Flat White

The diminishing returns from our macho tobacco laws

8 June 2021

8:11 PM

8 June 2021

8:11 PM

For most people who work at the ATO, chasing tax evaders must be rather boring. They sit at their desks and review tax returns for undeclared income and ineligible deductionsimpose penalties when the rules are breached and occasionally face a challenge in the tribunal or court. But, overall, there is not much to get excited about 

That’s not the case when it comes to pursuing those who evade tobacco excise. The ATO staff who are involved in that fly in helicopters, accompany police on raids and arrests, and destroy tobacco crops.  They must be the envy of the entire department.  

Growing tobacco in Australia, once widespread, has been illegal since 2006. Every legal cigarette, cigar, roll your own and pipe fill is imported, generating $18 billion in excise as it crosses the borderAnd while collecting excise on imported tobacco is the responsibility of Border Force, the ATO has the job of ensuring nobody evades the excise by growing tobacco within Australia. It’s a task it takes extremely seriously.  

Recently the ATO enlisted the assistance of Queensland Police to seize 25 tonnes of illicit tobacco growing on 10 acres in Queensland. The crop was said to have an estimated excise value of almost $40 million. It is likely it was identified from its biological signature using aerial or satellite surveillance. The police are known to use the same method to identify cannabis crops.  

Had the crop been harvested and sold to smokers, it would have yielded a very healthy profit. With the price of legal tobacco sky high due to excise, illegal suppliers can make massive profits by selling at moderately lower prices.  Indeed, it is vastly more profitable to grow tobacco than any legal crop.  

But 10 acres and $40 million are petty cash in the illegal tobacco market. The 2019 KPMG survey of tobacco consumption found illicit tobacco now accountfor over 20 per cent of the Australian market and costs the government $3.4 billion in lost excise.  

It’s hard to have sympathy for the government though — it’s not as if it spends the rest of our taxes particularly well anyway. But this is not matter of otherwise harmless entrepreneurs dodging taxIf all they did was smuggle tobacco, most of us would probably not mind.  In fact, the people smuggling tobacco are organised, sophisticated, dangerous international criminals. Profits from tobacco smuggling underpin a multitude of other criminal activities including, at great human cost, human trafficking.  

Police regularly find illicit tobacco when pursuing these groups for other reasons. In a recent raid on a crime syndicate in Sydney, police seized sports cars worth more than $500,000 and found evidence of fraudulent personal loans and mobile phones along with a large quantity of illicit cigarettes. There is every chance the cigarettes were the primary source of funds to purchase the goods, with the penalties for tobacco smuggling much less severe than for importing drugs and just as lucrative.  

A sensible government would remove the incentive to smuggle tobacco into Australia by reducing the excise. Smokers would buy their favourite legal brands if they were cheaper, legitimate tobacco retailers would not be competing against illicit suppliers, and a lot less money would be spent on law enforcement.  

But the government is both addicted to the excise revenue and dogged in its belief that the high price of tobacco products somehow penalises Big Tobacco, about which it is obsessively fixated. It simply cannot see that, in reality, all it is doing is harming the poorest members of the community (who comprise a lot of smokers) and enriching organised crime.  

A handful of people at the ATO might not be happy, but a little less excitement would not be a high price to pay for a more rational approach to tobacco, whether it’s locally grown or imported.  

David Leyonhjelm is a former senator for the Liberal Democrats.

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