Back in February I noted that the cigarettes tax – a policy adopted by both major parties in the lead-up to the Federal Election -would achieve two broad outcomes:
- It would fail to raise the projected revenue. With smoking rates falling, it is a declining tax base and this decline would only accelerate the further taxes are increased. Moreover, since the majority of smokers are from lower income brackets, any increase in excise would force them to cut back expenditure, thus lowering tax revenues elsewhere.
- With the cost of a cigarette rising to nearly $2 a dart, a lucrative black market would develop, which would undercut the Government’s forecast tax take.
In late May, a report by the Australian National Audit Office produced a damning assessment of the policy, arguing that revenues would fall short precisely because of the factors I highlighted above:
