For years I have warned that taxing cigarettes as heavily as Australia does would result in three unintended consequences.
- It would create a large black market for smokes. Tobacco smuggling will increase, providing a source of revenue for criminal organisations, jeopardising law and order.
- New health dangers will emerge as vaping’s popularity grows in place of cigarettes.
- It would lower government tax revenue as people turn to untaxed black market alternatives.
Last month, economist Chris Richardson labelled Australia’s tobacco taxes a $10 billion policy mistake that has fueled organised crime and worsened health outcomes.
“The politicians got greedy, and tobacco taxes are already up by more than a factor of five since 2010”, Richardson wrote in The AFR. “They’re now $1.37 per cigarette, and the government is jacking them up yet again next month”.
“However, Australia has raised tobacco taxes so far and so fast that we’ve spawned a vast black market”…
“Tobacco excise peaked in 2019-20 at $16 billion, it dropped back below $10 billion last year, and Treasury’s latest budget update waved the white flag, slicing yet another $10.7 billion off the estimated take over the next four years”…
“The tax take is likely to be telling us that Australians jumped to the black market”…
“That’s been a godsend for criminals. This is a market that is just as profitable as heroin, but with a fraction of the legal consequences if you’re caught”, Richardson wrote.
According to Victoria Police, there are 1,300 standalone tobacco stores in Victoria, and of those, 1,000 sell some kind of illicit tobacco.
These outlets typically sell a pack of smokes for $15, less than half the price of the cheapest legal pack of cigarettes.
A combination of sky-high cigarette prices, historically lax enforcement, and a laser-like focus on cutting smoking rates has combined in a perfect storm to fuel an explosion in Australia’s black market.
The Australian Association of Convenience Stores (AACS) claims in a new report that the number of smokers who are using illegal products will outnumber legal smokers by 2026-27, making crime syndicates the largest providers of cigarettes in Australia.
The AACS has called on the federal government to freeze the excise on tobacco products for four years, along with legalising and regulating smoking cessation tools such as vapes, and strengthening the crackdown on illegal tobacco.
Modelling by Tulipwood Economics found that these changes would generate tax excise revenue of $50.1 billion and GST of $6.2 billion over the next four years, which would be the equivalent of $20.9 billion in extra government revenue.
“The definition of insanity is doing the same thing over and over again and expecting a different outcome”, AACS Chief executive Theo Foukkare said.
“The government, with their policy around tobacco excise and vaping prohibition, is doing exactly that”.
“They’re doing more of the same and expecting a different outcome. But in actual fact, it’s getting worse”, he said.
The government should certainly reduce tobacco taxes to a more reasonable level as well as police the blackmarket properly.
Moreover, if it is revenue that the government is after, it should legalise and tax cannabis.
There is no logical public policy rationale why alcohol and tobacco are lawful (albeit too harshly taxed) while cannabis is not.
Legalising and taxing cannabis would ensure purity of supply, limit revenues to organised crime, and minimise law enforcement costs.
Current asinine tax policy is literally fueling the black market and robbing the nation of vital tax revenue.
