The federal government's Treasury department is conducting modeling on the impact of cigarette prices on demand, a necessary step, say experts, to cost potential reforms to the tobacco excise. This initiative comes as Australia faces a significant surge in the black market for tobacco, which has reportedly led to a staggering $17.8 billion budget shortfall since 2020-21.
Policy Debate Underway
Treasurer Jim Chalmers and Health Minister Mark Butler have previously dismissed suggestions that reducing cigarette costs could help curb the black market. However, Finance Minister Katy Gallagher indicated last week that the government keeps such matters under review, acknowledging that a single solution does not exist. Treasury officials are consulting with the departments of home affairs and health on this issue.
Finance Minister Katy Gallagher acknowledged last week that the government keeps matters under review, stating that a single solution does not exist for the complex issue of the black market.
Expert Perspectives on Excise Policy
Lachlan Vass, a research manager at the e61 Institute, stated that the current excise policy appears to be ineffective on multiple fronts. He argued for considering at least a freeze on the excise, which would allow the real cost of cigarettes to decrease over time, as part of a broader health and enforcement strategy.
Professor Becky Freeman, a public health expert at the University of Sydney, also supports freezing the excise at current levels. She cited estimates from the illicit tobacco and e-cigarette commissioner (Itec), which indicate the substantial prevalence of illicit smoking, as confirmation of her view. Freeman stated that tax increases are only supported if they are effective at reducing smoking and that a freeze is sensible given the illicit market's size and low product costs.
"Tax increases are only supported if they are effective at reducing smoking," stated Professor Becky Freeman, advocating for a freeze on the excise given the illicit market's significant size and low product costs.
The Illicit Market's Economic Grip
Black market cigarettes are reportedly priced at approximately $10 to $15 per packet, significantly lower than the $40 or more for a legal 20-pack. According to Itec estimates, illicit tobacco accounts for around half of all tobacco consumed in Australia.
Key Economic Data:
- The tobacco excise has increased by 60% since 2020 and is scheduled to rise again next month.
- The excise represents three-quarters of the legal cost of a packet of cigarettes.
- Excise revenue peaked at $16.3 billion in 2019-20 but is projected to generate only $5.5 billion this financial year and $4.8 billion in the next.
- The government has allocated an additional $350 million over the past two years to assist state authorities in combating the illicit trade.
Several economists, including Chris Richardson, have advocated for a freeze or reduction in the tobacco excise, asserting that the current taxing approach has inadvertently supported the growth of organized crime revenue.