In February last year 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 May last year, 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:
“There is uncertainty about forward estimates of tobacco revenue, as these estimates do not incorporate a change in supply and demand of dutiable tobacco arising from cheaper illicit product”…
The ANAO report said budget assumptions did not “factor in the size of the illicit trade in tobacco and potential changes to the supply of and demand for dutiable goods as a result of the increase in costs in the legitimate market”.
Then in December, Australian Federal Police assistant commissioner, Wayne Buchhorn, warned that illegal tobacco smuggling is rampant, funding organised crime and posing a potential national security risk. From The ABC:
The illicit tobacco trade has received far less attention from police and security agencies when compared to terrorism, drug and weapons trafficking and people smuggling…Attracted by the huge revenue streams and lesser penalties applied to those caught tobacco smuggling, organised criminals have moved with relish into the trade, using proceeds of tobacco smuggling to pay for other activities…
“That has the potential to cause corruption within government agencies and more broadly. So the potential for that to be a national security risk for me is very real”…
Mr Buchhorn, who has served in senior policing roles in Australia and Afghanistan, said it was extremely easy to buy black-market cigarettes in Australia, fuelling what was “probably a billion-dollar trade”.
Successive Federal Government tobacco tax hikes — Treasurer Scott Morrison unveiled further increases in the May Budget that will lift the price of a pack of smokes from $25 to $40 — boost the financial return for organised smuggling syndicates.
Over the weekend, The AFR reported that the Black Economy Taskforce’s chairman, Michael Andrew, plans to urge the federal government to clamp down on the illegal tobacco industry, with Philip Morris estimating that illegal trade is costing the government almost $4 billion a year in foregone tobacco excise:
“I will be recommending an illegal tobacco blitz,” said Michael Andrew, chair of the powerful taskforce appointed by the federal government to identify and recommend strategies for tackling the nation’s black and cash economies.
Asian and Middle Eastern crime gangs are believed to be using an intricate network of distributors to sell smuggled and locally grown “chop chop”, which is raw tobacco, cigarettes and “shisha”, a fluid tobacco smoked through a water pipe.
Police and tobacco industry chiefs fear proceeds could be used to fund terrorism, buy political favours and support other unlawful activities…
Illegal imported and locally grown cigarettes are being sold through small stores, including independent tobacconists, and sex shops under the brand names “Original Gold” and “Special Gold”.
Asian and Middle Eastern crime gangs behind the products are using stand-over tactics to further distribution, according to police and industry sources.
“Illegal tobacco consumption in Australia is one of the largest frauds on Commonwealth revenue, with one expert recently suggesting the fraud costs government almost $4 billion each year in lost tobacco excise alone,” said a spokesman for Philip Morris, a global tobacco and cigarette company.
Rather than continually raising tobacco taxes, 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 and pot isn’t. Moreover, legalisation of marijuana would ensure purity of supply, reduce profits to organised crime, and lower law enforcement costs. It’s a win, win, win.
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