EXCISE TARIFF AMENDMENT (TOBACCO) BILL 2014 Explanatory Memorandum
EXCISE TARIFF AMENDMENT (TOBACCO) BILL 2014
2013-2014
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
EXCISE TARIFF AMENDMENT (TOBACCO) BILL 2014
CUSTOMS TARIFF AMENDMENT (TOBACCO) BILL 2014
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon J. B. Hockey MP, and the
Assistant Minister for Immigration and Border Protection,
Senator the Hon Michaelia Cash)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Indexation changes and staged increases to
tobacco excise and excise equivalent customs
duty ............................................................................... 7
Chapter 2 Regulation impact statement: tobacco excise
and excise equivalent customs duty: staged
increases and change from CPI to AWOTE ............... 19
Index ..................................................................................................... 83
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ABS Australian Bureau of Statistics
ACBPS Australian Customs and Boarder Protection
Service
AFTS Australia`s Future Tax System
ASH Action on Smoking and Health
ATO Australian Taxation Office
AWOTE average weekly ordinary time earnings
COAG Council of Australian Governments
COPD chronic obstructive pulmonary disease
CPI consumer price index
CTA 1995 Customs Tariff Act 1995
Customs Bill Customs Tariff Amendment (Tobacco)
Bill 2014
ENDS electronic nicotine delivery systems
ETA 1921 Excise Tariff Act 1921
Excise Bill Excise Tariff Amendment (Tobacco)
Bill 2014
FCTC Framework Convention on Tobacco Control
FOFA Future of Financial Advice
GST goods and services tax
NBER National Bureau of Economic Research
NCD non-communicable disease
NPHS National Preventative Health Strategy
NTS National Tobacco Strategy
OBPR Office of Best Practice Regulation
PBS Pharmaceutical Benefits Scheme
RBCO Regulatory Burden and Cost Offset
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Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
Abbreviation Definition
RIS regulation impact statement
RMIT University Royal Melbourne Institute of Technology
University
RYO roll-your-own
Taskforce National Preventative Health Taskforce
TGA Therapeutic Goods Administration
the Commissioner Commissioner of Taxation
UK United Kingdom
US United States
USA United States of America
WHO World Health Organization
2
General outline and financial impact
Indexation changes and staged increases to tobacco excise
and excise equivalent customs duty
The Excise Tariff Amendment (Tobacco) Bill 2014 and the Customs
Tariff Amendment (Tobacco) Bill 2014 amend the Excise Tariff Act 1921
and the Customs Tariff Act 1995 to:
· increase the rates of excise and excise equivalent customs
duty on tobacco through a series of four staged increases of
12.5 per cent, commencing on 1 December 2013; and
· index the rates of excise and excise equivalent customs duty
on tobacco to average weekly ordinary time earnings
(AWOTE) instead of the consumer price index (CPI). The
last CPI indexation occurred on 1 August 2013 and the first
AWOTE indexation occurs on 1 March 2014.
Date of effect: The first of the staged increases applies from
1 December 2013. The first indexation adjustment under the new
indexation arrangements occurs on 1 March 2014.
Proposal announced: The Treasurer and the Assistant Treasurer
announced that the Government would proceed with these measures in a
joint Media Release titled Restoring integrity in the Australian tax
system` of 6 November 2013.
Financial impact: The staged increases have the following revenue
implications:
Revenue ($m) 2013-14 2014-15 2015-16 2016-17
Australian Taxation Office 240 700 1,070 1,450
Australian Customs and 130 360 550 740
Border Protection Service
Impact on underlying cash 370 1,060 1,620 2,190
balance
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Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
This revenue impact does not include the following estimated increase in
goods and services tax collections:
Revenue ($m) 2013-14 2014-15 2015-16 2016-17
Goods and services tax 30 100 150 210
Indexation to AWOTE has the following revenue implications:
Revenue ($m) 2013-14 2014-15 2015-16 2016-17
Australian Taxation Office 10 70 160 240
Australian Customs and
Nil 40 90 130
Border Protection Service
Impact on underlying cash
10 110 250 370
balance
This revenue impact does not include the following estimated increase in
goods and services tax collections:
Revenue ($m) 2013-14 2014-15 2015-16 2016-17
Goods and services tax Nil 10 20 40
Human rights implications: These Bills are compatible with human
rights. See Statement of Compatibility with Human Rights,
paragraphs 1.39 to 1.45.
