The rise of illicit tobacco

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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