Well it seems that basically I found what I was looking for regarding the 'social cost of smoking' at the SmokingSection. This site has compiled a great deal of information that I have found elsewhere, from various sources, in the past.
When I was arguing with my mate, it was my contention that smoking actually raised government funds, not disproportionately consumed funds to the detriment to non-smokers. I hold the belief that fundamentally additive or desirable substances and activities are taxed by governments for profit and I found material to support my argument. For the record, both me and my mate smoke.
It would be remiss of me not to point out that I also found countless studies that came up with figures for the social cost of smoking to be various and high (as mentioned in the above material) but I don't believe them as it seemed obvious that the scope of the report or samples had been deliberately skewed, and did not really represent the big picture but an attempt to drive an agenda. Perhaps I am not in a position to comment, since I am a smoker I may have a biased opinion, but I would simply ask, as Aragorn did “what does your heart tell you?“ (no pun intended).
Frankly, I think it's blatantly obvious that smokers have an addiction exploited to what is actually the financial benefit of society, including non-smokers. We are also regularly ostracised and frowned upon, and are subjected to noise about commonly held myths regarding the harm of second-hand smoke, and generally put to great inconvenience, cost and (if it weren't for other smokers) isolation for our habits.
Interestingly only one in four smokers die of smoking related diseases. While this figure is quoted as being exorbitantly high, it is worth nothing that it is far less than half (indeed one quarter :P) and even non-smokers end up dying of similar diseases, although typically somewhat later in life. Before knowing this, I had assumed that it was a dead certainty that if you smoked you would die of a smoking related disease - not so it would seem.
In my view all the fun is being taken out of life. Smoking is heavily taxed, and product quality is degrading (what incentive is there for the tobacco industry to maintain quality products in the face of packaging that claims the product will kill you?), gambling is heavily taxed, and book-makers and lotteries are heavily regulated and deadly efficient at taking money from the punters, alcohol is heavily taxed and heavily regulated, further, venues seem only to be interested in taking your money as quickly and efficiently as possible, and have no interest in you actually 'having a good time' to the extent that they can avoid it in the market place. Having regulations that encourage if not explicitly require it, venues require people to constantly present identification upon entry, often submitting to weapon or drug shakedowns too. Having many times been unnecessarily ejected (I concede that on some occasions, removal has been warranted ;) from a venue that serves alcoholic beverages I can never help shake the feeling that I'm more on parole than out for a night on the town. Just another dumb, heavily regulated consumer.
I don't really want to go too far into this discussion, or try to come up with alternative solutions, but I would take the opportunity to raise my objection to people who would deny that these activities are highly taxed in this way, and that historically and even presently these activities have always been held as the few pleasures in life, yet these days there is great incentive given not to participate - in my view this only has the effect of keeping people apart, perhaps it is simply a case of 'divide and conquer'.
Or perhaps I'm just miffed that it costs me about $70 a week to smoke, and easily $100 for a typical night at the pub.