Compliance cost impact: Minor transitional compliance and
administration costs are expected from these measures.
Summary of regulation impact statement
Regulation impact on business
Impact: Low.
Main points:
· The impact on tobacco companies and retailers is limited as
all systems for excise increases are currently in place and the
increases are simple changes in the rate and indexation of
duty.
4
General outline and financial impact
· There has been a significant lead time before the increases
take effect, especially for those which occur in later years.
· The staged increases take effect on the same day as biannual
indexation from 2014, which minimises compliance costs for
tobacco companies and retailers.
· While increases to the excise rate have the potential to
increase the illicit trade in tobacco, Australian Customs and
Border Protection Service detection data does not support the
premise that tobacco smuggling increased following previous
excise rate increases.
5
Chapter 1
Indexation changes and staged increases
to tobacco excise and excise equivalent
customs duty
Outline of chapter
1.1 The Excise Tariff Amendment (Tobacco) Bill 2014 (Excise Bill)
and the Customs Tariff Amendment (Tobacco) Bill 2014 (Customs Bill)
amend the Excise Tariff Act 1921 (ETA 1921) and the Customs Tariff
Act 1995 (CTA 1995) to:
· increase rates of excise and excise equivalent customs duty
on tobacco through a series of four staged increases of
12.5 per cent, commencing on 1 December 2013; and
· index rates of excise and excise equivalent customs duty on
tobacco to average weekly ordinary time earnings (AWOTE)
instead of the consumer price index (CPI). The last CPI
indexation occurred on 1 August 2013 and the first AWOTE
indexation occurs on 1 March 2014.
Context of amendments
1.2 Excise is a tax on certain goods produced in Australia, including
tobacco products. Imported goods comparable to those subject to excise,
known as excise equivalent goods, attract customs duty that includes a
component of the same rate as the excise applied to locally-produced goods.
This component is commonly referred to as excise equivalent customs duty.
As a result, imported goods and locally-produced goods are taxed in an
equivalent fashion.
1.3 Excise Tariff Proposal (No. 1) 2013 and Customs Tariff Proposal
(No. 2) 2013 were tabled in the House of Representatives on 10 December
2013. These tariff proposals were necessary to give effect to the first of the
series of four 12.5 per cent increases in the rates of excise and excise
equivalent customs duty on tobacco, which took effect on 1 December
2013. The tariff proposals were also necessary to give effect to the change
in the indexation method for rates of duty on tobacco and tobacco products
from CPI to AWOTE.
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Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
1.4 The intention to alter the ETA 1921 and CTA 1995 had been
previously announced in separate Commonwealth Government Gazette
Notices on 29 November 2013, under section 160B of the Excise Act 1901
and section 273EA of the Customs Act 1901.
1.5 Prior to these amendments, excise duty on tobacco products was
indexed according to CPI, with indexation adjustments occurring in
February and August to align with the release of CPI figures. Indexation
adjustments to the rate of excise on tobacco were also reflected in equal
increases in the excise equivalent customs duty that applied to tobacco.
1.6 However, because CPI tends to increase at a lower rate than
AWOTE, the excise and excise equivalent customs duty component of the
price of tobacco tended to rise at a rate lower than wage growth. These
amendments ensure that additional consumer demand is not encouraged in
the longer term by a decline in the duty component of the price of tobacco,
relative to wages and salaries.
1.7 Despite reductions in tobacco consumption among the general
Australian population, tobacco continues to be a major cause of death and
disability, with approximately three million Australians still smoking at
least daily or weekly. Around 15,000 people die each year of
smoking-related illness in Australia (Begg et al. 2007).1
1.8 These amendments seek to reduce the premature death and
disease due to smoking by increasing the rates of duty on tobacco through
both indexation changes and staged increases to rates of duty.
Summary of new law
Staged increases
1.9 These amendments provide for a series of four staged increases of
12.5 per cent each to the rates of excise and excise equivalent customs duty
on tobacco.
1.10 The first of these increases occurred on 1 December 2013. The
three subsequent increases are scheduled for 1 September in 2014, 2015 and
2016 respectively. These subsequent increases coincide with the indexation
adjustments scheduled for these dates.
