Guest Post: One in eight cigarettes now come from the black market
Louis Holbrooke writes:
New data from KPMG suggests organised crime will the biggest winner from new measures targeting cash-strapped smokers.
The share of tobacco consumption sourced from New Zealand’s black market has increased to 12.1%, up from 9.2% in 2017, according to KMPG’s latest regular inquiry into illicit tobacco consumption in New Zealand.
While the total size of the black market has shrunk in kilogram terms, this is in line with wider reductions in the smoking rate as savvy smokers switch to vaping.
The worrying sign here is that among those Kiwis who continue to smoke, the black market is normalised as a source of affordable durries.
A taxed and regulated pack of Marlboros now costs $43, and the vast majority of that is tax. With smokers being disproportionately lower-income it’s little surprise that they’re jumping at the opportunity to buy homegrown tobacco leaf or cigarettes smuggled from China and Korea.
Artificially high legal tobacco prices create massive profit margins for illicit importers and growers of tobacco — profits that can be used to fund further criminal activities.
The obvious risk is that with an illicit market already thriving, new measures to make legal cigarettes less appealing and proposed crackdowns on vaping products will only fuel illegal activity. We need only look at Australia, where vapes are effectively prohibited and a study estimates a massive 23.5% of tobacco consumption comes from the illicit market.
Customs are concerned, telling the NZ Herald they’ve seen a “significant increase in the smuggling of tobacco products over recent years. . .The illicit tobacco market in NZ is already substantial and Customs expects demand for illicit tobacco to increase.”
Right now, smokers pay more than enough tax to cover associated health system costs. But if Labour follows through with plans to slash nicotine content and availability of legal cigarettes, or if National pursue a signalled vaping crackdown, the tobacco black market will boom, cratering tax revenues and normalising crime.
Louis Houlbrooke is the Taxpayers’ Union‘s spokesperson for lifestyle economics issues.