Health Minister Mark Butler has stated organised crime had recently taken a “stranglehold” over the illicit tobacco market and that the tobacco black market has “exploded” into the biggest threat to public health in Australia.
“It started in Melbourne and it spread right through the country. It means that there is violence and arson taking place as rival gangs try to take control of what is a very high-revenue market for them”, Butler told Adelaide Radio FiveAA.
“It bankrolls all of their other criminal activity: their sex trafficking, their drug trafficking, all of the crimes that have very serious victims involved”.
“From a health minister’s perspective, it is now the biggest threat to our most important public health program”, Butler said.
The federal government has repeatedly raised tobacco taxes in recent years to discourage smoking, but the Australian Medical Association has warned the availability of cheaper, illegal tobacco in the past 12 to 18 months appeared to be leading to a rise in smoking rates.
The duty on a packet of 20 cigarettes has risen from $10.62 in 2015 to $28.06 today. However, the most recent federal budgets revealed a collapse in revenue from the excise, suggesting a significant shift by smokers to buying from the black market.
Source: Chris Richardson
Calls for the government to review the level of tobacco taxes have fallen on deaf ears to this stage, with making cigarettes cheaper a potentially controversial move for government.
The above chart from independent economist Chris Richardson shows how tobacco tax revenue “snapped” five years ago. “People gave up buying the legal stuff, and switched to the black market”.
“And we’ve continued to raise tobacco taxes in the five years since then—they’ve risen a further 49% across a period in which overall prices rose by ‘only’ 21%”.
“That increase in the real tax rate should have outweighed the pace of further falls in smoking, driving the tax take even higher as a share of national income”, Richardson said.
The decline in tobacco tax revenue has been precipitous.
“The tax take has already dropped from a peak of 0.8% of national income to below 0.3%, with official Treasury forecasts seeing it ease further to 0.2%”, Richardson says.
He estimates that had Australia raked in the same share of national income as in 2019-20, the federal budget would have received $69 billion more over the current four years of forward estimates—i.e., $16 billion this year, rising to $19 billion in 2028-29.
“The lost dollars are devastating”, Richardson concluded.
Tobacco taxes must rank as one of Australia’s biggest policy failures:
- The health of Australians has worsened by making smoking cheaper than before.
- The black market is costing Treasury tens of billions of dollars in lost revenue.
- The black market has fueled organised crime.
The obvious solution is to lower tobacco excise and better police the illegal market.