1 Begg S, Vos T, Barker B, Stevenson C, Stanley L & Lopez A 2007. The burden of disease
and injury in Australia 2003. Cat. No. PHE 82. Canberra: AIHW p 5.
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Indexation changes and staged increases to tobacco excise and
excise equivalent customs duty
Indexation changes
1.11 These amendments ensure that rates of excise and excise
equivalent customs duty on tobacco are indexed according to AWOTE
instead of CPI.
1.12 Indexation adjustments still occur biannually, but are scheduled
for 1 March and 1 September each year, to align with the publication of
AWOTE data by the Australian Bureau of Statistics (ABS).
1.13 The last CPI indexation occurred on 1 August 2013 and the first
AWOTE indexation is scheduled for 1 March 2014.
Comparison of key features of new law and current law
New law Current law
Staged increases
Four staged increases in the rates of No equivalent.
excise and excise equivalent customs
duty on tobacco and tobacco products
occur on 1 December 2013,
1 September 2014, 1 September 2015
and 1 September 2016.
Indexation changes
Rates of excise and excise equivalent Rates of excise and excise equivalent
customs duty on tobacco and tobacco customs duty on tobacco and tobacco
products are indexed according to products are indexed according to
AWOTE in March and September CPI in February and August each
each year. year.
Detailed explanation of new law
1.14 Both the indexation changes and the staged increases in rates of
duty apply to the rates of duty for tobacco products in stick form and other`
tobacco. Therefore, these changes apply to products including cigars,
cigarettes and snuff. Tobacco` is defined in the Schedule to the ETA 1921
to mean tobacco leaf subjected to any process other than curing the leaf as
stripped from the plant.
1.15 These amendments affect subitems 5.1 and 5.5 in the Schedule to
the ETA 1921 and subheadings 2401.10.00, 2401.20.00, 2401.30.00,
2402.10.20, 2402.10.80, 2402.20.20, 2402.20.80, 2403.11.00, 2403.19.10,
2403.19.90, 2403.91.00 and 2403.99.80 in Schedules 3 and 5 to 9 to the
CTA 1995. [Schedule 1, item 4 of the Excise Bill, subsection 6AA(1) of the ETA 1921;
Schedule 1, item 75 of the Customs Bill, section 19AC of the CTA 1995]
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Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
Series of staged increases in rates of duty
1.16 The first in the series of four 12.5 per cent increases (staged
increases) in the rates of duty occurred on 1 December 2013. The effect on
rates is set out in Table 1.1. [Schedule 1, items 1 to 3 of the Excise Bill, Schedule
(cells at subitems 5.1 and 5.5, column headed `Rate of Duty') to the ETA 1921; Schedule
1, items 1 to 72 of the Customs Bill, Schedule 3 (subheadings 2401.10.00, 2401.20.00,
2401.30.00, 2402.10.20, 2402.10.80, 2402.20.20, 2402.20.80, 2403.11.00, 2403.19.10,
2403.19.90, 2403.91.00 and 2403.99.80, the rates of duty in column 3), Schedule 5 (cells at
table items 43A, 44 to 51, 51A, 52 and 54, column 3), Schedule 6 (cells at table items 46A,
47 to 54, 54A, 55 and 57, column 3), Schedule 7 (cells at table items 46 to 54A, 55 and 56
column 3), Schedule 8 (cells at table items 52 to 60, 60A, 61 and 62, column 3) and
Schedule 9 (cells at table items 50 to 61, column 3) to the CTA 1995]
Table 1.1: Effect of 1 December 2013 increase in rates of duty
Rate type Old rate New rate
Per stick not exceeding
0.8 grams actual tobacco $0.35731 per stick $0.40197 per stick
content in weight
Per kilogram for other` $446.65 per kilogram $502.48 per kilogram
tobacco of tobacco content of tobacco content
1.17 The remaining staged increases are scheduled to occur on
1 September 2014, 1 September 2015 and 1 September 2016. These
coincide with the indexation adjustments scheduled for those days.
