In contrast, illegal retail tobacco outlets have mushroomed and become a feature around the strip shops of Australia’s suburbs, selling packets of cigarettes for about $15 compared with the legal equivalent pack, which costs more than $50. Consumers are making a clear and understandable choice to buy the illegal products.
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Which shows the government’s massive tax on cigarettes has ultimately done more harm – and that harm is affecting a larger cohort.
While smoking rates have been on a gradual decline for decades, and now sit at less than one in 10 Australians, recent data from Roy Morgan says that 17.4 per cent of people over 18 either smoked or vaped and this number rose to near 28 per cent among 18 to 24-year-olds.
The tax rate on cigarettes has grown by about 300 per cent since 2010 under the successive Labor and Coalition governments. The Rudd government began ratcheting up the excise rate with a 25 per cent increase in 2010.
Unsurprisingly, the political parties are blaming each other for the unintended policy outcomes, but they all viewed the revenue grab from tobacco excise as a bonus for public and economic health.
During a Senate committee hearing in Canberra this week, Nationals senator Matt Canavan criticised Finance Minister Katy Gallagher for the steep tobacco excise increases, including a 5 per cent rise in September.
“We’re having to now measure the black economy,” Canavan said. “Is this Soviet Russia?”
Histrionics aside, and using the economic lingo, the taxing of cigarettes has become a clear example of diminishing marginal returns.
And the unintended consequence has been the growth of a black market in tobacco trade.
The illegal market has stretched the resources of law enforcement and fostered the creation of an underworld of black marketeers largely undeterred by penalties and fines. There are now all too familiar instances of the firebombing of shops as rival gangs engage in turf wars.
The trouble is that winding back the excise on cigarettes is politically fraught. And even if the tax was scaled back to zero, illicit tobacco would be cheaper.
The illegal market that has now found root in Australia isn’t going anywhere.
