Section 1

1 Introduction Due to studies in health and non infectious diseases, it has become evident that smoking cigarettes can cause a wide variety of detrimental diseases. In response to this the government have conducted several anti smoking campaigns. This report will analyse the Rudd governments 2010 anti smoking campaign and the economic impacts it incurred. 2 The Issue In 2010 The Rudd government raised the taxes on cigarettes by 25%, this new tax was introduced quickly, sparking complaints from suppliers and consumers alike, as they had little time to adjust to this increase in price and left many people wondering if the government had ulterior motives in placing this tax. 3 Who is affected? In an economy many groups are interconnected, and by imposing a tax it is inevitable to impact several parties. 3.1 The government By increasing the cigarette tax the government receives an increase in revenue, furthermore due to the increase in price it is estimated that 87000 people will quit smoking, and thus reduce medicare costs. 3.2 Smokers The consumers and the people the tax is aimed at, and will have varied effects depending on the individual, however they can be separated into two main groups 3.2.1 The lower income earners It is this group that will get hit the hardest as the price increase has forced them to go cold turkey overnight. 3.2.2 The high income earners The high income earners will not be affected as hard, it is estimated that high income earners will be 13 times less likely to quit smoking, since they earn enough to overlook the price increase, and as tobacco is an addictive drug, many would be willing to pay. 3.3 Tobacconists The suppliers of cigarettes are seeing a spike in demand before the tax is implemented not only from smokers but from other retailers as well, because they know if they can sit on it for a month or two they can make a nice windfall gain. 3.4 Future generations It is estimated that 25,000 children will not take up smoking because of this price increase.

4. Economic Theory 4.1 Supply and Demand The Law of demand states that when there is an increase in price, there will be a decrease in demand. Conversely the law of supply states, when there is an increase in price there will be a decrease in price. In relation to the tax increase, the tax is pushed onto the consumer thus increasing the overall price, decreasing the demand and, and increasing however there was a shortage in goods before the tax was implemented, Individual have been purchasing what they can afford. However after the changes have been made, most likely the market will find a new equilibrium. 4.2 Future Expectations As mention in 4.1, before the tax was implemented, there was a rush to purchase as many cigarettes as possible, as it was known that there would be an increase in price in the near future. every single person who smokes will try and do whatever they can to get the product at the cheapest price they can. Furthermore some retailers have become consumers themselves, if they can sit on it for a month or two they can make a nice windfall gain. This increase in demand has created a shortage. Where there isnt enough supply to make up for demand. However once the tax is implemented, then the demand will decrease.

4.3 Elasticity Elasticity is the study of how demand changes when there is a change in price. The main issue with raising the price of cigarettes is that cigarettes are a non-elastic good. Meaning even though the price is facing a 25% increase in tax, the number of people buying cigarettes will not change substantially. Even if it goes up to $25 and you really want to smoke, youre going to buy it anyway.

4.4 Government Intervention The kind of tax the government is placing is called an exercise tax, where the tax is per unit, on an item. The tax is pushed onto the consumer and creates revenue for the government.

4.6 Opportunity cost The increase in price makes individuals, particularly from the lower income earners to re-evaluate the opportunity cost of smoking. Is it worth cutting into your budget and continue smoking, or give it up to save money. Charity workers are anticipating a surge in calls for help as people divert money from the necessities of life to feed their smoking addiction. 5 Ethical Issue Because of the addictive nature of cigarettes, the estimated 100 000 people who are going to quit is because they are most likely from the lower bracket of income earners who cannot afforded paying the extra tax. Furthermore as cigarettes are inelastic goods, raising the price of cigarettes may not be the most efficient way of stopping people smoking. Dr Andy Marks stated that it would help people more if the Government placed more of an emphasis on educating people about the benefits of choosing a healthy lifestyle. Because of this, people are questioning if the government is just trying to increase their revenue, its just typical government, covering their own ass.

Section 2
1. Introduction In todays environment, there is an increasing emphasis on sustainability and responsibility due to increasing awareness on global warming and environmental damage that occurs, due to consumption. In response to this the Gillard government is implementing the carbon tax. This report will analyse the carbon taxs goal and the impacts upon the relevant parties involved. 2. The Issue For the past decade the government has talked about a carbon tax where companies pay a tax for the amount of carbon dioxide emissions that is released in the process of producing goods. Recently under the Gillard government this tax has passed legislation and will come into effect in the near future, impacting households and organisations alike. 3. Who is affected 3.1. The companies The group that the tax is aimed at and will affect the most, with the 500 biggest polluters will, from July 1, have to pay $23 for every tonne of carbon they release into the atmosphere. Furthermore the ongoing tax will force companies to find or research methods which minimise carbon dioxide emissions, as in the long run it will reduce costs and maximise profits. 3.2. The consumers and households The government has taken effort into not affecting this group as much as possible, household fuel will not be taken into account of this tax, which includes gas and petrol. Although the companies will try to push this tax onto the consumers the government will be providing compensation in two ways, the first will be pushing the tax-free threshold from 6000 to 18200 effectively tripling it and thus taking out an estimate of 1,000,000 people from the income tax net. Second will be welfare payments to retirees and family payment recipients. 3.3. Internationally competitive corporations Agricultural emissions will be excluded and there will be aid for some other industries, notably steel, coal and manufacturing to ensure that they are able to complete and this tax will not bankrupt or force them out of the international market. 3.4. The government Will be generally unaffected as they are not increasing their revenue nor receiving any benefit from the introduction f this tax, however they will be regulating and monitoring the implementation and continuation of this tax.

