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The price of the most popular priced category of 20 filter tipped cigarettes increased from €4.77 (specific tax €2.07 (43.4%), ad valorem €0.90 (18.9%), VAT €0.80 (16.7%), trade content €1.00 (21.0%)) on the 1 December 2000 to €8.55 (specific tax €3.67 (42.9%), ad valorem €1.56 (18.2%), VAT €1.48 (17.4%), trade content €1.84 (21.5%)) at the end of November 2010, an increase of €3.78 or 79.2%. Figure 1 outlines the trends in taxes and prices over time. Of the €3.78 increase, €2.42 (64.0%) was government increased taxes via the annual budgetary statement and the remaining €1.36 (36.0%) was imposed by the tobacco trade. Table 1 shows the annual increase by each party over the period. In three of the years the government did not increase tobacco taxes (2000, 2004, 2005) in their annual budget. The tobacco trade increased the price every year. On two occasions when government did increase taxes (2001, 2009), the tobacco trade increased the price by an even greater margin.

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Figure 1

Annual trends in taxes and retail prices, in cents, over time.

The Department of Finance provided the author with pre-budget submissions prepared by the tobacco industry for each of the years under study. These included letters or documents outlining the tobacco industry's position on price increases and related tobacco matters, or copies of presentations made directly in person to the Minister for Finance and his officials.

For each of the years in the study, submissions were made by the Irish Tobacco Manufacturer's Advisory Committee (ITMAC). The ITMAC is an unincorporated trade association which represents its constituent members: Gallaher (Dublin) Limited (parent company—Japan Tobacco Inc); John Player and Sons Limited (parent company—Imperial Tobacco Group) and PJ Carroll and Company Limited (parent company—British American Tobacco Group). These companies manufacture or distribute some 98% of all tobacco products sold legally on the domestic market in Ireland.

Table 1 outlines the key themes that emerged from tobacco industry submissions for each year. The three predominant themes emerging throughout the period were that: increasing taxes would increase the illegal trade, Ireland's taxes on tobacco are among the highest in the world and that government should not increase taxes in the forthcoming budget.

From 2000 to 2007, the tobacco industry consistently focused on the situation in the UK where they maintained that the UK tobacco tax policy had led to the huge illicit trade problem therein and that if Ireland followed the UK example of a high tobacco tax policy it would suffer the same illegal trade problem. That was contrasted with the so-called windfall benefit that Ireland was getting in the earlier years from having a lower price than in Northern Ireland (part of the UK), which facilitated cross border shopping to the benefit of the Irish economy.

However, as Irish tobacco prices increased the tobacco industry focused on the potential negative impact that cross border trade would have on government revenues. As the European Union enlarged, workers from lower income countries came to work in Ireland bringing with them large amounts of tobacco as they move from home to Ireland and back again. In addition, more Irish people were travelling abroad on holidays and returning with large amounts of tobacco from lower priced countries. Towards the latter end of the period, the tobacco industry consistently provided data, collected and collated by the tobacco industry, on the apparent extent of the illicit trade in Ireland, both in terms of smuggled cigarettes and in terms of the presence of contraband cigarettes. These data items formed a significant part of its submissions in the most recent years as it estimated that the illegal trade increased from about 13% in 2006 to 20% in 2009, in contrast to government estimates of 14% in 2009.

In addition, throughout the years involved, the tobacco industry occasionally dealt with issues such as the impact of tobacco tax increases on: inflation, poorer smokers, the legitimate trade and sales to minors (as illegal traders would not ask for proof of age).

The tobacco industry was also consistent throughout the period as to how it commented on previous tax increases by the government. It was never highly critical; rather it expressed disappointment when it did mention it in its pre-budget submissions. Of note was the complete absence of any reference to the price increases that it imposed on tobacco products. However, most strikingly, in its 2009 submission, which was far the strongest in terms of arguing for no tax increases on tobacco products it stated ‘Sadly, being the highest priced country in the EU for tobacco products, Ireland is already regarded as a paradise for tobacco smugglers. According to our estimates, one in every five cigarettes smoked in Ireland—that's 20 percent of the market—is accounted for by product on which no Irish duty is paid…in our view, every cent that is added to the price of a packet of cigarettes will only drive these figures upwards to a point where in the next 1–2 years, we believe some 25% of the market will be accounted for by non Irish duty paid product. It is an unhappy equation which we all must take note of if ordinary, law abiding smokers are not to be driven into the hands of criminals in even greater numbers than at present.'

Subsequently, in the following fiscal year (December 2009–November 2010) the government did increase tax by 21.5 cents, the tobacco industry, despite its protestations in its pre-budget submissions increased price by a further 23.5 cents.