[Schedule 1, item 4 of the Excise Bill, subsections 6AA(1) and (6) of the ETA 1921;
Schedule 1, item 75 of the Customs Bill, subsections 19AB(1) and (6) of the CTA 1995]
Indexation changes
1.18 These amendments ensure that the rate of increase in excise and
excise equivalent customs duty applying to tobacco and tobacco products
keeps pace with growth in wages and salaries, by indexing the relevant rates
of duty according to AWOTE. This ensures that additional consumer
demand is not encouraged in the longer term by a decline in the duty
component of the price of tobacco, relative to wages and salaries.
1.19 For the purposes of these amendments, AWOTE is defined, in
relation to a quarter, as the estimate of the full-time adult average weekly
ordinary time earnings for persons in Australia for the middle month of the
quarter, published by the Statistician in relation to that month. Consistent
with references to AWOTE in other parts of the tax law, the definition of
AWOTE refers to the Original series published by the ABS. [Schedule 1, item
4 of the Excise Bill, subsection 6AA(12) of the ETA 1921; Schedule 1, item 75 of the
Customs Bill, subsection 19AB(12) of the CTA 1995]
10
Indexation changes and staged increases to tobacco excise and
excise equivalent customs duty
1.20 As the AWOTE figures are published according to a different
timetable than the CPI figures, the change in indexation method requires a
change to the timing of indexation adjustments in the rates of duty applying
to tobacco and tobacco products. To align with the expected publication
dates of AWOTE figures, indexation adjustments are scheduled for 1 March
and 1 September each year (indexation days). [Schedule 1, item 4 of the Excise
Bill, subsection 6AA(12) of the ETA 1921; Schedule 1, item 75 of the Customs Bill,
subsection 19AB(12) of the CTA 1995]
1.21 To work out the new rate as adjusted for indexation, the rate
applying before the indexation day (the original rate) is multiplied by the
indexation factor`. However, an indexation adjustment only occurs if the
indexation factor is equal to or greater than one, ensuring that indexation
adjustments cannot reduce the rates of duty. [Schedule 1, item 4 of the
Excise Bill, subsection 6AA(1) of the ETA 1921; Schedule 1, item 75 of the Customs Bill,
subsection 19AB(1) of the CTA 1995]
1.22 Where a tariff alteration proposed in the Parliament has
substituted a rate with effect prior to an indexation day, the rate proposed in
the tariff alteration is to be treated as the original rate. The new rate
incorporating the indexation adjustment must be worked out according to
the same number of decimal places as the original rate. [Schedule 1, item 4 of
the Excise Bill, subsections 6AA(2) and (8) of the ETA 1921; Schedule 1, item 75 of the
Customs Bill, subsections 19AB(2) and (8) of the CTA 1995]
1.23 The indexation factor is worked out by dividing the most recent
AWOTE amount by the highest AWOTE amount for a previous quarter,
which may not necessarily be the AWOTE amount for the immediately
preceding quarter (with the exception of the indexation factor for the March
2014 indexation calculation). [Schedule 1, item 4 of the Excise Bill, subsections
6AA(3) and (12) of the ETA 1921; Schedule 1, item 75 of the Customs Bill, subsections
19AB(3) and (12) of the CTA 1995]
1.24 The previous quarter cannot be earlier than the June quarter
of 2013. Accordingly, the indexation factor for the first indexation
adjustment using AWOTE in March 2014 is determined by dividing the
AWOTE amount for the December 2013 quarter by the AWOTE amount
for the June 2013 quarter. The indexation factor must be worked out to
three decimal places. [Schedule 1, item 4 of the Excise Bill, subsections 6AA(4)
and (12) of the ETA 1921; Schedule 1, item 75 of the Customs Bill, subsections 19AB(4)
and (12) of the CTA 1995]
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Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
1.25 Where the scheduled indexation day coincides with one of the
staged increases, the adjustment in the rates of duty due to the staged
increase is included as part of the new rate of duty in the broader indexation
calculation (called the additional factor for the indexation day`). That is, in
these circumstances, the adjustments occur simultaneously. However, each
scheduled staged increase occurs even where the indexation adjustment is
not made because the indexation factor is less than one. [Schedule 1, item 4 of
the Excise Bill, subsections 6AA(1), (5) and (6) of the ETA 1921; Schedule 1, item 75 of
the Customs Bill, subsections 19AB(1), (5) and (6) of the CTA 1995]
Example 1.1: AWOTE indexation
As at 29 February 2020, the rate of duty on other tobacco` is $750.00.
