By Becky Freeman, Christina Watts and Sam Egger
One Nation leader Pauline Hanson has called for a 75 percent cut to the tobacco tax and a freeze on any price indexation of the tax for three years.
Hanson said this would make cigarettes cheaper and so undercut Australia’s growing illicit tobacco market.
One Nation argues this would bring a packet of cigarettes currently selling for about A$46.50 down to roughly $21 or $22. That’s if the tax cut is passed on in full to consumers.
That “if” matters. Tobacco companies, not governments, set the retail price of cigarettes. There is no legal mechanism to force tobacco companies to pass a tax cut on to people who smoke.
A large tax cut could be an immediate cash windfall for companies that manufacture a product killing about 24,000 Australians each year, while doing very little to dismantle illicit supply networks.
This week, Health Minister Mark Butler said of One Nation’s proposal, “Governments aren’t usually in the habit of engaging in price competition with organised crimes.”
Is this new?
One Nation’s proposal is not entirely new. Hanson floated a 50 percent tobacco tax cut earlier this year ahead of her National Press Club address. The federal Coalition and shadow cabinet are reportedly considering recommending an 80 percent reduction in tobacco tax.
The Tasmanian Liberal government has also publicly called for the Albanese government to lower tobacco taxes – but has not specified by how much.
NSW Labor Premier Chris Minns has openly voiced his support to review and cut the tobacco tax. This is a break from the federal Labor position to focus on strengthened and coordinated enforcement activities to curb the illicit market.
States such as South Australia and Queensland have brought police, small business, and health interests together to collectively tackle illicit tobacco sales.
Calls to cut the tobacco excise directly align with the position of the tobacco industry. Philip Morris Limited and British American Tobacco Australia both argued for a cut to the tobacco tax in their submissions to the parliamentary inquiry into Australia’s illegal tobacco crisis.
What would happen if we slashed the tax?
There is no independent published modelling to look at the impact of One Nation’s proposed 75 percent tobacco tax cut – on illicit tobacco sales, smoking uptake and quitting, or health.
A report commissioned by Ritchies IGA (an Australian supermarket chain that sells tobacco products) that uses data provided by British American Tobacco Australia positions tax cuts as part of the solution to the growing illicit market.
The report estimated reducing excise by 42 percent combined with stronger enforcement, could shrink the illicit tobacco market by about 47 percent. The report does not establish how much of the reduction would be because of the excise cut rather than enforcement.
The report is problematic for other reasons.
First, there is a clear commercial conflict of interest in a supermarket chain, using tobacco industry data, advocating for a lower tobacco tax (and cheaper cigarettes).
Second, the report assumes the price of illicit cigarettes will remain broadly stable while the prices of taxed products will fall. Illicit suppliers could easily respond by lowering their prices, as there is no evidence to suggest illicit tobacco prices have hit “rock bottom” in Australia.
But there is strong Australian evidence to show the benefits of increasing the tobacco tax – fewer people smoking, including among lower socioeconomic groups.
How about the cost of living crisis?
Many households buying tobacco face financial stress. But that does not mean the tobacco excise is the cause of the financial hardship, or cutting the excise would reduce economic disadvantage.
In response to lower prices, many people would smoke more cigarettes a day, and take more years to quit, offsetting any savings and greatly increasing sales to tobacco companies.
Strengthening tobacco control policies that protect people from predatory promotion by the tobacco industry would reduce tobacco-related disparities.
For example, we have long known tobacco retailers are far more concentrated in lower income communities. This makes it more difficult for people who smoke to quit and more likely children will be exposed to tobacco promotions and sales.
Improving access to proven smoking cessation medicines – including nicotine replacement therapies such as patches, gums and inhalers – for all people who smoke is also urgently needed. It should not be more expensive to quit smoking than to buy cigarettes.
What’s happened internationally?
International examples show there is no simple relationship between tobacco excise rates and illicit tobacco sales. In some countries with high taxes (for example Singapore) illicit trade is low and in many countries with low taxes (for example Vietnam), illicit trade is high.
Proponents of tax cuts often point to Canada’s tobacco tax cuts in the 1990s. But the lesson is not as simple as they suggest.
There was some reduction in the volume of illicit tobacco sales when accompanied by well-resourced enforcement. However, provinces that cut the tax had more people smoking, more people starting to smoke and lower quitting rates than provinces that did not cut taxes.
What should we do instead?
Cutting tobacco tax will not solve the illicit tobacco crisis. And it could easily undo the progress Australia has made in bringing smoking prevalence down to a new low of 7.8 percent in 2025.
The illicit tobacco market needs a serious response: licensing, inspections, penalties, border control, and swift action against landlords and retailers who profit from illegal sales.
What it does not need is a policy that makes tobacco cheaper, rewards tobacco companies, and risks recruiting another generation to smoking.
Becky Freeman is a Professor in Public Health, University of Sydney. Christina Watts is a Research Fellow at The Daffodil Centre, University of Sydney. Sam Egger is a Senior Biostatistician at the Daffodil Centre, Cancer Council NSW, University of Sydney. This article was first published by The Conversation
