Only Canberra can stop the black-market tobacco trade it fostered

The Albanese government’s laudable attempt to use a tax as a public health measure to break the lethal grip of tobacco has blown up in the faces of state governments.

Canberra’s well-intentioned but ill-thought-through excise duty increase has not only forced the cost of cigarettes purchased legally to soar – from $20 in 2019 to $57.99 for one popular brand – but driven consumers to cheaper illegal tobacco products. As an unintended consequence, not only is the federal tax take shrinking, but the burden of controlling the newly burgeoning illegal trade has fallen to beleaguered state health departments or police forces.

Australian Border Force officers check illegal cigarette imports found in shipping containers.Credit: Enrique Ascui

Premier Chris Minns has called for the federal excise on tobacco to be reconsidered as illegal sales proliferate in NSW, pointing out any requirement for police to step in to investigate black-market cigarettes would come at the cost of dealing with other crimes. He noted the proliferation of tobacconists selling illegal products in his electorate of Kogarah were pushing out other high street retailers because selling blackmarket tobacco was now so lucrative. All the while, the quixotic federal government doubled the tax on a packet of cigarettes, yet expects revenue to decline by a third.

Aside from health and tax considerations, the influx of black-market cigarettes has also been a boon for organised crime gangs. The Australian Border Force estimates they control about three-quarters of the trade, generating significant profits. Last month, the Herald reported there were about 60 tobacconists for every McDonald’s restaurant. The excise duty comprises more than two-thirds of the retail price of a packet of cigarettes. The tax has provided a major, although shrinking, stream of revenue for the federal government, falling from $16.3 billion in 2019-20 to an estimated $7.1 billion in the next financial year.

The number of authorised NSW health inspectors has doubled and a new licensing scheme, effective from July 1, will tie the licence to compliance. NSW also increased fines for people selling black-market tobacco products from $11,000 to $154,000, and up to $22,000 for selling to children. Given the plethora of new outlets, they have yet to prove much of a deterrent. As Minns said: “It’s a bit like someone standing on a beach trying to stop the waves.”

The premier’s call for a tax rethink on tobacco excise is self-evident and common sense, given the vaulting black market trade has potential to compromise optimistic claims that excise duty tax has reduced smoking.

NSW is attempting to put tax on the agenda for this month’s national health ministers’ conference. But unpicking the federal tax policy is unlikely to resolve a complex problem that has now gone too far to be addressed by one single solution.

The illegal tobacco trade is mess created by the federal government. It should not be up to state police or health departments to fix. It is a matter that must and can only be solved by Canberra regulators, Home Affairs, Border Force and federal health inspectors.

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