Thank you very much, Chair.
Thank you for giving me the opportunity to testify today.
The focus of my testimony will be part 2 of the bill, clauses 47 to 67, implementing a $1-per-carton increase in tobacco taxes and modifying the inflation indexing for tobacco taxes from every five years to every year. We applaud these measures and urge all committee members to support these provisions. Tobacco products remain the leading cause of preventable disease and death in Canada, killing 45,000 Canadians annually and causing about 30% of all cancer deaths.
We also strongly support the federal budget provisions that provide increased investment in the federal tobacco control strategy. This is essential as part of the efforts to meet the objective of reducing tobacco use to under 5% by 2035. There are still more than five million Canadians who smoke. There are teenagers starting to smoke every month. We have made considerable progress, but enormous work remains.
The budget measures regarding tobacco taxes and funding of the strategy are complemented by Bill S-5, adopted at third reading by the House of Commons last week, and by pending regulations for plain and standardized packaging. Plain packaging, a key measure to protect youth and curb the package as a means of promotion, has already been adopted by eight countries.
Increasing tobacco taxes is the most effective strategy to reduce tobacco use, especially among youth who have less disposable income. They're more price sensitive. That tobacco taxes decrease consumption is recognized by the World Bank, the World Health Organization, a vast number of studies in Canada and worldwide, provincial and territorial governments across Canada, and successive federal governments. Tobacco tax increases are a win-win, benefiting both public health and public revenue. The budget projects increased revenue of $375 million in this fiscal year alone as a result of the tobacco tax changes.
Inflation indexing of the tobacco tax was initiated in the 2014 federal budget, with indexing to occur every five years. The first inflation adjustment was to have occurred in 2019. Indexation ensures that tobacco tax rates are in effect kept the same on an after-inflation basis. In its pre-budget submission, Imperial Tobacco Canada recommended annual indexation instead of every five years as part of its recommendations to this committee.
Federal tobacco taxes are better than provincial tobacco taxes from a contraband perspective, because they apply on reserves. There's no difference between on-reserve and off-reserve tax rates. The level of contraband on which federal tobacco taxes are not paid is far lower than the contraband level on which provincial tobacco taxes are not paid.
I would invite committee members to turn to the background material that was circulated to you. The first graph shows comparative provincial and territorial tobacco tax rates. We see that Ontario and Quebec have the lowest tax rates in Canada but the highest contraband. That's counterintuitive to what we hear from the tobacco industry. They say higher tobacco taxes increase contraband. We see that in western Canada they have far higher rates of tobacco taxes but much lower levels of contraband.
Why is contraband higher in Ontario and Quebec? It's proximity to the illegal factories and sources of supply, but we can see that higher tobacco taxes have been sustained in the west and the Atlantic.
The next graph shows the trend in federal and provincial tobacco tax revenue. We see that even with reduced smoking rates, tobacco tax revenue continues to increase despite the lower smoking prevalence. In fiscal year 2017, the amount of $8.4 billion was collected, with even more of an increase if GST, HST, and PST on tobacco products were factored in.
The next graph shows the long-term trend in smoking prevalence in Canada. In 1965 it was 50% for Canadians aged 15 plus. In 2016 that was down to 17%. Over recent years we've seen a continuing decline. That's very positive, but it's also relevant when we see that tobacco tax revenue continues to increase. So tobacco taxes do benefit public revenue.
The next graph shows trends among teenagers, the 15- to 19-year-olds. We see a continuing decline in smoking prevalence among youth. That's very good. Tobacco taxes and other measures have contributed to that, but we want to keep driving this down further. The recently announced measures will help do that.
We thank the federal government for the new tobacco control measures that have been brought forward, and we appreciate the support from all parties. We look forward to continuing progress.
Thank you.