Australia Considers Changes to Tobacco Excise Amid Black Market Surge

The Australian Treasury is currently evaluating the impacts of its tobacco excise policy, particularly in light of a burgeoning black market for cigarettes. Experts, including Lachlan Vass from the e61 Institute, suggest that a freeze on the excise could be a necessary measure to address the issue. The black market has reportedly grown significantly, with illicit cigarettes costing between $10 to $15 per packet compared to over $40 for legal ones. This illegal trade is estimated to account for approximately half of all tobacco consumed in Australia, contributing to a $17.8 billion budget shortfall since 2020-21.

The Guardian

Treasurer Jim Chalmers and Health Minister Mark Butler have previously dismissed the idea that lowering cigarette prices could effectively combat the black market. However, Finance Minister Katy Gallagher recently indicated that the government is open to reviewing excise policies, stating, “the government keeps all of these matters under review,” and acknowledging that there is “not a single solution” to the problem.

The Guardian

The tobacco excise has increased by 60% since 2020 and is set to rise again next month, accounting for three-quarters of the legal cost of a packet of cigarettes. Revenue from the excise peaked at $16.3 billion in 2019-20 but is projected to drop to $5.5 billion this financial year and $4.8 billion the next. Economists, including Chris Richardson, argue that the current taxation strategy has inadvertently fueled organized crime, stating, “we got the taxing of tobacco spectacularly wrong.”

The Guardian

Diane Brown, a deputy secretary at the Treasury, confirmed that the department is analyzing the elasticity of demand for tobacco to inform potential policy changes. Public health expert Becky Freeman supports freezing the excise at current levels, emphasizing that tax increases should only be implemented if they effectively reduce smoking rates. She noted that the prevalence of illicit smoking has underscored the need for a reassessment of the excise policy.

The Guardian

Despite the growing calls for a freeze or reduction in the tobacco excise, some officials remain skeptical about altering the current strategy. Critics of the excise policy argue that it has failed to achieve its intended health outcomes and has instead bolstered the illegal market. The ongoing debate highlights the complexity of balancing public health objectives with economic realities and the effectiveness of taxation as a deterrent against smoking.

The Guardian

• “we got the taxing of tobacco spectacularly wrong” — Chris Richardson, Economist

The Guardian

• “And now we know the size of the illicit market and how incredibly cheap those products are, I agree that a freeze at this time makes sense. There wouldn’t be any health gains by raising the price.” — Becky Freeman, Professor of Public Health, University of Sydney

The Guardian

As the Treasury continues its review, the future of Australia's tobacco excise remains uncertain, with significant implications for both public health and the economy.

The Guardian