There’s been an excise on tobacco since Australia was federated more than a century ago, but it was in 2010 that then-prime minister Kevin Rudd introduced hefty increases on taxes to drive down smoking rates.
And while official tobacco consumption has decreased in Australia, a very competitive black market in cigarettes has emerged. The level of violence between gangs fighting over the illicit tobacco trade is a unique, and perverted, consequence of a tax system that has pushed more smokers to the black market.
So, does a higher excise on legal cigarettes still work?
Senior economics correspondent Shane Wright traces Australia’s history of tobacco control in the latest episode of The Morning Edition podcast with Samantha Selinger-Morris, and explains why today’s tobacco excise is at a crucial juncture.
To listen, click the player below, or scroll down for an edited extract of the conversation.
Selinger-Morris: So how did the big increases in the taxes impact smoking rates, particularly most recently in the Rudd years?
Wright: Well, Australia officially has some of the lowest smoking rates in the developed world, but it is really hard to untangle everything. So you’ve got the excise increase, but then you’ve got the end to advertising – for example, Paul Hogan famously advertised for a cigarette company on prime-time TV. We don’t see anything like that now. You don’t see much smoking in films any more. So it’s that element, that cultural aspect of it, has really changed.
We were actually talking in the office the other day just about how rugby league in NSW used to play for the Winfield cup, or the Australian cricket team played in the Benson & Hedges cup (cigarette brands). So then all these things are changing around the same time.
And then there’s health awareness.
So trying to pull apart how each one, what part they’ve played, is really difficult to tell, but the Australian Bureau of Statistics actually tracks household consumption of tobacco and that has utterly, utterly collapsed.
Selinger-Morris: So that sounds good, right? It sounds like people are smoking less, but that’s actually not the full picture, is it? What’s going on?
Wright: Well, this is where we get to the federal budget. So the current budget, just in the mid-year update that was released by Treasurer Jim Chalmers in December, Treasury’s had a look at what’s going on and went, ‘Oh my god, we are not getting close. We are not getting close to what we’d actually thought we were going to get.’
They sliced their forecast by 25 per cent. So this year, their best guess is the government will collect $8.9 billion in tobacco excise in a budget where there’s $550 billion worth of tax and revenue. So it has collapsed unexpectedly. And cumulatively, they’re about $31 billion short of where they thought they’d be.
So while we’ve seen a drop in smoking, it’s not that big of a drop – as the budget suggests.
So what this discrepancy tells us is people are flocking to the black market.
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