Cheaper cigarettes could kill tobacco black market, experts say

As the Coalition and One Nation battle it out on tobacco excise policy, experts are using the renewed momentum to call for the tax to be slashed to kill the black market.

Pauline Hanson announced a policy to cut the tobacco excise by 75 per cent in a bid to crack down on the black market and associated crime, which would bring the price of a $46.50 pack of legal cigarettes down to an estimated $21 or $22.

The Coalition said it was preparing its own policy on the tobacco tax, with deputy leader Jane Hume saying it was working to get the balance right.

“We will announce our policy when the time comes,” she told reporters on Wednesday.

“It is really important that we make sure that we reduce the crime, the organised crime that is now flourishing because of this tax.

“But at the same time, we want to make sure that we protect those that might otherwise take up smoking, particularly vulnerable people.”

Hume dismissed suggestions from Barnaby Joyce that the Coalition was following One Nation, saying tobacco excise had been on the agenda for a “considerable period of time”.

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“The fact that [Hanson] came out yesterday with a new policy with no detail behind it, I think, speaks volumes,” she said.

Opposition health spokeswoman Anne Ruston ruled out working with One Nation on the policy.

“The Coalition is very focused on developing our own policy suite that we’ll take to the next election,” she said.

“We are very focused on making sure that there is full detail behind that.”

All tobacco sold in Australia is subject to an excise, which is indexed in March and September each year in line with average weekly ordinary-time earnings.

It has been in place since federation, but was hiked in the early 2000s to increase the price of cigarettes to drive down high smoking rates.

While Australians are smoking less, the higher price tag has pushed those who are still smoking increasingly towards a booming tobacco black market linked to organised crime.

That has wiped billions from the federal budget as excise revenue falls from the plummeting number of legal cigarettes sold.

The federal government has also been forced to spend hundreds of millions of dollars to help states and territories fight the increase in crime.

UNSW chief societal economist Richard Holden called for the excise to be scrapped altogether for a year to bring the price of a pack of cigarettes down to $20 and kill the illicit market.

“When you make the excise really big, then you create an incentive for these black market guys to ship in illegal cigarettes from the UAE and other places where it comes from,” he said.

“Then they use these kind of standover tactics that you see on brand display in Victoria, where they firebomb people who won’t sell it, and so you know you’ve got to.

“It’s impossible for enforcement to deal with it once the toothpaste’s out of the tube. You’ve got to kill the economics of it first.”

Independent economist Chris Richardson similarly called for the government to reduce the excise and increase enforcement to take control of the situation.

“We are in a game of catch up,” he said.

“There was probably a time where you didn’t need to cut the tax to solve the problem. Now we do, but we still desperately need to improve enforcement as well.”

Labor has, however, poured cold water on the call to reduce the excise.

Health Minister Mark Butler told the ABC that the proposal was a “thought bubble” and “cheap headlines”.

“Governments aren’t usually in the habit of engaging in price competition with organised crime. So that’s a hard line for us to cross,” he said.

“You could get rid of the excise altogether, completely abolish it, and still, legal cigarettes would be significantly more expensive than the illegal product.

“So that’s why I think this requires more deep thought than frankly cheap headlines of the type we’ve seen this week.”

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But Holden argued that the federal government is already in competition with the black market.

“We’re getting more than $10 billion a year less excise revenue than we used to get. Smoking has gone up, and violent crime has gone up,” he said.

“This is just a policy disaster of a first order.”