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Negative Externalities IA

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Negative Externalities IA
Course: IB Economics SL

Commentary number: 1

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Date commentary was written: 24 May 2014

Section of the syllabus to which the commentary relates: Section 1 – Microeconomics

Word count: 745

Source of extract: Richard J. Brennan, Published on Thu May 01 2014, Tax on cigarettes going up http://www.thestar.com/news/queenspark/2014/05/01/tax_on_cigarettes_going_up.html Article:

Tax on cigarettes going up
The Liberal government is increasing the tax on smokes while declaring war on the growing problem of contraband tobacco, which the government says is undermining the province’s health objectives.
The Liberal government is increasing the tax on smokes while declaring war on the growing problem of contraband tobacco.
Thursday’s budget also includes a tax increase on aviation fuel, which the government adds is significantly less than the rate for gasoline.
“Tobacco tax is an important component of the campaign to reduce smoking,” the budget states, noting the last tax increase was 2006.
The budget calls for the tobacco tax rate to be hiked to 13.975 cents per cigarette, up from 12.350 cents.
That means the tax on a carton of 200 cigarettes will climb to $27.95 from $24.70, driving the cost of a carton of premium smokes to more than $100, compared to $60 for a carton of contraband cigarettes.
“This increase accounts for inflation since 2006 and will help restore the effectiveness of the Ontario tobacco tax,” the budget says.
The budget notes that recent studies have suggested the supply of contraband tobacco is increasing and “undermining the province’s health objectives.”
A tobacco industry official has told the Star that as much as 40 per cent of the cigarettes smoked in Ontario are contraband.
The Finance Ministry’s enforcement initiatives have resulted in the seizure of 235 million illegal cigarettes, 3.2 million untaxed cigars and 95,000

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