4. Economic Theory 4.1. Government Intervention The carbon tax is an exercise tax, meaning the tax is per unit of an item, or in this case per ton of carbon dioxide emissions. The goal of the tax is to force companies to switch to more environmentally friendly methods of production and if that fails then to make the consumers make the switch. 4.2. Demand The Law of demand states that an increase in price will result in a decrease in the amount demanded from the consumer. In relation to the carbon tax, the companies will push the cost of the tax onto the consumer, effectively raising the price, when this happens the consumer will look for a similar good at a cheaper price. Through this the companies lose customers and may not be able to compete with other companies if they do not adopt more environmentally friendly methods of production to be rid of the costs of the tax, and thus lower the price of the good produced.

4.3. Costs of production The tax increases variable costs of the company, and through this raises the overall costs of the product, limiting the amount of goods a producer can afford to create and as mentioned before, forces the company to look into new, methods of production to reduce carbon emissions and to get rid of the excess costs. 4.4. Production decisions There are 3 decisions that a company must make, how much to produce, when to shutdown temporarily (short run), whether to leave or stay in the industry. However the tax affects only two of them. Due to the increase in price, a company has to evaluate how much the cost of production is going to increase by and how much their competitors have gone up by and make a decision based upon that. Whether to stay in the industry is another matter, if a company is going to be hit hard by the tax and has to invest in new methods, while their competitors are ahead of them, they might decide to liquidate and leave the industry, however this is a very drastic action and should only be done if the company is certain they have no hope of catching up in the future.

Costing the carbon tax

Nicole Pedersen-McKinnon November 13, 2011

WE'RE now to get a carbon tax. Which means, love it or hate it, we're going to have to deal with it. So just what is a carbon tax, how will it work and - crucially - how much will it really cost? A carbon tax is quite literally a tax on carbon - paid not by consumers but by companies.
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Our 500 biggest polluters will, from July 1, have to pay $23 for every tonne of carbon they release into the atmosphere. The rate will gradually increase until July 1, 2015, when it will become set by the market (ceasing to be a carbon "tax" and becoming a carbon "trading scheme" - the model the government originally wanted and why Julia Gillard has been caught out by that awkward "no carbon tax" pledge). Household fuel and agricultural emissions are excluded and there will be assistance to some industries - notably steel, coal and manufacturing - in a bid to ensure they remain internationally competitive. The idea behind putting a price on carbon is that the additional cost of high-polluting materials or processes will encourage companies to switch to cleaner ones. Until they do - or if they don't - the prices they charge us will go up. And, yes, the idea is that this will encourage consumers to switch to products from cleaner producers. In any case, there will be compensation for the additional pain to our pockets in two main ways. The first is through the tax system. The tax-free threshold will triple from $6000 to $18,200, which the government says will take 1 million people out of the income tax net (removing the need to file a tax return). Those on less than $80,000 will pay an average $300 less tax. The second prong of compensation is via welfare payments to retirees and family payment recipients. There will be one-off payments of up to $250 (singles) to those who have a Commonwealth Seniors Health Card and a quarterly seniors supplement of up to $338 (again singles). There's been a lot of political argy bargy about whether or not that will be adequate. So let's see. On Treasury estimates - and only time will tell how accurate these are - the average family will pay $9.90 more a week the year the tax is introduced. That is split $3.30 to electricity increases (10 per cent), $1.50 to gas (9 per cent) and 80 cents to food (less than 0.5 per cent). The overall impact is forecast to be a 0.7 per cent price rise. Against the $9.90 average cost, we're told there'll be an average $10.10 of assistance.

For an average family with two young children, where one person earns $70,000 and the other $30,000, the price impact is expected to be $638 ($12 a week). But they'd make $661, $73 from benefits and $588 from tax changes. For a pensioner couple with $5000 of annual income split equally, the cost would be $309 a year but the compensation $510, solely provided through the welfare system. You can do your own calculations at the "household compensation calculator" at carbontax.net.au. This matches you to one of 43 predetermined scenarios, estimating your benefits and assuming you have average consumption patterns. The actual impact will depend on whether you actually vary this and/or switch to more energy-efficient suppliers and the extent to which prices will actually rise. It might also be worth thinking about how to work the change to cut your tax further. Incur all the tax-deductible expenses you can before the tax-free threshold increases on July 1, when you'll get more benefit. Similarly, delay any income you can until after. So will the carbon tax work? Yes, if it stays in long enough.

http://www.smh.com.au/money/costing-the-carbon-tax-20111112-1ncq7.html#ixzz1dm6W2GSj