The shortfall between the original forecasts and what has been collected or is now expected to flow into Canberra’s coffers by 2026-27 is currently $23 billion.
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.
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“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.
“We’re taking money from poor people to give to rich people,but it’s a tough addiction to shake off.”
Public health researcher Dr Cheneal Puljevic,from the University of Queensland,said there had been a significant drop in smoking rates,which reflected the rising cost of tobacco products as well as better knowledge about health impacts.
“The other part is a lot of people have switched to using vaping products instead,which are not taxed. And then there are the people turning to illicit tobacco,” she said.
“In cases like Australia,where we have one of the highest tobacco taxes in the world,this increases the demand for cheaper products.”
Australia’s tobacco smoking rates are at record lows,down to 8.3 per cent of the adult population in 2022-23.
But vaping has risen sharply,particularly among young Australians. An estimated 17.2 per cent of people in their 20s vaped in the same period,up from 5.1 per cent in 2019.
There is also evidence of a growing illicit tobacco market:10.2 per cent of smokers said they purchased tobacco products without plain packaging last financial year,up from 6.2 per cent in 2019.
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In this week’s budget,the government now expects to raise $10.7 billion in tobacco excise in 2027-28,or the same amount it collected in 2016. Since 2016,tobacco excise has climbed by 140 per cent to almost $1.30 per cigarette.
Butler said his government had lifted taxes because tobacco prices had started to drop in real terms.
“A price signal,we know from all of the evidence,is an important part of the toolbox in tobacco control. We couldn’t see a situation where cigarette prices actually started to reduce in real terms. That’s a big driver for us taking the decision we did,” he said in February.
“But we are conscious of the fact that this is a complex market. We’ve got vapes on the one hand,we’ve got illicit tobacco,and we’ve got legal tobacco.”
Richardson said there were lessons for the government in other areas where revenue sources might dry up.
Petrol excise,which in the budget was forecast to lift by 22 per cent this year to $7 billion thanks to high oil prices,is expected to climb only another $1 billion,by 2027-28.
Treasury is well aware that the growth in electric vehicles will ultimately reduce overall petrol excise.