THE government was warned by the Revenue Commissioners that increasing the duty on cigarettes in the latest budget might not yield any extra revenue.
The warning came in a pre-budget submission to Finance Minister Paschal Donohoe which suggested the price of a packet of cigarettes was getting so high that smokers would look outside of Ireland when buying.
According to the Revenue Commissioners, a 25-cent price hike could even have caused a decrease in the amount of tax taken in.
The Revenueâ€™s â€œready reckonerâ€ suggested that a possible 25-cent increase could at best bring in an extra â‚¬31 million but equally could see revenue decline by â‚¬18 million.
The submission said: â€œThe Revenue Commissioners have expressed concerns that increases in excise may not lead to increased yields, as consumers are further incentivised to exit the tobacco products market in Ireland.â€
Mr Donohoe was told by officials that any predictions on tax taken from smokers were therefore â€œhighly tentativeâ€.
The minister went ahead with a 50-cent hike for the third year in a row cementing Irelandâ€™s position as having the highest rate of duty on cigarettes in the European Union.
Duty on 1,000 cigarettes was â‚¬336.15 according to the departmental submission as compared to just over â‚¬85 in both Lithuania and Bulgaria.
The memo said that around â‚¬170 million was being lost to the Exchequer through a combination of illicit cigarettes and those bought legally elsewhere.
It explained: â€œResults â€¦ indicate that 10% of cigarette consumption in Ireland in 2016 was illicit, while an additional 8% of cigarette consumption was legal product purchased abroad.â€
The Department of Finance were lobbied by two tobacco companies, according to the documents.
Imperial Tobacco asked that minimum excise duty on cigarettes not be increased while Japan Tobacco Ireland â€“ who sell brands like Silk Cut and Benson & Hedges â€“ asked the government to commit to â€œa multi-year plan of modest, predictable excise increasesâ€.
Both the Irish Heart Foundation and Irish Cancer Society urged a 50-cent increase along with a levy on the profits of tobacco manufacturers.
The anti-tobacco NGO ASH Ireland meanwhile suggested a â‚¬1 increase per packet and an additional 50-cent â€œlitter levyâ€ for every pack sold.
A spokesman said the Department of Finance was aware the latest price hike could cause a â€œdisproportionate change in consumer behaviourâ€.
Tax receipts from smokers had finished â‚¬56 million down on forecast in 2016 but this year seemed more likely to come in on target, according to the Department.
The spokesman said: â€œWhile overall yields have continued to rise over the past three years, issues such as front-loading and projected decreases in smoking prevalence have made accurate forecasting more problematic.
â€œWe are happy that the forecast is solid and if there is a more dramatic shift in the level of consumption â€¦ then that will be very welcome from a health perspective, which is the overriding policy objective.â€
According to the submission, smoking rates in Ireland are plummeting.
In 2003, 28.3% of the population smoked which by 2016 had fallen to 18.7%. Tobacco Free Ireland â€“ an action plan from the Department of Health â€“ is targeting a reduction to less than 5% by 2025.