Dodging the Tobacco Tax !

During the first half of the twentieth century nearly half the men in Australia smoked tobacco.  During both of the world wars keeping the troops supplied with cigarettes was almost as important as the ammunition supply.  The cigarette helped calm nerves and reduce the tension from combat.

When the deadly diseases caused by smoking became apparent mid century the wise began to abandon the habit.  Ash trays began to disappear from doctor's waiting rooms and hospitals and despite a propaganda campaign from the tobacco companies the government commenced an ever increasing anti smoking campaign.

Areas where smoking was permitted began to shrink and tobacco products needed to be hidden from view wherever it was sold.  Legislation forced cigarettes to be marketed in unsightly packaging containing graphic pictures of the wounds tobacco causes - and the government implemented an ever increasing punitive tax on tobacco products.

In the years 2015-16 that brought the cost of each individual cigarette to 53.7 cents each and delivered 9.4 billion dollars in tax to the government.  Steady rises in the tax each year are bringing the cost of each cigarette to a dollar each and the government tax dividend is fast reaching 17.2 billion dollars.

As the number of smokers continues to decline, the tax they pay has become essential government income.  At the same time, Australia is simply awash with smuggled tobacco products since the retail price made tobacco smuggling competitive with drugs and delivered a lesser prison sentence for those who got caught.

As we learned with the drug trade, Australia's borders are porous.  It is impossible to search every container passing over the docks and organized crime now runs a sophisticated distribution network. Smuggled tobacco products are sold in every suburb and in every little country town in the country.  The smokers " grape vine "  spreads the word about where smuggled tobacco is sold.

It can be in unlikely places.  Perhaps a restaurant that has suffered a trade reduction or a clothing store undergoing the reduced demand for clothing.  The merchandise is kept out of sight and must be specifically asked for. Smuggled tobacco sold at half the retail price still delivers a handsome reward to both the smuggler and the retailer.

The product sold takes two forms.  "  Chop  Chop " is bulk tobacco leaf favoured by those who roll their own cigarettes and the rest are the fully formed cigarettes sold in countries surrounding Australia which are lightly taxed by their governments.  They come in packs of twenty like legitimate cigarettes.

The statistics we see on smoking rates are derived from cigarette sales statistics and it is obvious from this underground tobacco industry that the number of smokers in Australia is higher than what is claimed.  As we learned with the drug trade, the law of supply and demand will always ensure that demand is accommodated, despite the risk.  In fact,. it is the risk factor that determines what the price of the smuggled goods will bring.

The more the government hikes the tax on tobacco, the greater the market opportunity for smugglers to provide an alternative supply - and the less tax the government gets to fund what it euphemistically calls " consolidated revenue ".