By Shane Wright
The tax and policing approach to tobacco across this country is becoming a social, economic and legal disaster.
This disaster is playing out in our streets – from more than 120 arson attacks across Melbourne that have claimed at least one life to dodgy looking tobacco shops in Newtown and small “farms” in rural areas with unusual-looking cash crops, it’s clear to anyone that the current system is failing.
The explosion in illicit cigarettes is requiring more resources, even as excise revenue from smokes tumbles.Credit: AFP
Not only is criminal activity becoming the norm, hundreds of thousands of ordinary people are being dragged into breaking the law every time they light up a cheap ciggie.
America launched a war on drugs, and it failed. What’s going on in this country at present is eerily similar.
Not only have ever-more expensive cigarettes created market opportunities for organised crime, but they’ve also provided smokers with products that could be worse for their health than legal products.
That’s the human side of ever-increasing excise rates being used to tax smoking out of existence. There’s also the economic side.
Treasurer Jim Chalmers is dealing with what is now a $43 billion hole in tobacco excise since 2020 that affects the provision of services, welfare and infrastructure to the entire community.
That’s due to governments of both political persuasions overestimating just how much revenue their assault on tobacco would reap for the budget bottom line. And, as revenue has fallen, governments have spent more money on trying to make up for the cash shortfall.
The situation is so out of hand that in his pre-election budget, Chalmers pumped an extra $156.7 million over the next two years into increased efforts to police the illicit tobacco trade. That was in March.
In January last year, the government announced an extra $188.5 million over four years for Border Force to work with the states in a “co-ordinated effort to tackle all aspects of illicit tobacco”.
That extra policing was partly paid for by another increase in tobacco excise, worth 5 per cent a year for three years, that began on September 1, 2023. At the time, it was estimated it would garner an extra $3.3 billion in excise revenue.
But it’s clear that it did not. In the two years since that excise increase was announced, excise collections for 2023-24 and 2024-25 have been downgraded by $9.3 billion.
Apart from the extra resources pumped into state health departments, the country now has its own version of Eliot Ness in the form of Erin Dale, a senior Border Force official who is the nation’s “Illicit Tobacco and E-cigarette Commissioner”.
Public health advocates in this country have led the way in trying to reduce tobacco consumption. From ending television commercials to sports sponsorship and plain packaging, they’ve made huge strides in making cigarettes as unattractive as possible to potential new smokers.
Kevin Costner as Eliot Ness in the movie The Untouchables. Australia has its own version of Ness.Credit:
Price – through tax – has been another key element to their strategy. But somewhere along the line, the key economic concept of substitution has been ignored.
In this case, the substitution is whether people switch to chemist-only vaping products or get their fix via the black economy. And guess what? Australians have done both.
Given the way smokers are more likely to be lower-income earners, every large lift in excise disproportionately affects those least able to afford it. The assumption was that these people would give up.
Instead, the economy came up with another solution – a thriving, illegal but cheap market.
Public health officials, police and politicians have to come up with another way to deal with the explosion in illicit tobacco. The starting point has to be an acknowledgment that there is a cohort of people who will continue to smoke, no matter the health impacts.
And this approach has to cut the cord between federal governments and higher excise as an easy way to repair the budget. Tobacco excise is just a sign of the problems for the budget that are coming as petrol- and diesel-powered vehicles give way to electric ones.
At the end of The Untouchables, Ness is asked what he was going to do if Prohibition came to an end.
“I think I’ll have a drink,” he replies.
We don’t want a situation where people just light up and do irreparable damage to themselves and their loved ones. But we can’t continue with a series of policies that are not working.
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