Hiking of Cigarette Tax by the Australia Federal Government - Case Study Example

Institution : xxxxxxxxxxx Title : xxxxxxxxxxx Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2014 SECTION I The main issue presented in this particular media report has been the rushed hiking of cigarette tax by the Australia Federal government, a decision that the affected` many argued to have been so sudden, as a result, sparking a widespread/increased tobacco buying prior to the price increase. According to the report, the sudden change will bring about significant impacts including cutting down on the total tobacco consumption by an approximately 6% in addition to cutting the number of cigarette smokers by about 87,000.Other than these, the sudden change is also argued to raise an additional $5 billion within the next four years, an amount the government intends to direct towards tobacco health overhaul. Despite these, the decision by the government has sparked significant anger from various key stakeholders who the sudden decision has affected in one way or another. Among the key stakeholders impacted by the issue are business people dealing with tobacco products who are now forced to deal with making new arrangements including organizing new product pricing structures. Tobacco users also form key stakeholders impacted by the issue. The hiked taxes certainly spur increased tobacco product prices, a factor argued to affect their consumption levels. The government definitely forms another key stakeholder impacted by their own decision bearing the fact that they will significantly benefit from the increased taxes. In my opinion, however, I think tobacco consumers will be the most affected by this decision. This is based on the fact that compared to the other key stakeholders; they will be compelled to pay more due to hiked taxes in addition to affecting their consumption level, a decision that certainly infringing on their desires. This particular media report has actually highlighted various economic theories that can be argued to have guided or directed the Australian Federal government in its decision to hike taxes on tobacco. Among the theories that can be drawn from the report are the rational addiction theory and the demand theory. According to the rational addiction theory, individual smokers are often aware of the addictive nature of the choices that they make, however they go on making the choices owing to the gains that they acquire from the activity that exceed (go beyond) any costs through future smoking addiction. This imply that addiction is often reflected by the adjacent complementarity, meaning that the present use of any addictive product will be inversely linked/related to not only all the past and future prices but current prices of the product as well. Amongst other things, this particular theory envisage that cigarette addicts with significantly higher discount rates tend to be highly responsive to prices as compared to those with significantly lower rates of discounts and that the ration of the long-run to short-run price elasticity tend to be significantly larger as level of addiction rises. This particular theory has subsequently turned out to be a standard approach employed in the modeling the consumption of goods/products for instance cigarettes. The major normative implication of this particular theory is that the best possible regulatory role/function for a government relating to smoking is exclusively a function of societal costs brought by smoking. In this case therefore, this theory has been argued by some critics who view it as conceptually incoherent in addition to being incoherent with the desire and ambivalence for improved self-regulation which is empirically displayed by a great number of addicts. They thus wonder how absurd such choice theories are often taken seriously as welfare analysis tools despite them being inadequately interpreted, empirically unfalsiable in addition to them being based on outrageously inaccurate assumptions justified by informal stories. In general, since smoking, just as all the other consumption decisions, is often governed by a rational choice as argued by this theory, the reality that smokers generally impose significant costs on themselves is irrelevant; only the costs that smokers impose on other individuals offers the rationale/justification for a directive for any government action. As already mentioned, another economic theory that can be drawn from this particular media report is the demand theory. Generally, according to Guindon (2013), one fundamental idea of economics exemplified by a downward-sloping demand curve is that if a real price of any given commodity rises, then the consumption such a commodity falls. This can be illustrated by figure 1 which shows the existing relationship between demand and quantity consumed after a tax increase or hike on tobacco products. Figure 1.Demand when price rises due to hike taxes on tobacco products Despite this, a number of researchers have conjectured that the consumption of addictive products, for instance cigarettes, might actually be an exception to this particular rule. Even so, Guindon (2013) holds that a number of econometric studies, including various recent research that explicitly study addictive aspects of tobacco product smoking, reveal that the fundamental economic principles actually does in fact apply to all tobacco products such as cigarettes.Thus, since a hike in cigarette taxes generally lead to increased cigarette prices, these hike in taxes by the Australian government may actually be effective in reducing cigarette consumption even as the government revenues grow depending on the size of tax hikes. This growth is however argued to be at declining rate as illustrated in the figure 2 below, where the blue as well as the dashed green lines reveal positive but sloping lines. Figure 2.Relationship between Gross Revenues and Cigarette Tax Hikes I believe that other than the issue of the sudden hiking of cigarette tax by the Australia Federal government, there is also the issue or question relating to the appropriate/suitable future path for the Australia smoking policy. In my opinion, the mood from tobacco lovers following the rapid change against the Australian tobacco industry imply that it is necessary that a review and a re-evaluation of the Australian public policy towards smoking are carried out. Higher taxes on tobacco may significantly cut down cigarette use as well as other tobacco products use; however, in my opinion