"Dead Smokers are Cheaper" -Philip Morris Family Of Companies

(CBS) July 17, 2001
Anti-smoking groups reacted angrily Tuesday to a report by cigarette giant Philip Morris that said tobacco could save a government millions of dollars in
health care and pensions because many smokers die earlier.

The report, commissioned by Philip Morris from research company Arthur D. Little International, looked at the cost of smoking in the Czech Republic in
1999, and concluded that the government had benefited from the "indirect positive effects" of early deaths.

Savings on health care, pensions and housing for the elderly totaled $30 million, the report said.

The British-based group Action on Smoking and Health described the study as "a sort of extermination program for the newly retired."

But in the Czech Republic, the reaction was nonchalant.

Far from trying to corral the smoking cowboy, the company's decades-old advertisement for its Marlboro cigarettes, Czechs say they will continue to ride along with him.

"This certainly won't stop me from smoking the brand," said Karel Dobias, a 29-year-old who has been smoking Marlboros for six years.

Jan Nemec, a 41-year-old from Prague who has smoked for 20 years, was unfazed by the report. "It doesn't surprise me, in fact I think it's entirely correct,"
he said.

"The whole exercise is repellent and should be dismissed. Philip Morris is whispering in the ear of the Czech Government, saying: 'Look, we can help you
deal with those expensive old people, so why don't you go easy on controlling smoking?'" said John Connolly, of Action on Smoking and Health.

Matthew Myers, president of the U.S. group Campaign for Tobacco-Free Kids, said the analysis represented "not only bad economics, but also a callous disregard for life."

Remi Calvet, director of communications for Philip Morris at its European headquarters in Lausanne, Switzerland, said the report had been commissioned to
obtain economic data for the company, which makes 80 percent of the cigarettes sold in the Czech Republic.

"We deeply regret any impression that premature death of smokers could represent a benefit for society," he said.

"Tobacco is a controversial industry, but we are still an industry and sometimes we need some economic data on our industry."

The report concluded that "the effect of smoking on the public finance balance in the Czech Republic in 1999 was positive," estimated at $146 million.

The study — completed in November 2000 but only recently handed to the Czech government — said it had worked on the assumption that "smoking can lead to a
reduced life span of smokers" and also accepted that nonsmokers can be harmed by secondhand smoke.

It said the cost of smoking to the Czech government totaled $394 million in 1999.

The majority of the cost was in health care treatment to both smokers and those affected by passive smoking, but the survey also included lost working days for
government employees, lost income tax due to higher death rates and the cost of fires caused by cigarettes.

On the other side, the report said, all the losses were almost exactly balanced out by the excise duty charged by the Czech government.

On top of that, the government benefited from value added tax of $89 million; customs duty of $9 million; and income tax from tobacco businesses in the Czech
Republic of $19 million.

"Our principal finding is that the negative financial effects of smoking — such as increased health care costs — are more than offset by positive
effects — such as excise tax and VAT collected on tobacco products," the report said.

The world's largest cigarette maker, Philip Morris has made commercial inroads into the country which rivals can only dream of. In 1992 it bought Tabak, the main Czech cigarette maker.

Philip Morris CR now controls just over 80 percent of the local cigarette market and posted a profit of 3.2 billion crowns ($80 million) in 2000, making it one of the most profitable firms in the Czech Republic and paying a handsome return on its $420 million investment.

But those profits are under threat, as in many countries, from anti-smoking legislation the Czechs must eventually adopt to join the European Union.

Last year the government withdrew proposed legislation to tighten advertising laws that currently allow cigarette ads on public transport, at night on the
radio, and in cinemas, newspapers and magazines. Philip Morris and other tobacco firms in the Czech Republic have proposed a voluntary advertising code
which they would police themselves.

Ales Janku, head of public relations at Philip Morris, Czech Republic, said the report was produced in reaction to a planned report by the Czech Health
Ministry which seemed to indicate that the state was losing money as result of widespread smoking.

He added that the company feared the Czech parliament could excessively raise
taxes on cigarettes as it tries to harmonize its taxes with the European Union.
Czech cigarette taxes are currently 42 percent, compared with EU
recommendations of 59 percent.

"No government can calculate with reports like that," said Otakar Cerny,
spokesman for the Czech health ministry. "The health minister leads an
irreconcilable struggle with smoking so that Czech citizens live long and
healthy lives."

The bland reaction by many Czechs belies the overall trend locally, where
smoking is on the decline. Only some 20 percent of Czechs smoke, down from
around 37 percent in 1994.

Nicole, a 25-year-old law student who has smoked for nearly a decade, says she
started because her friends did it. But now she says young adults have a
different attitude to the habit.

"Smoking certainly isn't an 'in' thing anymore, the way it was 10 years ago,
even though we're not at the same stage as America," she said.

"But no, hearing about a report like this would certainly not offend me or make
me stop smoking."