Smokers pay more, but it's tobacco companies, not the government, cashing in

Cigarette prices have increased in Canada over the past two years, but they've done so gradually, without any major federal tax hikes, providing a big revenue boost for tobacco companies, an anti-smoking group says.

Wholesale cigarette prices obtained by Physicians for a Smoke-Free Canada and shared with CBC News show the cost of a carton of cigarettes has increased by roughly $7 since the last election, but federal tobacco taxes have only gone up by 53 cents during the same period. 

Research director Neil Collishaw says when tobacco taxes increase there's usually an outcry, mostly from convenience stores, about a corresponding boost to the contraband cigarette trade, but there isn't the same concern when wholesale prices creep up.

"It just quietly happens and smokers pay more and governments get less," he said.

The increases are gradual, Collishaw said, and are spread between a tobacco company's high- and low-end brands to make them less noticeable to consumers.

"This wouldn't happen if there was a tax increase that was large and right across the board and applied to every product," he said.

High price can reduce consumption

Big price hikes have proven to be effective in reducing the number of smokers, he said.

Last March, the federal government set a goal of reducing the number of smokers in Canada to less than five per cent of the population by 2035, down from the current 14 per cent. The goal coincided with consultations leading up to the expiry of Canada's current tobacco strategy, on April 1.

A Health Canada report obtained by CBC News found that to get smoking levels down to six per cent by 2036 — within range of the government's target — tobacco taxes must increase to 80 per cent of the overall price from the current 68 per cent. The final price for tobacco products is a combination of the producer's wholesale price, any retail markup and taxes.

'We need to deliver profit'

A spokesperson for Imperial Tobacco told CBC News modest price increases are how business is done.

"Price increases are not something new … Like any other industry, we have shareholder returns and we need to deliver profit," said Eric Gagnon, head of regulatory and corporate affairs.

The current federal tax model, which is supported by the industry, he said, features an inflation-based increase every five years.

When you collect $9 billion in taxes annually you can't point to the industry for that.- Eric Gagnon, Imperial Tobacco

"The government is making a lot more money on tobacco than the industry is," he said. "When you collect $9 billion in taxes annually you can't point to the industry for that."

In an emailed statement to CBC News, a spokesperson for the Finance Department declined to comment on possible changes to the taxation model.

David Hammond, a public health professor at the University of Waterloo who specializes in tobacco policy, says the taxation amounts are out of date, even though they're supposed to keep up with inflation.

Federal taxes amount to roughly eight cents per cigarette, Hammond said, which is roughly the same as it was 15 years ago. 

Hammond said a substantial tax increase would help boost the ranks of non-smokers, especially if the government were to spend some of the revenue on programs to help people to quit successfully.

"[If] they could make the case to consumers that the extra revenue will go into something they care about, whether it's helping them quit or something else, they're more likely to be supportive of those increases."