yet again, several caveats ought to be investigated. For instance, for the tax increases on tobacco to have a maximum impact on tobacco product consumption, the factual value of this increase has to be sustained. SECTION II The main issue presented in this particular media report is the unsettled future facing the Qantas Airways (the Australia’s national airline) following the change of rules restricting foreign ownership in this particular airline at 49 percent as well as a single foreign investment at 25 percent, a decision the Australian prime minister argue will make the airline more free to compete despite many opposing the move. According to the media report, the decision by the prime minister is guided by the fact that the airline company has been going through difficult times, a factor argued to lead to uncertainty regarding its future. The airline, for instance, reported approximately $224 million for its half financial year to December, a result the airline’s chief executive officer described as unacceptable. This situation has been blamed on the Qantas Airways rivals at home who have been argued to pour significant amount of money just to challenge it. Qantas has in this case suffered significantly on its international routes following the increase of cashed up, state-owned airlines from the Middle East and Asia that are offering cheap fares as well as offering varied destinations. As a result of this issue, the national carrier has reacted with equally vicious cuts resulting into various consequences. One of the impacts resulting from this issue is the shedding of jobs. According to the media report, the airline intends to shed about 5000 jobs. Other than this, the airline is also planning to cut its expenditures by about A$2 billion, slow its expansion into other markets in addition to selling as well as delaying its intended purchase of over 50 aircrafts. Despite these, the decision by the prime minister has sparked significant anger from various key stakeholders who feel the decision was not favorable. Among the key stakeholders impacted by the issue are its shareholders, customers, the media, the airline employees, business partners, the non-government organizations and the government. The airline employees will certainly be affected should the shedding of jobs idea is implemented. On the other hand, the airline business partners, the media, the government and the non-government organizations will be affected by the fact that they will not have significant influence on the airline business, its strategy and generally its performance. In my opinion, however, I think the employees will be affected the most due to the consequences that come along with their loss of jobs. This particular media report has actually highlighted various economic theories that can be employed in guiding decision. Among the theories that can be drawn from the report are the rational choice theory as well as the theory of strategy. The rational choice theory definitely forms one of the economic theories drawn from this media report. According to this theory, individuals are often motivated by their own wants or goals, as a result driven by their personal desires. Given that it is not practicable for people to attain everything that they wish, they are often forced to make choices relating to not only their goals but the means for reaching at those particular goals. Individuals are thereafter forced to anticipate the outcomes/results of different courses of action and determine the action that they perceive will work well for them (Crossman, 2014). Eventually, rational individuals often go for the course of action that they deem likely to offer them the best level of satisfaction. In the case of the Qantas airways, despite opposition from various individuals, it can be argued that the Australian Prime Minister was guided by the rationale choice theory in his decision to enforce the changes, a decision, which in my opinion would offer him the greatest level of satisfaction. On the other hand, just as revealed through the action of the prime minister, this particular theory has been argued to be too individualistic. According to the critics of the theory, the theory fails to explain as well as take an account of the larger or broad social structure. For instance, in the case of the decision made by the Australian Prime Minister he ignored the fact that Qantas as a national airline has many key stakeholders (its social structures), as a result, critics would view his decision as individualistic. The theory of strategy forms another theory that can be drawn from this particular media report. According to this particular theory; a firm’s strategy is a product/result of an interaction involving a number of forces within and around the firm. These forces are normally divided into three major categories including internal, external and shareholders (Chamberlain, 2010). The theory can be applied in the case of Qantas Airways in choosing strategies that can generate significant returns on investments. The idea behind this particular theory actually rests on the observation that the character and the nature of competitive conditions as faced by Qantas airways influence a company’s strategic opportunities. I believe that apart from the issue of the planned elimination of the foreign investment restrictions by the Australian prime minister, another relevant issue that can be drawn from this media report is the issue relating to the clashing interests. This is brought out clearly by the opposition of the prime minister’s plan by the opposition Labour Party, the Australian Greens as well as a number of independent parties opposed to the plan. In my opinion, I believe that an individual ought to function within an environment full of many other actors trying to chase their interests and objectives as well. This is often a continually reactive condition where the ability of a given to attain his/her ends is dependant to a greater extent on the decisions the other parties or participants make. I am of the opinion that just as revealed in the case study of the Qantas airways, clashes of interests are likely to crop up among the various actors or interest groups and that in many instances this often resorts to wars as way towards attaining objectives. References Crossman, A, 2014, Rational Choice Theory: An Overview Chamberlain, G.P, 2010, Understanding Strategy, CreateSpace, Charleston Guindon, G, 2013, The Impact of Tobacco Prices on Smoking: A Methodological Review Read More