Governments everywhere face falling revenues, while their expenditure explodes and their unfunded pensions commitments threaten fiscal catastrophe. Some of the most innovative solutions to this dilemma are coming out of China. The authorities in Gong’an county recently ordered their civil servants and teachers to smoke 230,000 packs of the local brand of cigarettes each year. As local official Chen Nianzu pointed out, “The regulation will boost the local economy via the cigarette tax.” This kind of creative thinking makes China the envy of the world. But it is merely the beginning.
Cigarettes have always been a simple way to get the people to hand their money straight back to the government for more productive use. (Across Europe, roughly 75 per cent of the price of a packet of cigarettes is tax.) However, cigarettes have traditionally been thought of as food or entertainment products with a tax attached, when they are in fact taxes with a product attached; a cigarette is merely a tube that you suck on. Anything can be packed into that tube. Western governments adjust the tax to maximise revenue, when they should be adjusting the product.
But the west has problems carrying out such revolutionary programmes as its cigarette companies are in private hands. The Chinese government, however, is ideally placed to improve cigarette quality. The state-owned China National Tobacco Co is the largest manufacturer of tobacco products in the world. (It has an almost total monopoly in the People’s Republic—only 3 per cent of cigarette sales in China are of foreign brands.) They make, sell—and tax—1.7 trillion cigarettes a year. So China is free to take the best aspects of western cigarettes and build on them.
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