The thought of lighting up a dart gives me the willies. My mother was a heavy smoker, and the constant aroma of smoke is one of my most unpleasant childhood memories.
She managed to quit smoking 12 years ago, but the resulting emphysema has severely diminished her standard of living.
Despite all that, I was never in favour of taxing cigarettes so heavily because I knew it would deliver three major undesirable consequences:
- It would create a huge black market for smokes. Tobacco smuggling will increase, providing a revenue stream for criminal organisations and possibly posing a threat to national security.
- New health dangers will emerge as vaping’s popularity grows.
- It would actually lower the government’s tax tax as the black market trade grows and people turn to untaxed alternatives.
To nobody’s surprise, the Australian Association of Convenience Stores last week reported that tobacco sales were down 19.8% in the June quarter, following a 13.7% decline in the March quarter.
AACS CEO Theo Foukkare claims that legitimate tobacco retailers are suffering because of government failure to crack down on the trade of black market vaping and tobacco products, claiming that over 90 million illegal vapes came into Australia in 2022, mostly via criminal organisations.
Moreover, one in four tobacco products are now being sold illegally by criminals, according to the AACS.
New documents obtained via freedom of information laws highlight the economic cost of Australia’s illegal tobacco trade.
The Illicit Tobacco Taskforce has confiscated more than 1.5 billion black market cigarettes since it was established in 2018-19. The Australian Border Force has in turn confiscated nearly one billion illegal cigarettes over the last two years, which represents nearly $1.1 billion in foregone tax revenue.
The federal government announced a new crackdown on illegal tobacco in its May budget, but independent economist Chris Richardson warns that increasing tobacco taxes too aggressively will merely bolster the black market:
“Australia should have heavy taxes on tobacco, but it does have practical limits”, Richardson said.
“At some point, taxes become hard to raise because there are big profits in going black, and that is now happening with cigarettes in particular”.
“At some point the tax man is taking advantage of addiction rather than helping to solve a problem”.
“Having said that, we really should be financing a better cracking down on chop chop, it’s just everywhere. Pretty much anybody will be able to tell you which suburban store sells it”, he said.
Instead of trying to raise budget revenue by punitively taxing tobacco and fuelling organised crime, the Government should instead legalise and tax marijuana.
There is no sound public policy reason why alcohol and tobacco are legal (but taxed heavily) and marijuanna isn’t.
Legalisation of marijuana would also ensure purity of supply, reduce profits to organised crime, and lower law enforcement costs. It’s a win, win, win for the government.