The AWOTE amount for the December 2019 quarter (the most recent
reference quarter) is 2000.00 while the AWOTE amount for the
June 2019 quarter (the base quarter) is 1900.00.
The indexation factor to be applied for the 1 March 2020 indexation
day is:
2000.00
Indexation factor = = 1.053
1900.00
As the indexation factor is greater than one, the new rate of duty is
determined by multiplying the previous rate by the indexation factor
and the applicable additional factor for the indexation day`. Because
none of the staged increases are scheduled for 1 March 2020, the
additional factor for the indexation day is one. The new rate is:
New rate of duty = $750.00 × 1.053 × 1 = $789.75
Note: the rates of duty and AWOTE amounts used in this example are
for the purposes of the example only. They are not estimates of
expected future AWOTE figures to be released by the ABS or what the
rates of duty on tobacco might be.
Publication of AWOTE amounts
1.26 If the ABS publishes a revised estimate for AWOTE for a period
for which it has already published an estimate previously, the revised
estimate is not taken into account in determining the indexation factor. This
is consistent with how revised CPI publications were treated when rates of
duty for tobacco and tobacco products were indexed according to CPI.
[Schedule 1, item 4 of the Excise Bill, subsection 6AA(9) of the ETA 1921; Schedule 1,
item 75 of the Customs Bill, subsection 19AB(9) of the CTA 1995]
12
Indexation changes and staged increases to tobacco excise and
excise equivalent customs duty
1.27 If the ABS does not publish the AWOTE figures at least five days
before an indexation day, any indexation adjustment is delayed. In such
cases, the new rates of duty only apply from the fifth day after the day the
AWOTE figures are published. This approach is consistent with how new
rates of duty would be applied under CPI indexation. [Schedule 1, item 4 of the
Excise Bill, subsection 6AA(7) of the ETA 1921; Schedule 1, item 75 of the Customs Bill,
subsection 19AB(7) of the CTA 1995]
1.28 Where a staged increase is scheduled on an indexation day which
is affected by the late publication of AWOTE figures, the staged increase
component of the increase in rates is also delayed so that it takes effect at
the same time as any indexation adjustment. This ensures that taxpayers are
only required to comply with one adjustment to the rates of excise and
excise equivalent customs duty on tobacco and tobacco products, therefore
limiting the compliance costs from rate adjustments. [Schedule 1, item 4 of the
Excise Bill, subsections 6AA(1), (6) and (7) of the ETA 1921; Schedule 1, item 75 of the
Customs Bill, subsections 19AB(1), (6) and (7) of the CTA 1995]
Example 1.2: Late publication of AWOTE figures
For the 1 September 2015 indexation day, ABS publishes the AWOTE
amount in respect of the June 2015 quarter on 30 August 2015 (the
publication day).
As the publication day is less than five days before the
1 September 2015 indexation day, the indexation adjustment does not
take effect on 1 September 2015. Equally, the staged increase
scheduled for 1 September 2015 does not take effect on that day.
Instead, the new rates of duty take effect on 4 September 2015. The
new rates of excise and excise equivalent customs duty incorporate
both the staged increase originally scheduled for 1 September 2015, as
well as any applicable indexation adjustment (based on the AWOTE
figures published by ABS).
Publication of rate changes
1.29 Consistent with publishing rate increases arising from CPI
indexation, these amendments ensure that changes in the rates of duty for
tobacco and tobacco products must be published by Gazette notice as soon
as practicable after the new rate of duty replaces the previous rate of duty.
The Commissioner of Taxation is responsible for publishing the new rates
of excise duty while the Chief Executive Officer of Customs is responsible
for publishing the new rates of excise equivalent customs duty. [Schedule 1,
item 4 of the Excise Bill, subsection 6AA(11) of the ETA 1921; Schedule 1, item 75 of the
Customs Bill, subsection 19AB(11) of the CTA 1995]
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Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
1.30 Because the staged increases are scheduled to occur on days
which are indexation days, only one Gazette notice is published in respect
of each staged increase and any simultaneous indexation adjustment.
