Getting tobacco costs wrong

Jason Krupp screwed up the burden tobacco imposes on the New Zealand health system. But it's not entirely his fault. A comment on my prior post finally twigged me to how he screwed up - it should have been obvious. Again, here's what Jason wrote.

According to the World Health Organisation's Economics of Tobacco Toolkit, health costs attributed to smoking account for between 6 per cent and 15 per cent of national healthcare expenditure in developed countries.

In Australia, smoking costs equated to between 2.1 per cent and 3.4 per cent of gross domestic product.

New Zealand was not featured in the report but, if the results were comparable here, it would mean Kiwi taxpayers fork out about $7 billion a year to treat smoking-related diseases.

The first figure is a WHO estimate of the burden borne by government healthcare systems. The health budget here is a bit under $14 billion. So extrapolating from that value would give you a range from $840m - $2100m. That's well in excess of prior estimates from either the Cancer Society or Des O'Dea, but it's only 3-8 times larger than those figures. And far far less than Krupp estimated. But, with Treasury's site down as much as it has been lately, the health budget might not have been readily available.

Krupp's second line is almost certainly an estimate from the Australian Collins & Lapsley report into the social costs of smoking. I have banged on, repeatedly, about how it's easy to conflate these social cost measures with costs to the government. And that's what I think Krupp's done. He took the 2.1-3.4% of GDP estimate, read it as "costs to the health system" rather than as "costs to the country, including costs borne by smokers, and likely including some double-counting as value of statistical life estimates and productivity costs overlap." And he uses that to generate the third line. GDP is around NZD$200 billion.* Multiply that by the 3.4 upper end of the "percent of GDP" figure from Oz and you get a number that, with some upwards rounding, hits $7 billion.

I really really hate "Social costs of Blah" studies. Because it's just so easy for somebody who doesn't know the term of art employed to read it as equating to costs on the taxpayer. Just like Krupp did. "Smoking costs" turned into "Kiwi taxpayers fork out ... to treat smoking-related diseases".

The social costs of social cost studies, in screwing up how the public views the distribution of the burden of various activities and consequently making folks think a paternalistic policy is really a Pigovean one, are not insubstantial.


* I wish Stats NZ would report the actual GDP figures in its quarterly updates. It's surprisingly hard to find "What is the GDP of NZ" anywhere on the Stats NZ site. You'd think it'd be in the "Top Statistics" page; nope. Just growth rates. How about on the GDP page? Lots of link there to estimates on growth rates; can't see a "This is the GDP of NZ" one. Maybe over on National Accounts for year-end? Nope. Latest quarterly update? No. Press release on that update? No.  Why do I have to go to the IMF website and divide by the exchange rate to do this, or add up quarterly numbers from the RBNZ? Stats NZ has the number buried in Tab 6.1 of an Excel sheet here (thanks, Diana, for the pointer!), but shouldn't that be up front somewhere?