One of the nation’s biggest independent retailers has warned that nine out of every 10 cigarettes will be bought illegally by the end of the decade unless the federal government cuts tobacco excise, slashing the price of cigarettes by almost a third.
Ritchies IGA, which operates 150 stores largely across Victoria and NSW, says Treasurer Jim Chalmers could repair the budget by billions of dollars and undermine criminal gangs by reversing years of bipartisan support for ever-higher rates of tobacco excise.
The government’s own illicit tobacco and e‑cigarette commissioner estimates one-in-two cigarettes bought in Australia is now illegal, with up to $11.8 billion in excise evaded by smokers.
Tobacco excise, which at the turn of the decade was the federal government’s fourth-largest tax source, has collapsed. This year, tobacco excise is forecast to raise $5.5 billion compared to the original estimate made in early 2022 of $13.6 billion in the 2025-2026 financial year.
Analysis by Oxford Economics, commissioned by Ritchies, estimates that the drop in excise between 2018-19, when the then government announced a crackdown on tobacco imports, and 2028-29 will cost the budget $67 billion.
By 2028-29, if the government continues with inflation-linked increases to excise, total collections that year could be just $1.5 billion with about 90 per cent of all cigarettes bought on the black market. Four years ago, excise collected in 2028-29 was forecast to raise $16 billion.
Oxford recommends excise rates should be slashed to their 2019 level and then frozen until the legal cigarette market stabilises. This would cut the price on a legal pack of smokes by almost a third.
Coupled with tougher penalties on businesses found to be selling illegal cigarettes and a crackdown on imports, Oxford estimates the legal cigarette market would recover while excise would climb by $3.1 billion in 2028-29. The report estimated that overall smoking rates would fall due to all combined measures.
In some Ritchies’ stores, revenue from tobacco sales has fallen by 92 per cent since 2020-21.
Ritchies director and CEO Fred Harrison said the current arrangement was hurting the budget bottom line, with tobacco excise now a financial, moral and legal issue.
“We all know that the consequences for our health system, police and communities are dire, but what this report shows is that so too is the budget impact,” he said.
“On the current trajectory, by the end of this decade, nine in every 10 cigarettes smoked in this country will be imported, supplied and sold not by a legal retailer but by a crime gang.”
Oxford estimated that a deep cut in official excise would reduce the consumption of illegal tobacco by almost 50 per cent.
There is deep resistance within the federal government to cutting tobacco excise over fears it cannot be reduced enough to entice illegal smokers to return to legal products. Modelling of the idea has been completed over recent years that suggests it is a high-risk strategy.
Last year, NSW Premier Chris Minns urged the government to consider a cut in excise, but Treasurer Jim Chalmers ruled out the move.
“I’m not convinced that cutting the excise on cigarettes would mean that that would be the end of illegal activity,” he said.
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Shane Wright is a senior economics correspondent for The Age and The Sydney Morning Herald.Connect via X or email.