The Australian state of Victoria implemented the world’s first … sin-tax … hypothecated for health in 1987. It came in the form of … a 5% levy on tobacco products … whose revenue was then used to fund a newly formed independent health promotion foundation called VicHealth.
Apart from increasing cigarette prices, the legislation banned most tobacco advertising and formed the basis for later rules to create smoke-free workplaces and public venues.
Meanwhile, VicHealth bought-out all tobacco industry sponsorships of the arts and sports. This proved less costly and easier than anticipated, as most preferred non-tobacco sponsors. Among the foundations other activities are more than AUS$ 20 million annually in funding for health research and in support of anti-smoking and other public health campaigns.
Until 1997, all of these activities were funded exclusively from the hypothecated tax on cigarettes. Since then, the hypothecation aspect has been weakened as states are no longer allowed such tobacco levies. However, tax funding from the national level from sin-taxes and others is transferred to states to compensate.
Prior to the Victorian tobacco legislation, a survey found 47% of respondents in favour of an increase in tobacco taxes (including 20% of smokers). If hypothecated for health or other community benefits, this support surged to 84%.
To retain such support and realise the benefits in terms of accountability and public trust the hypothecation must be strict, i.e. no topping-up from general taxation and no siphoning off to other purposes.