¶ … Benefit Analysis
Introduction and Analysis of the Project: Cost-Benefit Analysis of Proposed New Health Warnings on Tobacco Products (Report, 2003)
The new regulation introduced in July 2004 to be implemented for all the years till 2030, have significant cost impact on the economy. Certain benefits are also associated with it, the primary ones include health improvement, increased revenues for non-tobacco industry and the decreased healthcare expense. The major costs are related to enforcement of this system, printing health warnings, decreased sales for tobacco industry and decreased revenue to the government. The report highlights the costs and benefits keeping in view the different years after implementation of regulation (Report, 2003).
Usually, the discount rates of 5 and 7% are used to estimate the costs and benefits likely to occur in the future. In all other industries, the Australian government makes its calculations on 7% discount rates assuming it the most appropriate discount rate that can be experienced as rate of return if the capital is invested on other projects. However, the appropriateness of this discount rates is questionable in the present world economic conditions in general and health sector in particular. Health sector usually has lower discount rate as they have long-term implications (Report, 2003).
The project is described as efficient if its NPV is positive (Report, 2003). Positive NPV shows that the benefits are more than costs as it is the simple difference of benefits and cost. It is important to mention that while calculating NPV, both the cost and benefit figures must be discounted to present rate.
It is also possible that a policy returns negative NPV, but it is still considered favorable. It means that there is another variable to determine whether the policy is desired or not. This variable is distributional implication. The benefits and costs are evaluated in the perspective of their incidence. There is no direct relationship between efficiency of a policy and its distributional implications (Report, 2003).
This reports casts light on the cost and benefit impact of health warning system that is proposed in the perspective of various social groups (Report, 2003).
The Setup
Below is the outline of major steps taken during the analysis in the selected report. It starts with forecasting the impact of proposed health warning system on tobacco consumption and the revenues tobacco industry has. It is the major point in analysis of the new system. The report also calculates the expenses which are likely to occur to switch to the new system and the shift of revenues from tobacco industry to other industries (Report, 2003).
The following section casts light over the costs and benefits associated with proposed health warning systems. In also provides the risk analysis of the new system. The section gives an idea that what are the possible costs and benefits if the system is implemented and if it is not implemented. All the values used in the analysis are accumulated to total policy period and discounted to the present rate to get a fair idea. The calculations are based on different social groups and years (Report, 2003).
Main steps in the cost-benefit analysis
1. Difference of social groups must be considered (Report, 2003)
2. Possible uncertainty and risk must also be considered
3. Cost and benefit values must be aggregated to total policy years to calculate total net benefit that is expected
4. Household effects and other industry values must be considered in analysis
5. Calculate expected impact of policy on government
6. Calculate possible gains for tobacco users
7. Calculate cost to be incurred on implementation of system in the tobacco industry
8. Calculate relationship between policy enforcement and rate of tobacco consumption
There are several stages belonging to health warning review (CDHAC, 2001):
Stage 1: the company that is undertaking the research project must be independent (Elliott and Shanahan Research, 2000) so that effectiveness and usefulness of health warning can be accurately assessed.
Stage 2: for public awareness and feedback, the distribution of discussion paper related to health warnings.
Stage 3: comments by the public related to health warning need to be considered. In addition to this, other researches that have been conducted are considered relevant. Market testing, development, along with improvement in strategies for the purpose of change.
Stage 4: government regulatory procedure includes preparation of draft regulation along with a statement of regulation impact which needs to be consulted by the regulation review authority. For public feedback, these statements are distributed.
Stage 5: all the regulations are finalized and are then submitted to executive council. If the council approves the regulations they are processed further for publishing in Commonwealth of Australian Gazette.
Stage 6: period of implementation
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