Consequential amendments
1.31 Consequential amendments to the ETA 1921 and CTA 1995 are
made to reflect that alcohol and tobacco are no longer indexed using the
same method. Prior to these amendments, both alcohol and tobacco were
indexed according to CPI. The CPI indexation provision for alcohol has
been redrafted in the ETA 1921 using the same style as the new AWOTE
indexation provision for tobacco and tobacco products. However, this
re-drafting has no impact on the operation of the CPI indexation as it
continues to apply to alcohol. [Schedule 1, item 4 of the Excise Bill, section 6A of
the ETA 1921]
1.32 The indexation provisions for alcohol and tobacco have also been
reproduced in full (with appropriate adjustments) in the CTA 1995.
Previously, the CTA 1995 applied the same indexation increases arising for
excisable goods under the ETA 1921 to excise equivalent goods. The
reproduction of indexation provisions in the CTA 1995 ensures that all
information relating to the AWOTE or CPI indexation of imported products
is contained within the CTA 1995. However, as these provisions are
drafted in essentially the same way as the ETA 1921 indexation provisions,
the rates of excise equivalent customs duty are intended to remain equal to
the rates of excise duty on excise equivalent goods. This ensures
comparable duty treatment continues for both imported and domestically
manufactured tobacco. [Schedule 1, item 75 of the Customs Bill, sections 19, 19AA,
19AB and 19AC of the CTA 1995]
1.33 The redrafting of the indexation provisions also makes a technical
correction to the indexation provisions in the ETA 1921, to provide
certainty, consistent with administrative practice, that indexation is not
applied to condensate. This is consistent with section 6CA of the ETA
1921, which is the more specific provision to be used to determine the
amount of excise duty payable on condensate. [Schedule 1, item 4 of the Excise
Bill, section 6A of the ETA 1921]
1.34 Consequential amendments to remove redundant definitions and
update guide material are made to reflect the changes to the indexation
approach. [Schedule 1, items 6 to 12 of the Excise Bill, subsection 3(1) (definition of
`index number'), subsection 5(1) (note), Schedule (note 2 to Schedule heading and
table heading) to the ETA 1921; Schedule 1, item 74, subsection 3(1) (definition of
`excise item')]
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Indexation changes and staged increases to tobacco excise and
excise equivalent customs duty
Application and transitional provisions
Staged increases
1.35 With the exception of some consequential amendments, these
amendments commence on 1 December 2013. The changes to give effect
to the first of the four staged increases apply on and from the same date.
[Clause 2 and Schedule 1, item 3 of the Excise Bill; Clause 2 and Schedule 1, item 73 of
the Customs Bill]
Indexation changes
1.36 This commencement date also ensures that the existing indexation
provisions are repealed in time so that the CPI indexation scheduled for 1
February 2014 does not apply to tobacco and tobacco products. Instead, the
AWOTE indexation amendments for tobacco and tobacco products apply to
the 1 March 2014 indexation day and each later tobacco indexation day. To
ensure that CPI indexation continues to apply to alcohol, the consequential
amendments relating to CPI indexation, apply to the 1 February 2014
indexation day and each later alcohol indexation day. [Schedule 1, item 5 of the
Excise Bill; Schedule 1, item 76 of the Customs Bill]
Application of new rates of duty
1.37 Where a rate of duty is adjusted under these amendments, the
adjusted rate applies to:
· goods entered for home consumption on or after the day the
adjustment is made (for goods subject to excise duty); or
· goods imported on or after the day the adjustment is made,
and to goods imported before that time where the time for
working out the rate of import duty on the goods has not yet
occurred (for goods subject to excise equivalent customs
duty).
[Schedule 1, items 3 and 4 of the Excise Bill, subsection 6AA(10) of the ETA 1921;
Schedule 1, items 73 and 75 of the Customs Bill, subsection 19AB(10) of the CTA 1995]
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Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
Contingent consequential amendments
1.38 A number of the consequential amendments to the ETA 1921 are
contingent upon the passage and commencement of the Excise Tariff
Amendment (Carbon Tax Repeal) Bill 2013. These amendments relate to
updated guide material within the ETA 1921 which refers to the indexation
provisions. These provisions commence from the later of:
· the start of 1 December 2013; and
· immediately after the commencement of Schedule 1 to the
Excise Tariff Amendment (Carbon Tax Repeal) Bill 2013.
