Question proposed: "That section 38 stand part of the Bill."

Deputy Pearse Doherty: Is this the section on tobacco excise?

Chairman: Yes.

Deputy Pearse Doherty: I have a couple questions on the section, the first of which looks backwards. I support the increase in excise on tobacco products. Can the Minister or Revenue indicate whether last year's 50 cent increase delivered the €57 million increase in revenue that was anticipated at the time and if it came in on target? Regardless of which policy we adopt, and I support this change, it is important that it is based on last year's changes having the expected result. I raise this in the context that the Revenue is giving a range for this measure of between €57 million in additional tax revenue and €42 million in revenue losses to the State. We are all well aware of the black market in tobacco products. There is an elasticity in pricing in this area.

My first question, therefore, is what additional revenue did the change bring in last year? Second, where does Revenue see the pinch point for tobacco products in a non-Brexit scenario? If Brexit is disregarded, where is the tipping point at which revenue no longer accrues to the State and is lost, given the elasticity of pricing in this area? Third, on Brexit and the conversation the Minister and I had at the previous meeting on duty-free goods, someone can now book a hotel in Manchester, jump on a flight and return with the cigarettes to which he or she is entitled and still be better off after covering the cost of the flight and hotel because the price of tobacco products is significantly less in Manchester than in shops here. There are three issues there. We will discuss taxes and carbon taxes later. The issue here is that we want to do two things, namely, raise revenue and discourage behaviour. There is an argument that if the reduction in revenue is discouraging behaviour, as opposed to driving people into the black market, that is positive. It is important, however, that we get some statistics as to what happened last year before we proceed on the basis of these figures for next year.

Deputy Paschal Donohoe: Dealing with the forecast that we have, forecasting yields is becoming increasingly difficult, with continued irregularities and fluctuations in tobacco clearances and tax receipts. The impact of increased tobacco products regulation is also a challenge in forecasting yield. I am aware of the possibility that an increase in the price of cigarettes could result in a change in consumer behaviour, with, therefore, less Irish duty paid on tobacco products purchased. Overall, I believe the current forecast that we have is solid. To the extent that forecast receipts are not realised due to a reduction in smoking prevalence, that would be very welcome from a health perspective, which is my overriding policy objective in making this particular decision.

On revenue, it is best for me to answer the question on revenue last year in light of what happened the previous year. In 2017, the forecast yield was €1.2 billion and €1.39 billion was delivered.

There was an over-delivery in 2017 of €175 million. In 2018 we were due to deliver €1.1 billion. A total of €749 million was delivered, meaning that there was an under-delivery of €354 million. A large portion of that is explicable by the over-delivery that we had in the previous year.

On the final point that the Deputy made with regard to purchases of tobacco products outside of this jurisdiction, that is an increasing risk in terms of our forecasts. I engaged in a discussion with my officials on the revenue yield that was delivered to me. I asked if there was a case for picking a figure that is different from the range given. The challenge I met was that if I began picking figures inside a yield range given to me by Revenue, where would I end up? If I begin to use that approach in relation to tobacco, is there not a case to be made for using it in relation to other tax forecasts given to me? I will simply say that this particular decision was driven by health grounds and that was the reason for making it. An issue of which we must be increasingly aware is the degree to which incentives are created for tobacco products to be purchased elsewhere. That is why I always meet any reasonable requests that come to me from Revenue in terms of its resources for compliance measures. Of course, all these risks will be heightened if we end up in a no-deal Brexit scenario.

Deputy Pearse Doherty: Does the Minister or the Revenue Commissioners have any statistics on the performance of this tax head in 2019? Do we know, for example, if the forecast for 2019, which was around €64 million in additional revenue, if memory serves me, was accurate? Have we achieved that? I assume that in terms of 2017 and 2018, it is hard to read those years because the plain packaging of cigarettes would have had an impact on stocking levels. If one combines the data for those two years, which to some degree smooths out that issue, there is an over-estimation of €179 million according to my calculations. Has there be an any analysis done by Revenue or by the Departments of Finance or Health in terms of quantifying why there was a reduction? A positive factor would be evidence to suggest that a significant number of people moved away from tobacco products and into vaping and so on but is there evidence that there is now more black market activity? If it is the case that more black market activity is taking place, then the outcome is worse. People can buy cigarettes at €4 per packet on the black market as opposed to €13 or €13.50. The argument is made that increasing the price of tobacco products puts people off but if we are creating a situation, however unwelcome, where there is more black market activity then we are working against ourselves in the context of price sensitivity and deterring smokers. Has there be any analysis done on this?

Deputy Michael McGrath: I wish to ask a question on a related issue under section 38. Was a change to the minimum excise duty trigger price considered? I am by no means an expert on cigarettes, thankfully, but my understanding is that the minimum excise duty trigger price is intended as a floor for cigarette prices. Some low-priced brands have opted not to increase the price of their products to the consumer by the 50 cent introduced in the budget. Has that been considered and has the Minister considered increasing the minimum excise duty trigger price?.......

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