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Public wealth, public health, and private stealth: Australia's black market in cigarettes

2003; Wiley; Volume: 38; Issue: 3 Linguagem: Inglês

1839-4655

Gilbert Geis, S. Cartwright, Jodie Houston,

Canadian Policy and Governance

Introduction Australia's tobacco industry in worldwide terms is extremely small--some two tenths of one per cent of globe's total tobacco production--in a market dominated by China, Brazil, India and United States. Australia today has about 300 licensed tobacco growers, a number that has been shrinking steadily. In contrast, countries such as Brazil and Canada, comparable in size to Australia, report in vicinity of 30,000 tobacco growers each. The specific dynamics of Australian tobacco industry provides an interesting and well defined context in which to understand interaction of regulation, collection of tax revenue and rise of illicit tobacco trade. In first section of paper we briefly outline regulatory changes that have taken place, particularly over last decade. We then examine current arrangements for regions that farm tobacco in Australia, documenting concerns growers have for future of tobacco in Australia and offhand treatment of farmers who feel caught at mercy of manufacturers and government. Finally, this article considers rise of illicit tobacco market and examines temptations and problems illegal tobacco is causing. The current arrangement for control and taxation of tobacco in Australia is a relatively recent development so that as yet there are few tested tactics for dealing effectively with emergent black market. Tobacco has been grown in Australia since establishment of penal colony (Walker 1984; Winstanley, Woodward & Walker 1995). Cigarettes first were manufactured in 1887 and became preferred over pipes and cigars. The tobacco industry prospered as twentieth century unfolded, with an all time high of 1,317 growers before Great Depression of 1930s. Regulation largely was left to industry itself, though in 1936 Local Leal Content Scheme mandated Commonwealth support for growers. By 1997, this subsidy program decreed that manufacturers include 50 per cent of domestic product in their cigarettes. On their own, manufacturers raised this figure to 57 per cent. Tobacco was taxed by states and territories by means of business franchise fees. In August 1997, however, High Court in Ha v. New South Wales ruled by a 4-3 margin that such fees were an excise duty and that under Section 50 of Constitution Commonwealth is granted exclusive power to collect excise taxes. The court decision noted the size of business fee clearly exceeded cost of implementation (Ha and Another v. New South Wales 1997: 471). Had one judge in majority joined dissenters, arrangements for tobacco trade in Australia would have remained under control of states. Instead, oversight became a federal responsibility. Before Ha decision, state governments had provided funds to restructure tobacco industry. In 1994, for instance, Victoria allocated $3 million for growers who voluntarily agreed to leave industry, and in same year entire New South Wales tobacco growing enterprise was dismantled by a similar approach. This development occurred in concert with abolition of tariff on imported leaf (Australian Taxation Office 2002a: 7). There always has been a certain low level of tax-evasive dealing in cigarettes. When state franchises were in force, this tended to involve cross-border forays of shoppers who legally stocked up on cigarettes that cost less in countries or states they were visiting than at home, and there were smugglers who did same thing, dealing in much larger amounts (see van Fossen 2002:223 for an illustration of smuggling via Norfolk Island). During Second World War, an extensive black market came into existence when cigarette supplies were severely limited (Thompson 2002). Tobacco growing today The Australian practice of licensing growers is believed to exist nowhere else in world. …