Illegal cigarettes account for 15pc of the market

The nation’s 2.4m smokers are turning to illegal and even ­unhealthier cigarettes to avoid crushing increases in tobacco tax.

The nation’s 2.4 million smokers are turning to illegal and even ­unhealthier cigarettes to avoid crushing increases in tobacco tax, costing the federal government ­almost $2 billion in lost revenue.

Between 2016 and 2017, tobacco consumption fell 6.1 per cent but the share supplied in the black market climbed to a record 15 per cent from 14 per cent a year earlier, according to a KPMG study.

The analysis found the presence of cigarettes manufactured legally in other countries and smuggled into Australia, as ­opposed to illegal loose-leaf tobacco, had jumped by a third and the number of tobacco seizures at ports exceeded 120, with a total weight of 264 tonnes, for the first time in a decade.

“There is no denying the link between high excise and the illicit market. As excise on tobacco contributes to increased prices, the ­attractiveness of the illicit market becomes even more obvious to ­serious and organised crime,” said Rachel Elliott from Imperial ­Tobacco, which commissioned ­the report with Phillip Morris.

“Both the number of seizures and the total volume of tobacco smuggled (via international mail) increased in 2017,” the report says, pointing to similarly increased ­seizures of illegally grown tobacco in Australia.

 

The value of lost excise revenue rose from $1.6bn in 2016 to $1.9bn. Colin Mendelsohn, a tobacco control expert at UNSW, said lifting excise benefited government but was having a diminishing effect on smoking rates and might be doing more harm than good.

“Illicit tobacco reduces the price incentive to quit, especially for young people,” he said. “High tobacco prices are inequitable and unfair on addicted low-income smokers who have low quit rates. They create financial hardship and reduced spending on essential household items.”

Contraband cigarettes are about 40 per cent cheaper than legal cigarettes. Chop-chop, or loose-leaf tobacco, is between 70 and 80 per cent cheaper. A standard pack of Marlboro cigarettes averages $25.10 in Australia, ­according to price comparison website Numbeo, compared with $14.80 in Britain, $8.50 in the US and $1.90 in Indonesia.

Federal government revenue from tobacco excise is estimated to rise from $11.2bn this year to $15.6bn by 2021 as further excise increases take effect. Excise on tobacco jumped 25 per cent in 2010, and eight further 12.5 per cent increases have been legislated between 2013 and 2020 — it is currently equivalent to about 70c per cigarette, or 75 per cent of a pack.

The new figures will fuel debate about the effectiveness of a suite of anti-smoking measures. Tobacco use has increased, according to the Australian Criminal Intelligence Commission’s annual testing of household wastewater for various drugs, including tobacco.

Cigarette manufactures and retailers are demanding a better co-ordinated approach to reducing the illegal cigarette trade across different levels of government. Illicit tobacco has been found to contain higher levels of nicotine, as well as metals, pesticides, ­arsenic and even rat poison.

Rohan Pike, the former head of the government’s illicit tobacco taskforce, has put the loss in tobacco excise revenue at closer to $4bn.