Ending ‘christmas For Criminals’: Coalition's Tobacco Tax Cut Argument

CANBERRA — Australia’s strict tobacco laws aren't working.

A booming black market now accounts for more than half of nicotine consumed in the country, driving money away from government coffers and into the hands of organized crime.

The Opposition on Thursday unveiled a sweeping new plan it argues would fundamentally change the system: making legal cigarettes cheaper through an 80 percent cut to the tobacco excise, while legalizing vapes and nicotine pouches. The plan would come with $200 million to crack down on the illicit trade.

“It will kill people,” Labor's Social Services Minister Tanya Plibersek said Thursday.

Liberal MP Mary Aldred, who has led the Coalition’s review of tobacco laws, spoke to POLITICO about the plan.

This interview has been edited for length and clarity.

How long have you been reviewing this?

I really started taking an interest in this after the ram raiding of a local grocery store in my electorate last year, so getting on to 12 months I've been working on the issue of illegal tobacco. Then when [Liberal Leader] Angus [Taylor] came to the leadership six months ago.

We've really done a huge amount of work that I don't think anyone to date has invested in this issue. We've had sector roundtables with public health advocates, with medical doctors, with economists like Saul Eslake, with law enforcement at a state and federal government level, with retailers and small business peak bodies.

We've consulted the whole way around this issue — with people that agree with us and people that don't agree with us. We've done a lot of work on the modeling side of things, but also looked more broadly at a suite of options, including how we more aggressively reduce the smoking rate in Australia.

Australia's tobacco laws, plain packaging laws especially, have been heralded overseas as a model. From your perspective, when and why did that fall away?

The federal government loves to stand up and say Australia's a world leader, and that's correct — but sadly we're a world leader for the illicit market. There is a tipping point on the tobacco excise that has steered us away from all of the public health objectives that everyone wants to see. We've had a 282 percent increase since the Rudd government brought this in in 2012. Jacking it up by 25 percent in one hit started to contribute to this.

Probably around the mid-2010s is where things started to significantly increase, but it's only in the last three to four years that we've seen this tip into a national crisis — with firebombings and ram raids and the organized crime component. This is where the government really is at sea on this.

There are government ministers that accept the high excise rate is responsible for driving this black market. You've got the Senate inquiry report that was out about a week ago — the Labor senators that released their minority report saying we need to have an open mind on the tobacco excise question. So, if they accept that's part of the problem, why aren't they prepared to do something about it?

Your plan could seem counterintuitive. You want to cut tax to raise more revenue and you want to make cigarettes cheaper to curb smoking. Can you explain that thinking?

It's basic black market economics that you have to incorporate into your thinking. There's no silver bullet to tackling this issue — you need a Swiss Army knife of policy options. The government just saying that law enforcement alone can fix this is clearly not working and it's making it worse.

Law enforcement officials at a state and federal government level are doing their absolute best, but they lack the resources and the policy measures to have the action that they would like to see. I've spoken to a lot of state and federal police who are incredibly exasperated because they're trying their best, but they don't have the tools that they need.

Sure, if you raise the tobacco excise level to a certain rate that will deter people to a certain price point. There’s Arthur Laffer's theory and others, like Deakin University criminologist James Martin, who specializes in black markets. He says when things get to a particular point, as they have with illegal tobacco in Australia, you cannot police your way out of it.

The excise level is now at such a point that it is driving people to a black market, because it's not just as simple as saying: "We're going to make this product at a particular price point, so people will stop buying it."

You're dealing with people who are addicted to ingesting nicotine by combusting tobacco. If you suddenly make, as we have in Australia, this product available on pretty much every street corner through illegal outlets and online illegal websites, they will find a way to access that.

Most Australians, if you bring the price point of legal cigarettes down to say within $5 to $10 parity [with the illegal product], will choose the legal product, because they don't want to be providing profits to organized crime and bikie gangs. Then you need to bake that in with harm minimization measures to actually help people get off cigarettes. That's where vaping and nicotine products come in as a bridge to quitting smoking.

Labor Minister Tanya Plibersek says this plan will kill people.

She has this completely upside down. Every time the tax goes up, it’s Christmas for criminals. A tax gap of over $30 on every packet of cigarettes is nothing short of a subsidy for organized crime.

If crushingly high excise rates actually worked, the black market wouldn’t be supplying 80 percent of the tobacco smoked in this country, up from just 12 percent in 2017. That’s the ABS’ own figure.

