UPDATE: New research from the e61 Institute reveals that slashing Australia’s tobacco excise may not lure smokers back to legal cigarettes and could exacerbate the booming illicit trade. This alarming finding comes just days before Treasurer Jim Chalmers releases the mid-year fiscal update, which is expected to show an additional $12.7 billion in unanticipated spending, including $6.3 billion for disaster relief.
The report underscores a critical issue: Australia’s tobacco excise revenues have plummeted, contributing to a budget deficit that remains entrenched. Once a reliable source of income, tobacco excise peaked at $16.3 billion in 2019-20. However, with recent hikes driving the price of a legal packet of cigarettes to around $50, many smokers have turned to the illegal market, where a packet can be purchased for as little as $13.
According to the Australian Taxation Office, illegal tobacco sales now account for approximately 25% of all cigarette sales, leading to a staggering decline in excise revenue, which has dropped to $7.8 billion over the past five years. This trend prompted NSW Premier Chris Minns to label the excise as the “leading reason” for the surge in illegal tobacco and associated criminal activities.
“The time has come for a review of the excise rate,” Minns stated on ABC Radio Sydney, emphasizing the urgent need for action as the government allocates an extra $350 million to combat the illicit trade.
Chalmers, however, has ruled out reducing cigarette prices, insisting that health experts advocate for stricter enforcement to control the illicit market. The e61 economists behind the report, Josh Clyne and Lachlan Vass, argue that the government’s inability to guarantee increased revenue from a tax cut complicates the situation. If tobacco revenue had aligned with budget projections for 2024-25, Australia would be $3.8 billion better off, enough to increase the fortnightly jobseeker rate by $100.
The report warns that lowering the excise rate back to 2019 levels may not restore revenue, as the illicit tobacco market has become normalized among consumers. The economists estimate that revenue impacts could range from a decrease of $2.1 billion to an increase of $3.2 billion, depending on how smokers and illicit sellers respond.
As the illegal tobacco trade entrenches itself further, the report advocates for a comprehensive strategy to combat this crisis. The economists suggest enhancing enforcement efforts and launching public education campaigns to mitigate the effects of a potential excise cut.
“To execute this type of holistic strategy, a broad coalition is required,” they state. “Public health advocates must be willing to consider the idea of lowering tobacco prices, or else we risk failing to achieve any of tobacco policy’s goals.”
The urgency of addressing this issue cannot be overstated, as the implications for public health and government revenue are profound. As Australia grapples with its tobacco tax strategy, the upcoming fiscal update will be closely scrutinized for its potential impact on both the budget and the illicit trade’s future.
Stay tuned for more updates on this developing story.
