Big tobacco excise increases have been used to boost the budget bottom line. But fewer smokers, more vapers and a burgeoning black market are killing the tax cash cow.
The federal budget’s addiction to tobacco excise is punching a $23 billion hole in the nation’s finances that will have to be covered by higher taxes as smokers give up their habit, adopt vaping or buy their cigarettes from the burgeoning black market.
In the current financial year, expected excise was cut by $2.4 billion, despite Health Minister Mark Butler last year sayingTreasury this week cut expected tobacco excise by $12.5 billion for the period from 2023-24 to 2027-28, attributing it to weaker than expected imports this financial year, as well as a large drop in consumption over the forward estimates.
Independent economist Chris Richardson said the sharp increase in excise rates, combined with the illicit trade in cigarettes and drop-off in smoking rates, meant the government would no longer be able to rely on smokers to fill the budget bottom line.“We want to encourage people not to hurt themselves, and this is one of the best ways to do it. But I think we’re at the limit,” he said.
“In cases like Australia, where we have one of the highest tobacco taxes in the world, this increases the demand for cheaper products.” Butler said his government had lifted taxes because tobacco prices had started to drop in real terms.
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