Forty cents on a package of cigarettes that costs already $13, $14, $15, it might marginally influence someone to say, oh, that’s 40 cents more per package, now I’m gonna go and drive to an Indian reserve in Ontario, Saskatchewan, Manitoba, to find someone who's got an illegal source.”“It's far more likely they think, ‘maybe it’s time to quit.' So the relationship between tax rates and contraband is not as clear.”“Probably at least a quarter of the cigarettes sold in Canada are illegal,” she agreed, but argued more people would smoke if legal vendors lowered costs or if there were less taxes.“If we reduced the price of cigarettes in order to compete, we would have so many more people smoking, so much more in health care costs. So the fact that there's an illegal market does not mean that we should be abandoning the public health measures that work for the illicit market.Callard mentioned if tobacco companies are “genuinely concerned about” the illegal tobacco market, they could “reduce their profit margin,” noting tobacco companies have “raised their own prices by more than $4 over the last couple of years.”