Health Ministry supports proposal, says the financial savings will outweigh losses
A proposed ban on smoking in restaurants, bars and cafés has spurred a debate about how the economic consequences will weigh out, as those against the ban caution that bars and restaurants, as well as state revenue, will suffer if fewer people buy cigarettes, while supporters of the ban say the overall improved health of citizens will make up for any losses.
The discussion is not new – every time a country presents a smoking ban, the same facts and figures are raised regarding the potential losses for the hospitality industry and the state, but different analyses, both sponsored and independent, report conflicting results.
At present, an amendment to ban smoking in restaurants, bars and cafés, with a fine for violators, is being pushed by Dr. Boris Šťastný of the Civic Democrats (ODS), who said this autumn he would present a proposal to the Chamber of Deputies with the support of Health Minister Leoš Heger. The ban would build on legislation that took effect in July 2010 requiring restaurants to display on their doors whether they are smoking or nonsmoking establishments, and requires that nonsmoking sections be enclosed.
The Hotels and Restaurants Association of the Czech Republic (AHR ČR) has criticized the proposal, saying that 75 percent of its members already have nonsmoking areas and that the ban would result in a loss of “a considerable part of our guests.” The ban’s most vocal opponent, Teplice Mayor and MP Jaroslav Kubera (ODS), said it would hurt the balance of the economy.
Studies on smoking bans in cafés and restaurants fall on both sides, though many of the studies on bans in U.S. cities found they had negligible effects on bar and restaurant businesses. However, Jonathan Tomlin, now director of Navigant Economics analysis firm, wrote a report about the effect of a smoking ban in India, and found it negatively affected the overall value of the hospitality industry. He later wrote that those results were applicable elsewhere, where he said studies showing nominal impacts were over-simplified.
The current excise tax on cigarettes is 1.12 Kč per individual cigarette, or about 40 Kč per pack. The VAT on cigarettes is 20 percent. Revenue from excise taxes on cigarettes is around 40 billion Kč per year, while the costs of smoking to the state have been estimated at between 60 billion Kč and 100 billion Kč.
Advocates say this difference is proof that savings in social and healthcare costs would outweigh tax losses, while those against the ban criticize such a calculation as an overly simplified approach that doesn’t take into account the impact of reduced smoking on the tobacco industry, like job cuts.
Thinking about the decrease in tobacco use as loss of tax money was “not a good way of looking at it,” according to Libor Dušek, an economics professor at CERGE-EI.
“Reducing smoking does not mean people have less money. … They will spend their money on other items taxed through the VAT. If there is a reduction in smoking, there could be positive consequences for the government due to the reduction in associated treatment costs,” he said. “It’s very naive.”
In Hungary, which is poised to implement a smoking ban in 2012, the Tax and Excise Office released a report saying the ban would reduce state budget revenues 118.6 million euros the first year of implementation, as well as cause a loss in excise taxes revenues from cigarettes and alcohol of 2.2 million euros. The loss of VAT from cigarette sales was expected to be between 18 million and 31 million euros.
The Czech Finance Ministry has not yet done any similar study, according to spokesman Ondřej Jakob, though evaluation of the amendment’s impacts will follow its official proposal.
“I can’t really think of this in fiscal terms, because you could say that the consumption of any poison by people at the age of 60 is what is best for the government,” Dušek said. “But we are not here for government revenues. We pay the government to improve our lives, and it’s a part of the picture, but a small part. Actual health is what’s important.”