Up in smoke: budget loses $8b more to illicit tobacco
Australia’s thriving tobacco black market has cut another billions of dollars from the federal budget as the treasurer remains firm against calls to cut excise duty that fuels the illicit trade.
In Tuesday’s budget, tobacco excise duty was revised down to 2029/30, dropping $8 billion over five years.
Estimated tax collections in 2025/26 fall to $4.1 billion; That’s $1.3 billion lower than what was projected in the mid-year budget update just five months ago.
Revenue from SCT has been in free fall since 2019, but the tax continues to rise.
Falling smoking rates played a part, but the main driver was the boom in black market sales, which the government estimates account for more than half of the total tobacco market.
Compared to 2019, illegal sales are burning a $12 billion black hole in the budget.
“This is another case of downgrading and something that I think people are waiting for some policy action to try and fix,” e61 researcher Lachlan Vass told AAP.
The excise tax of $1.50 per cigarette created a $30-per-pack incentive for organized criminals to sell black market tobacco.
Mr Vass said enforcement alone would not be enough to eliminate illegal trade, without lowering the consumption tax to remove that incentive.
But Chancellor of the Exchequer Jim Chalmers said he was not convinced a tax cut “like Big Tobacco wants us to” would make a difference.
“We want the tax on cigarettes to decrease because more people are giving up darts, not because of organized crime,” he told 2GB radio.
“We are spending a lot of money, time and effort to crack down on this illegal industry.”
The government has spent more than $200 million to strengthen compliance and enforcement, including $156.7 million in the previous budget, but only $14 million extra was pledged on Tuesday to increase the transport, storage and disposal of seized tobacco and e-cigarettes.
Mr Vass said cutting consumption duty alone would be unlikely to eliminate the dominance of the black market, as distribution networks were now consolidated.
But he said a return to at least 2019 levels would be needed, along with increased sanctions, to have an impact.
Shadow Chancellor of the Exchequer Tim Wilson said the government had given “organized crime, bikie gangs and criminals a full license” to operate the tobacco industry but refused to support cuts to excise duty.
“The question is how much do you need to cut to really stop this behaviour, because I think I’m seeing very conservative numbers,” he told 2GB.
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