Flat White

Smoking policy: all about revenue, not health

31 January 2019

11:38 AM

31 January 2019

11:38 AM

Despite a number of high-profile convictions in recent years, the black market for tobacco in this country is flourishing, as we’ve been reminded again this week. This comes as no surprise, given the inherently flawed policy approach, which is nothing more than a balancing act between creating busy work for the likes of the Australian Border Force and ensuring that the rivers of gold continue to flow to Treasury.

Significant taxes are levied on tobacco products in Australia. Currently standing at $0.81 per cigarette, this will be increased to around $0.91 later this year and then $1.02 next year. This is justified by the disproportionate costs to the public health system of smokers; the cigarette tax will supposedly pay for this additional health care while discouraging smoking.

These justifications are only used because the truth doesn’t sound as nice: increasing taxes on smokers is a politically safe revenue stream.

The lines of ‘public health’ and ‘discouraging smoking’ cannot be accepted. Smokers pay so much tax ($11.5 billion in 2017-18) that they actually subsidise the healthcare system for other users. This was highlighted in parliament in 2014 when Senator David Leyonhjelm acknowledged that smokers paid for their additional burden seventeen times over. As an additional bonus, if they do get sick and die, they won’t claim the aged pension, which is the single biggest expenditure component of government.

And if there were genuine concerns about public health, vaping would be quickly legalised across the country as it has proved to be an effective tool in quitting smoking.


Besides, the ever-increasing taxes have ceased to be an effective means of discouraging smoking. In the past five years the smoking rate has hardly decreased, from 14.5 per cent to 13.8 per cent. This is not quite the result you might expect from a 12.5 per cent increase in taxes each year.

It is clear then that Treasury is simply addicted to the revenue stream. This becomes an issue when it blinds the government to second-order policy implications; the perfect example being in the black market for tobacco.

Susan Black, the commander of special investigations at the Australian Border Force, admitted that the tobacco tax creates an incentive for the black market, saying that “illicit tobacco is a really attractive market for organised criminal syndicates due to the lucrative profits that can be made in evaded tax”.

The causes and dangers of black markets have been obvious since Prohibition in the US, and perhaps long before that. When the government bans something or taxes it too highly, people will figure out different ways to get it. The current rates of taxes on cigarettes have incentivised criminals to flood the black market with tobacco that consumers can buy free of the additional punitive costs.

The current policy approach also fails because the issue cannot be policed effectively. Black has also admitted criminals in the illicit tobacco trade are “quite adaptive with their skills. When they realise that detections are happening one way, they’re quite innovative and can move quickly.”

So rather than creating pointless taskforces – I’m talking about you, Illicit Tobacco Taskforce – and wasting the resources of the ATO, the ABF, ACIC, Austrac, the Commonwealth Director of Public Prosecutions, the Department of Home Affairs and the prison system, why not address the issue at the root.

If tobacco taxes were reduced, the incentive would be removed and the black market would cease to exist. This would allow the resources of federal agencies to be focused on other crimes, rather than trying to clean up after a messy taxation policy.

While Treasury’s snout is in the trough, though, it seems unlikely a sensible policy will be pursued.

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