Excise will increase to 95¢ a cigarette on March 1 as part of the normal six-monthly adjustments to rates. However, from September 1, it will jump by another 12¢ to at least $1.07 a stick due to a separate 12.5 per cent increase. That will add more than $4 to the cost of an ordinary pack of cigarettes.
That 12.5 per cent increase is the last of four annual rises announced by then treasurer Scott Morrison in the 2016-17 budget. Last year’s lift, on top of 2017 and 2018 increases, will deliver an additional $2.7 billion in revenue to the current budget.
A change in the timing of excise collection, aimed at preventing evasion at the border, will deliver a one-off $3.3 billion in extra revenue this year. The two measures combined are worth $6 billion in additional excise in a year the government is forecasting a $5 billion surplus.
Tobacco excise, expected to reap $17.2 billion this year, is now the fourth largest individual tax collected by the federal government with the states also benefiting from the GST that is imposed on cigarettes.
But the excise increases have given a huge financial incentive to criminals to enter the illegal cigarette market.
Craig Kelly, the Liberal MP heading a parliamentary inquiry into illicit tobacco sales, said it was clear that, while the excise increases were helping to drive down smoking rates, they had also encouraged criminals into the sector.
He said the excise increases had to be supplemented with other initiatives to crack down on illicit tobacco.
“The history of smuggling for hundreds of years is, if you put a tax on something, then you encourage people to smuggle,” he said.
“The biggest cheer whenever excise goes up comes from the organised criminals.”
One option is the introduction of heavy fines for not only those caught selling illegal tobacco but also business operators and even the owners of the premises from which the cigarettes are purchased.
In its submission to Mr Kelly’s inquiry, the Australian Border Force noted it had seized a record 633 tonnes of tobacco in 2018-19.
It said excise increases actually improved profit margins for criminals.
“Excise increases may impact the size of the illicit tobacco market, as the rising cost of licit tobacco may drive increased demand for cheaper alternatives including illicit tobacco,” it said.
The Police Federation of Australia agreed that high excise rates were encouraging criminals.
“Another issue that is becoming indisputable is that the high rate of tax on tobacco is making its illegal sale very attractive to the crime groups who are using the proceeds of illicit tobacco sales to fund other criminal activity,” it said.
The federation also noted that many smokers, “especially those on low incomes” are being drawn into the illegal world of illicit tobacco.
Another group at risk is the Indigenous community.
This month’s Closing the Gap report noted that, while the smoking rate among Indigenous Australians had fallen since 2012-13, at 37 per cent it was still well above the rate of the general population.
It warned smoking-related death rates in the Indigenous population were unlikely to fall for some time.
“Smoking related deaths may continue to rise over the next decade before declining, when the longer-term impact of smoking reduction may be realised,” it found.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.