World Trade: Tobacco's Taxing Dilemma

The world's tax collectors owe a great debt to Britain's wily King James I, who in 1604 concocted that subtle fiscal burden, the tobacco tax. Practically every modern government depends on taxes from tobacco for a large share of its income, and dozens have gone a step farther to create huge tobacco monopolies that provide revenue while making work for millions of farmers, factory hands, salesmen and bureaucrats. With evidence mounting that smoking causes cancer and heart disease, many governments are now faced with a dilemma: whether to put public health ahead of fiscal health and discourage the smoking urge among their people.

The problem has attracted a lot of attention in the U.S., whose Surgeon General has explicitly warned against the hazards of smoking. U.S. tobacco taxes this year will produce $1.4 billion in revenues for the states—New York State has just doubled its tax on cigarettes—and another $2 billion for the Federal Government. The stakes are proportionately much higher for governments that monopolize the growing, marketing and trading of tobacco. Flourishing tobacco monopolies provide up to 5% of the national budget in France, 10% in Italy, 15% in Formosa. Countries as diverse as Egypt and Japan earn valuable foreign exchange from tobacco exports, which are also handled by state monopolies. Japan's tobacco trust has almost 400,000 persons on its payroll, distributes tobacco seeds to farmers and buys their crop.

Patriotic Puff. Tobacco monopolies often become involved in politics and social-welfare plans. Austria helps to support its war victims by granting them licenses to sell state-made tobacco products. Communist governments value their tobacco trusts as both a prime source of income and a useful sponge to soak up cash that the restless people cannot otherwise spend because of the shortages of consumer goods. Red Bulgaria counts upon its golden leaf for 10% of its export income.

Many governments have reacted to the smoking-and-health reports by hoping that they would go away. Influenced by the fact that France's tobacco monopoly (founded by Napoleon) now earns $900 million a year, the health ministry has done practically nothing to publicize the cancer reports. Turkey's newspapers patriotically contend that smoking of artificially flavored foreign cigarettes may be harmful but that there is no danger in enjoying the state monopoly's smokes, made from "pure" Turkish tobacco. To strengthen its own depleted treasury, the Algerian government is stepping up production in cigarette factories. South Korea protects its tobacco monopoly by forbidding the sale of foreign smokes; offenders are sometimes arrested right on the streets.

Bans on Ads. Only a few countries have tried to cut down on cigarettes. Czechoslovakia banned smoking at public meetings, opened 33 centers that offer advice on how to quit the habit. Though its tobacco monopoly earns $1 billion a year, Italy in 1955 forbade all advertising of locally made cigarettes, extended the ban to foreign smokes in 1962. Britain this year prohibited cigarette commercials on television.