Question 1 Excise tax rates on tobacco and tobacco products increase in March and September based on average weekly ordinary time earnings. Perform a web-search to determine the amount of excise tax...

Question 1
Excise tax rates on tobacco and tobacco products increase in March and September based on average weekly ordinary time earnings. Perform a web-search to determine the amount of excise tax charged (as at 1 January 2018) on a standard 20 packet of cigarettes. If the standard packet is sold for a price of $30, how much is the before tax price?
Illustrate using the demand and supply model, the effects of a tax imposed on sellers of tobacco products. Explain in detail who pays the tax (buyers and/or sellers) and discuss the role the price elasticity of demand plays in determining the impact on prices and quantity of tobacco products sold. Be explicit about any assumptions made in developing predictions.
Tobacco tax is considered as one of the effective way to deal the tobacco related issues. An increase in the price of tobacco through the imposition of taxation is most effective measure to reduce the smoking related diseases and even death. Taxation is a desperate attempt to control the pre-mature death due to smoking. The taxation on tobacco products s widely recognised is most effective tobacco control prevention method socially among the low-income profile and the youth.
Australia has a long history of tobacco tax imposition since 1991. In order to maintain the real price of cigarettes high, Federal government exercised tax in every six months along with the line of CPI. The government has imposed several excise duties on cigarettes between 1993-1995. During the recent times, Federal government has taken an aggressive move to reduce the consumption of cigarettes and other tobacco related products. On a single move, Australian government increased the custom duty rate on tobacco products by 25% in 2010. Then federal government has moved to bi -annual indexation based on average weekly ordinary time earnings. (AustralainGovernmentdepartmenofHealth, 2018)
Currently Australia has imposed one of the toughest plan among its peers. In 2017 the government has imposed 12.5% tax for every year continuing for the next four years. According to the recent price of a pack of cigarettes, a 12.5% tax for next four years (2017-2020) will end up with a price of A$40 per pack in 2020. Australia has one of the highest price of cigarettes and a 12.5% raise in every year will lead to increase the price by 69%. The current price of cigarettes in Australia is A22 per pack which is equivalent to US $17. The duty-free tobacco allowance has also reduced from 50 to 25 cigarettes. Over the forward estimated period Both the measures are expected to generate an additional revenue of $4.7 billion. If a standard 20 packet of cigarettes is sold at a price of $30, then before the imposition of tax, the price can be calculated as $30-12.5% of $30 = $30- $3.75= 26.25 (Katherine T Hirono1, 2017)
Countless studies have confirmed that lower income group especially the poor are most vulnerable for smoking. Smoking given happiness at least in the short run. But in the long run it results numerous heath issues like lung cancer, heart attack and high blood pressure. Health experts have con firmed that smoking is one of the common cause behind the premature death across the world. Australia is also of no exception. A growing number of smoking related pre-mature death is reported in Australia. Imposition of high excise duty is an attempt to protect public health and to reduce heath are cost of the nation. But critics claim that imposition of excise tax disproportionately harm the poor. Moreover, it is hard to believe that it would provide the desired results. Since smoking is addictive and people smoke more because of advertisement and pressure from the peer group, smoking consumption will not reduce if it becomes unaffordable. (McCann, 2017)
Impact and incidence of excise tax:
The impact and incidence of tobacco tax an be analysed with the help fundamental demand supply model.
SS+T
Price
DD
SS
Tax
E1
P1
E0
P0
P2
Quantity demanded
Q0
Q1
DD is the demand curve and SS is the supply curve of cigarettes. Before the imposition of tax, the market was in a equilibrium at point. P0 is the equilibrium price and Q0 is the equilibrium quantity. Excise tax is nothing but considered as an increase in cost of production. It will result a upward shift of the supply curve. S+T will be the new supply curve as the curve shifts upwards exactly by the amount T. E1 is the new equilibrium point where the price of tobacco has increased to P1. Hence the imposition of tax would lead to increase the price of tobacco and tobacco related products from P0 to P1. At the same time, the tobacco consumption has also come down from Q0 to Q1.
Consumers are finally...