Wednesday 2 May 2018

Australia's tobacco black market grows again

As reported in The Australian, the illicit trade Down Under is big and getting bigger, despite it being a remote island continent.

The nation’s 2.4 million smokers are turning to illegal and even ­unhealthier cigarettes to avoid crushing increases in tobacco tax, costing the federal government almost $2 billion in lost revenue.

Between 2016 and 2017, tobacco consumption fell 6.1 per cent but the share supplied in the black market climbed to a record 15 per cent from 14 per cent a year earlier, according to a KPMG study.

The analysis found the presence of cigarettes manufactured legally in other countries and smuggled into Australia, as ­opposed to illegal loose-leaf tobacco, had jumped by a third and the number of tobacco seizures at ports exceeded 120, with a total weight of 264 tonnes, for the first time in a decade.

As you can see from the graph below, the share of black market tobacco was falling somewhat after 2010 but the introduction of plain packaging in December 2012 and punitive annual tax hikes from December 2013 have led to a surge. It now stands at an all time high.

I have written before about the spate of seizures in which vast quantities of cigarettes have been found coming into the country illegally and tonnes of tobacco been grown illegally on farms.

In the last month alone, $5.2 million of tobacco has been found growing in Wyuna, 17 tonnes have been seized in Victoria and there was a seizure worth more than $60 million near Bundaberg.

These news stories are so commonplace that no one in Australia seriously denies that there is a problem and only the most blinkered anti-smoking zealot could fail to see that it is entirely due to government policy. A pack of cigarettes now costs $35 (£19). At that price, buying on the black market is not just a financial necessity for many smokers, it is almost a moral duty. People who smoke are treated appalling by the Australian government. They have every right to starve the beast of money.

And tobacco duty is only going to rise...

Australia's excise on cigarettes is expected to raise 15.6 billion Australian dollars by 2021, up from 11.2 billion Australian dollars in 2017-18 as further increases come into effect.

I wouldn't be too sure of that. If the peak of the Laffer Curve has not already been passed, it cannot be far off. 

Still, it explains Australia's ongoing prohibition of e-cigarettes. What would happen to the government finances if people stopped smoking?  

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