The rise of illicit tobacco

November 12th, 2013 at 3:00 pm by David Farrar

The Herald Sun reports:

ILLEGAL is booming across Australia, funding international criminal gangs, and costing taxpayers more than $1 billion each year.

And the introduction of plain packaging for legal cigarettes has failed, according to a report released this morning.

That report states that ­tobacco consumption in Australia will rise this year for the first time since 2003.

Demand for cheap counterfeit and contraband cigarettes is accelerating, driven by excise increases on legitimate tobacco.

This is the risk of increasing the excise tax.

Don’t get me wrong. If one could wave a magic wand, you’d have a country where tobacco was never made legally available. Could you imagine the US FDA giving approval to a product that kills so many people, if you were applying for permission to introduce it as a new product. They’d never ever approve it.

However we live in a world where tobacco is legally available in pretty much every country on earth.

I’m supportive of measures to reduce the smoking rate, and price is definitely a good lever. However the experience in Australia does show that there may come a level at which rising the price via excise tax will be counter-productive as t will just push people from the regulated legal market to the unregulated illegal market.

The Tobacco Plain Packaging Act, passed in 2011, made Australia the first country to remove all logos, colour and design from cigarette packets.

But a report compiled by the international auditing firm, KPMG, and released exclusively to theHerald Sun, shows that while sales of legal cigarettes and tobacco have slipped slightly in the past 12 months, surging demand for counterfeit and contraband cigarettes and chop chop tobacco has more than made up that shortfall.

This is the big challenge of public policy – unintended consequences.

Three years ago, then prime minister Kevin Rudd announced a 25 per cent increase in tax on cigarettes along with the plain packaging plan, the government convinced the changes would slash tobacco consumption by 6 per cent.

But – based on the survey – smokers have been driven to purchase illicit tobacco products, none of which displays the mandatory health warnings.

If people want to smoke, they will find ways to do so.

But KPMG estimates that 1433 tonnes of illegal tobacco has entered Australia in the last 12 months, an increase of 154 per cent.

It calculates that illicit tobacco is 13.3 per cent of total Australian sales and getting towards a market share enjoyed here by the world’s biggest manufacturer, Imperial Tobacco.

That’s a huge proportion.

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22 Responses to “The rise of illicit tobacco”

  1. JeffW (324 comments) says:

    Doesn’t matter whether it is effective, what counts is that more bureaucrats, professors and lobbyists have had their way and are in a better position to claim more money from the people.

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  2. Harriet (4,614 comments) says:

    Everyone here in Australia said that would happen from the outset as there was illegal tobacco already being imported years before the tax rise and plain packaging were ever mentioned.

    Treasury were clearly not consulted. Typical ALP.

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  3. Bovver (151 comments) says:

    Just get everyone to switch to e-cigarettes, then they can have as much nicotine as they want with none of harmful side effects

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  4. liarbors a joke (1,069 comments) says:

    but Aunty Turia said it would be alright..plain packaging would fix everything for ” our people ”

    silly bint

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  5. Nick R (500 comments) says:

    This has been going on in Britain for years. So much tobacco gets brought in from the continent, legally or illegally, that in some places it is probably selling in greater quantities than the fully taxed product. But what do you expect when you keep hiking the prices of an addictive product? For every person who quits there are going to be others who just want to minimise the cost.

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  6. alloytoo (463 comments) says:

    I would imagine plain packaging is a boon to counterfeiters, only one box to copy or steal.

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  7. Bob (495 comments) says:

    The UK version of border patrol shows that smuggling of illegal amounts of duty free cigarettes from Europe is rife. There is a legal allowance but the programme shows bags packed with cartons. Ban or discourage something and there will be people who will provide it illegally.

    In my own view I would like to see the government tell tobacco companies that their industry will be banned in perhaps 10 or 15 years while current measures are carried on discouraging smoking. The idea is that older addicted people can carry on smoking until they die while fewer younger people will take it up. Hopefully by the time cigarette production phases out there will be few smokers left.

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  8. thePeoplesFlag (220 comments) says:

    “…The KPMG report was commissioned by big players in the legal tobacco industry…”

    Bullshit propaganda, in other words.

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  9. gazzmaniac (2,319 comments) says:

    If one could wave a magic wand, you’d have a country where tobacco was never made legally available.

    Why? Shouldn’t it be up to people to make their own choices regarding whether or not they smoke, not you?

    If people want to smoke, they will find ways to do so.

    Kind of contradicts the first quote, doesn’t it?

