The EU’s pro-cancer tax policy

If there’s anything the EU does well, it’s petty bureaucratic interference that worsens the problem it’s purporting to fix. It was, then, probably a mere matter of time before this approach would lead them to blunder towards e-cigarettes and propose policies that, effectively, promote cancer. The EU is making moves towards increasing tax on e-cigarettes by classifying them as a tobacco product and setting a minimum excise duty. This will, of course, lead to the price of e-cigarettes significantly increasing.

The logic appears to be that smoking is a demerit good that harms the consumer and imposes third party costs. Given the market fails to factor this into the price, the government steps in and places a ‘sin tax’ on the good, in order to discourage its harmful consumption.

Regardless of your views on the effectiveness or desirability of these policies with regards to smoking, there is a small problem with treating e-cigarettes the same way. They do not contain tobacco. Vaping, whatever its risks and flaws, is not smoking. In fact, most vapers use e-cigarettes as a substitute in order to give up smoking, with almost one million doing so successfully.

Whilst largely motivated by the (comparatively) lower risks of inhaling nicotine without tobacco, the considerably lower price of e-cigarettes is another major attraction (the smoother feel, the better taste, and the less unpleasant smell don’t hurt either). Anyone familiar with basic economics understands that raising the price of a product will make more people buy a substitute instead. In the case of smoking, which is more than a little habit forming, this is even more likely to lead people to stick with their established habit rather than switching to the alternative.

It is true that the risks of vaping are not yet fully known. However, the research that has been done indicates that it is 95% healthier than smoking. And, in any case, punitive taxation and crushing regulation can only be justified when the cost of intervention is outweighed by the activity’s perceived cost to third parties. It is arguable that this standard has been met for tobacco. It is absurd to think it applies to vaping.

The motivation for this move is probably the tax revenue that EU Member States fear they will lose if people switch from tobacco to vaping. This seems a poor excuse for imposing a policy that effectively protects carcinogenic products from competition. This also appears to be an incredibly misguided move in the build-up to the Brexit referendum.