Cigarettes Show Inflation Isn't Always Bad: The Ticker

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By William Pesek

Yoko Komiyama is clearly the Japanese minister to watch.

It's not because she's one of just two women tapped for Prime Minister Yoshihiko Noda's 17 cabinet posts. It's because Japan's new health minister is daring to take on a third-rail political issue as never before: tobacco.

For all the lip service politicians pay to surging smoking-related health costs, Japan remains a puffer's paradise like few other developed nations. The reason goes beyond consumer demand for ready access to ashtrays and nicotine fixes; it's all about government revenue.

It's unseemly for a government to own 50 percent of its biggest cigarette maker, as Japan does. When you consider the tax revenue from tens of billions of dollars of domestic sales, it's no wonder Japan Tobacco Inc. has friends in very high places.

Enter Komiyama, who wants to see the average price for a pack of cigarettes raised to 700 yen ($9.15), or 75 percent more than the present level, to reduce smoking and cut medical costs.

In October 2010, Japan raised the average price for a pack of 20 cigarettes by 33 percent. Komiyama wants to bring things to a whole new level, and resistance will be intense.

All this gets at a bigger story -- how the government's tentacles travel around the business world, and vice versa. The Ministry of Finance is Japan Tobacco's largest shareholder, meaning that the government implicitly encourages smoking. It's a dreadful example to set in Asia.

China, for instance, should be drastically raising cigarette prices. In January, a report by prominent health experts and economists estimated that 3.5 million Chinese will die each year from tobacco use by 2030. More than lives will go up in smoke in the second-largest economy. So will productivity, public money and economic growth.

Call it Asia's fiscal addiction. The revenue rolling in from state-owned tobacco producers is trumping the desperate need for anti-smoking measures. Also, the sad reality is that as one nation wises up to the dangers of smoking, plenty of others seem ready to pick up the slack -- and the cigarette lighter.

Smoking is big, big business, and good for Japan's Komiyama for bravely taking a stand against it.

(William Pesek is a Bloomberg View columnist.)

-0- Sep/20/2011 14:46 GMT