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  10. mara (752 comments) says:

    Bovver you are so right. I took up vaping 2 months ago and have not smoked a cigarette since, breaking a 30 year, 30 a day habit. The benefits are immense. Naked Vapour here in NZ are great suppliers. Like many other vapers in NZ I’m stocking up on the nic. juice before the Govt bans the importation of it or taxes it to high heaven.

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  11. Nigel (515 comments) says:

    Let me get this straight, they bump the price of tobacco, remove any branding for the heavily taxed legal tobacco & are surprised that illegal tobacco takes off, not like there is any obvious packaging difference right. Well duh, who would have guessed that.
    I figure you can one or other, plain packaging or high excise, together it’s a policing nightmare.

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  12. burt (8,019 comments) says:

    Like so many other government initiatives to “stamp stuff out” this is funding the gangs …. Better increase the penalties and let the gangs charge more for greater risk … that would be following the plan we seem to have followed for other things.

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  13. Alfred (52 comments) says:

    Careful David, all the health activists will be coming for you. First they’ll say that you’re clearly in the pocket of Big Tobacco, then they’ll try and get you banned from health events, then they’ll question your integrity for good measure. Remember, they can’t have anyone disagree with their ideas. Oh no, can’t have that.

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  14. nasska (10,897 comments) says:

    Illegal tobacco, known as chop-chop has been available in NZ for years….at least to those with the “right” connections. I would imagine that the gangs will be involved in anything that has an assured cash market.

    Ref: http://www.batnz.com/group/sites/bat_5lpj9k.nsf/vwPagesWebLive/DO6UPT6M?opendocument&SKN=1

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  15. Fentex (909 comments) says:

    This is the risk of increasing the excise tax.

    It is suggestive of having been increased too far – past the point at which it is discouraging of use to have become encouraging of avoidance and counterfeit. One would think, if the evidence is backed up, that dialling back the tax should follow promptly, though history suggest authorities ego will prefer to double down and no doubt announce a War on tobacco.

    If one could wave a magic wand, you’d have a country where tobacco was never made legally
    available

    This is the second time in a week DPF has confused me by asserting he is a prohibitionist. Apparently the only thing that prevents him from forbidding these vices to others is the lack of power to enforce his will. How is one to treat arguments about freedom and individual liberties from someone who asserts they would forbid what they do not like if only they had the power?

    Does it not lend credence to suspicions that arguments promoting freedom of choice from such a source are really shallow self serving arguments devoid of principle solely in support of a personal preference?

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  16. Manolo (13,516 comments) says:

    The unintended consequences of the government’s adoption of useless Turia’s plan.

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  17. Huevon (211 comments) says:

    I worked on a farm in Queensland when finished school (like 15 odd years ago). There was a big black market trade in “chop” back then. Was pretty cheap and not too hard to come by if the locals trusted you – like $20 for a plastic supermarket bag of tobacco. No idea of the scale of it, but may be that nothing has really changed with the plain-packing laws

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  18. burt (8,019 comments) says:

    Huevon

    What’s changed is that everyone has unbranded packaging now so ‘chop’ isn’t standing out as ‘not the real deal’ tobacco.

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  19. mara (752 comments) says:

    First they came for tobacco, then for alcohol, then trans-fats, then sugar … FFS, don’t the controlling fascists realise that it is in no one’s interests for more elderly people to miserably shuffle about in nursing homes for years because they lead ” clean-living virtuous” lives. “Sinners” are generally spared this particular form of hell.

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  20. labrator (1,846 comments) says:

    If one could wave a magic wand, you’d have a country where tobacco was never made legally available

    I’d much rather people could smoke tobacco whenever they wanted but the country wasn’t lumped with the medical costs of looking after them. Go get smokers insurance.

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  21. burt (8,019 comments) says:

    labrator

    I think you missed the memo, the tax on cigs has been there for years and has been increased dramatically recently. Arguably the smokers are insuring the nonsmokers as they typically live longer and consume more elective surgeries as a result of leading longer more active lives.

    But I get it, like ACC you have no choice but to pay it yet the state run monopoly gets to choose what it funds and what it doesn’t. Perfect monopoly – no wonder the government needs to own it !!!

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  22. CharlieBrown (921 comments) says:

    Gotta say DPf – your views on tobacco are quite contrary to your views on fatty foods. You seem to support the concept of price controll and regulation over one but not the other.

    Its time the government step out of peoples private lives and let them make their own informed decisions.

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