As Australia grapples with a burgeoning black market for tobacco products, the Albanese government is reconsidering its approach to tobacco excise duties. Recent discussions within the Treasury suggest that a review of the current taxation strategy could be on the horizon, as experts call for a freeze on escalating cigarette costs to mitigate illicit trade.
Rising Costs and Black Market Growth
Since 2020, the excise tax on tobacco has surged by an astonishing 60%, now comprising approximately three-quarters of the retail price of cigarettes. This increase has not only strained the budgets of smokers but has also inadvertently fuelled a significant rise in the black market, which is estimated to account for nearly half of all tobacco consumed in Australia. According to the Illicit Tobacco and E-cigarette Commissioner, the cost of illegal cigarettes ranges from $10 to $15 per packet, starkly contrasting with the legal price of around $40.
The financial implications of this shift are profound. Since 2020-21, the black market has reportedly created a $17.8 billion deficit in government revenue. Despite this, Treasury officials had previously dismissed any notion that lowering excise taxes could be part of a comprehensive strategy to combat illegal tobacco sales.
Government’s Response to Calls for Change
At a recent Senate estimates session, Finance Minister Katy Gallagher opened the door to potential revisions in excise policy, stating that the government continually reviews such matters. While Gallagher emphasised that there is no singular solution to the black market issue, she acknowledged ongoing consultations between Treasury, Home Affairs, and Health departments.
Lachlan Vass, a research manager at the e61 Institute, highlighted the importance of examining “price elasticity” in understanding tobacco demand. His assertion that the current excise framework may be failing suggests that a freeze might allow for more realistic pricing over time, ultimately benefiting public health strategies and enforcement efforts.
Expert Opinions on Tobacco Excise Strategy
Prominent economists and public health experts have voiced their concerns regarding the current tobacco excise policy. Chris Richardson, an economist, remarked, “We got the taxing of tobacco spectacularly wrong,” indicating that the policy has inadvertently bolstered organised crime’s revenue streams.
Becky Freeman, a public health professor at the University of Sydney, supports the idea of freezing the excise at its current level. She argues that tax increases should only be implemented if they effectively reduce smoking rates. The recent data on the prevalence of illicit smoking reinforces her position, suggesting that increasing prices further would yield no health benefits.
Treasury’s Modelling Efforts
Diane Brown, a deputy secretary at the Treasury, confirmed that work is underway to assess the elasticity of demand for tobacco. This modelling aims to understand how changes in price impact consumption, a crucial element for any future policy adjustments. The government has already committed an additional $350 million over the past two years to assist state authorities in combating the illicit tobacco trade.
The tobacco excise has historically peaked at $16.3 billion in the 2019-20 financial year, but projections indicate a sharp decline, with expected revenues of only $5.5 billion this financial year and an even lower $4.8 billion next year. Economists warn that the significant increase in excise has reached a “tipping point” that requires urgent reassessment.
Why it Matters
The potential for a freeze on tobacco excise represents a pivotal moment in Australia’s battle against the black market. With the government facing mounting pressure from both public health advocates and economic analysts, the outcome of this review could redefine tobacco regulation in the country. An effective strategy that balances public health goals with the realities of illicit trade is crucial for safeguarding both the economy and the wellbeing of Australian citizens. The implications extend beyond mere taxation; they touch on broader issues of public health, crime, and the efficacy of government policy in addressing complex social challenges.