The black market this excise built is what’s killing people right now. Over 200 firebombings since 2023 and Katie Tangey, an innocent Australian, is dead.

And we’re now in the absurd position where criminals are effectively setting tobacco control policy.

There’s no quality control, no age verification, and no regulation on illicit products. None. Every packet sold on the black market is one the government can’t see or oversee. Getting consumers back into a regulated, controlled market has to be the goal.

Smoking rates are dropping right across the developed world, even in places without Australia’s punishing excise. What sets us apart is a black market that’s doubled in size and a spike in organized crime violence.

Why wouldn’t organized crime just drop their prices further?

If you're in a legal tobacco business, you might not have the ATO [Australian Tax Office] or the Fair Work Ombudsman breathing down your neck. But you’ve still got supply chain costs, production costs, shipping costs, distribution costs. Running an illegal business is expensive to do. I heard one public health advocate say it'll go down to something like three cents per stick. They're sprouting these numbers — there’s no evidence, no studies, no modeling that have been referenced or cited.

What is your response to the argument that cheaper cigarettes will drive up smoking rates?

Smoking rates are going up under the existing policy settings — W.A. has just recorded its first uptick in smoking rates in 30 years. New South Wales, the most populous state, that's just ticked over 15 percent of smoking rates. You can't skirt around that, and the reason is illegal cigarettes are so prevalent and so cheap that there's evidence people are taking up smoking for the first time, most concerningly in that 18 to 25 year age group. That’s why we have to do everything possible to snuff out the illegal market.

There is also an argument that vapes are a gateway to cigarettes.

Some people in this debate have been quite mischievous about the vaping issue. Cigarettes are bad for you, whether they're legal or illegal. If you keep smoking them, they will kill you. But there's a big difference between legal and illegal vapes. There's manufacturing standards with legal vapes — you know what's in them and what dosage they have. With illegal vapes, you're dealing with things like cotton wool buds being used as the wick, all sorts of dosages, no manufacturing standards. You don't know what's being mixed in with them.

You want to legalize vapes and nicotine pouches and the excise would be applied. But some of the doses in those products are huge — would there be a cap on how much nicotine they could actually contain?

Yeah, there will be specifications on nicotine dosage rates — as there already are in the pharmacy model.

The issue with the pharmacy model is that there's something like 700 pharmacy outlets in Australia and only about 35 stock them. You can understand that a number of pharmacists have concerns about stocking them associated with crime, or it's just too difficult. So actually having a broader legal framework will help people who want to quit smoking access that help through harm minimization.

We accept that harm minimization plays a role in a whole lot of other scenarios. It's hypocritical and inconsistent of the government to be having this half in, half out approach to legalized vaping with the pharmacy-only model.

Would they be subject to our plain packaging laws?

I wouldn't be proposing any changes to plain packaging laws.

What if companies decide the Australian market is too small to create bespoke packaging and you’re left with the illegal market problem anyway?

If you buy a vape from under the pharmacy model now, it's just a simple black plain vape. So when you see the different-colored vapes, you can bet your bottom dollar that it’s been bought from the illegal market.

You’ve previously spoken about the black market’s impact on insurance for companies that have nothing to do with tobacco.

This is a massive issue and no one's actually costed its impact on the broader economy. In my hometown of Warragul, a suspected illegal tobacco shop was firebombed. It had a physiotherapist on one side and a Chinese restaurant on the other. They had to close their doors and undergo repairs. The Chinese restaurant was shut for six weeks. So you've got the cost of canceled appointments, casual staff not working and — in many cases — too scared to return to work.

You've also got this issue of insurance. It is a particularly big problem in shopping malls, where you might have a shoe repair shop or hairdresser. Suddenly, through no fault of your own, you find yourself next door or adjacent to a suspected illegal tobacco shop. In a number of instances, the insurance for those businesses has skyrocketed. I’m also aware some are no longer able to get insurance because the insurance companies deem them that much of a risk.

Who's costing that impact to the economy?

One Nation called for a 75 percent reduction the other day and Labor’s already saying you’re just chasing One Nation.

I've been on the record about an excise cut since last year. We put forward our policy paper in June on this issue with the 80 percent figure. Since then, the Coalition has done the hard policy work with the PBO [Parliamentary Budget Office] because we are a party of government who takes an evidence-based, properly costed, properly modeled approach. I'm proud to have played a role in that.

Whether it's state premiers or the crossbench or other parties coming to join us on this position, I’ll welcome them. But we were first to market having a stake in the ground on this.