Government stops tax rises on Swiss cigarettes

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Investec
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Swiss cigarette prices will not rise over the coming years unless manufacturers increase the underlying price. On Tuesday, Switzerland’s Council of States (upper house), withheld permission to allow the Federal Council (cabinet) to continue hiking the tax on smokes.

From 2005 to 2015, the price of Switzerland’s best selling cigarettes rose from CHF 6 to CHF 8.50. Of this increase only CHF 0.90 cents related to tax. The rest, CHF 1.60, came from an increase in the underlying price. The tax has fluctuated between 52.8% (2015) and 56.7% (2009) of a packet over this period.

Every 10 cent tax increase raises roughly CHF 50 million, which is put into Switzerland’s social security pot, a fund that pays pensions and disability benefits. The total raised of between CHF 1.986 billion (2009) and CHF 2.396 billion, falls significantly short of the CHF 5.6 billion estimated health and societal cost of tobacco calculated by the Swiss Public Health Office.

The last time the Federal Council raised the tax was by 10 cents in 2013.

The reasoning presented by the Council of States for stopping the tax increases was the rise of the Swiss Franc. The upward shift in the currency has made Swiss cigarettes relatively expensive. The same packet is now cheaper in France (7.64), Germany (6.42), Italy (5.67) and Austria (5.34).

To combat smoking in Australia, the government plans to push the price of a packet of cigarettes to AUD 40 (CHF 30) by 2020, according to the Independent newspaper. The current recommended retail price for a pack of 25 is around AUD 27 (CHF 21). Australia’s tough stance on smoking seems to be working. In 2015, only 14.9% of Australians over 15 smoked, compared to 23.2% in Switzerland¹. Switzerland had a higher smoking rate in 2015 (23.2%) than Australia had ten years earlier in 2005 (20.5%) – see PDF.

A detailed study in 2010 shows that smoking tobacco was the second biggest death risk in the US, after poor diet. That year in the US, tobacco smoking took more than 450,000 lives, and led to an average of over 11 years of disability – see chart.

About Investec

Investec is a distinctive Specialist Bank and Asset Manager. We provide a diverse range of financial products and services to a niche client base in three principal markets, the United Kingdom, South Africa and Australia, as well as certain other geographies. Investec’s strategic goals are motivated by the desire to develop an efficient and integrated business on an international scale through the active pursuit of clearly established core competencies in the group’s principal business areas.

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