1.39 However, the provisions do not commence at all if Schedule 1 to
the Excise Tariff Amendment (Carbon Tax Repeal) Bill 2013 does not
commence. [Subclause 2(1) of the Excise Bill, item 4 in the table]
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Indexation changes and staged increases to tobacco excise and excise
equivalent customs duty
Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
1.40 These Bills are compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3 of
the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
1.41 The Excise Bill and Customs Bill increase rates of excise and
excise equivalent customs duty on tobacco through a series of four staged
increases of 12.5 per cent each, commencing on 1 December 2013.
1.42 These Bills also provide for rates of excise and excise equivalent
customs duty on tobacco to be indexed according to AWOTE instead of the
CPI. The last CPI indexation occurred on 1 August 2013 and the first
AWOTE indexation occurs on 1 March 2014.
16
Indexation changes and staged increases to tobacco excise and
excise equivalent customs duty
Human rights implications
1.43 These Bills engage the right to health.
Right to health
1.44 These Bills engage the right to health in Article 12 of the
International Covenant on Economic Social and Cultural Rights. The right
to health includes, in Article 12(1)(c), the right to the prevention, treatment
and control of diseases.
1.45 These Bills promote the right to health by contributing to efforts
to reduce smoking rates and thereby reducing the significant health and
economic effects of tobacco usage.
Conclusion
1.46 These Bills are compatible with human rights as they promote the
right to health.
17
Chapter 2
Regulation impact statement: tobacco
excise and excise equivalent customs
duty: staged increases and change from
CPI to AWOTE
Policy objective
Context
2.1 In a joint media release by the Treasurer and the Assistant
Treasurer on 6 November 2013 the Government announced that it would
proceed with two tobacco excise measures that were announced but not
enacted by the former government. These measures are:
· six-monthly indexing of tobacco excise and excise equivalent
customs duty to average weekly ordinary time earnings
(AWOTE) instead of to the consumer price index (CPI),
commencing from 1 March 2014;2
- dates of tobacco indexation would change to 1 March and
1 September each year (from 1 February and 1 August) to
accommodate the later release of AWOTE data by the
Australian Bureau of Statistics (ABS);
· increasing excise and excise equivalent customs duty on
tobacco and tobacco related products under a staged process,
with a 12.5 per cent increase on 1 December 2013 and
further 12.5 per cent increases on 1 September 2014,
1 September 2015 and 1 September 2016.
2.2 The Government, when in opposition, made an election
commitment (in a joint media release of 28 August 2013) that it would
proceed with these measures if elected.
2 Historically, growth in AWOTE has exceeded growth in CPI because wages growth on
average has been higher than inflation. Based on this experience, the excise increase that
will occur on 1 March 2014 under AWOTE indexation should be around nine cents higher
per packet of 25 cigarettes than under CPI indexation.
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Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
2.3 As a result of Gazette Notices published on 29 November 2013
by the Commissioner of Taxation (the Commissioner) and the Chief
Executive Officer of Australian Customs and Border Protection Service
(ACBPS) the first of the 12.5 per cent increases came into effect on
1 December 2013. The Australian Taxation Office (ATO) and ACPBS
have been collecting duty at the new, higher rate since that date.
Excise taxation
2.4 Excise duty imposed under the Excise Tariff Act 1921 is a tax on
alcohol, tobacco, fuel and petroleum products (including gaseous fuels)
produced or manufactured in Australia. Collectively, these products are
referred to as excisable goods.
2.5 Imported goods, comparable to those subject to excise, attract
customs duty at the same rate as the excise rate. Such duty is referred to
as excise equivalent customs duty` and its application means that imports
and locally-produced goods are taxed in an equivalent fashion.
2.6 Excisable alcohol includes beer, brandy, other spirits, liqueurs
and other beverages such as ready-to-drink products, but not wine.
Home-brewed beer (that is, beer produced for non-commercial purposes
using non-commercial facilities and equipment) is exempt from excise
duty. Wine is subject to the wine equalisation tax, not excise duty.
2.7 A per stick duty applies to all cigarettes with a tobacco content
not exceeding 0.8 grams per cigarette. All other tobacco products
(including cigarettes containing more than 0.8 grams of tobacco, loose
tobacco and cigars) are taxed at a per kilogram rate equivalent to the rate
effectively imposed on the tobacco content of cigarettes containing
0.8 grams of tobacco.
April 2010 rate increase
2.8 The last (non-CPI) general increase in the excise rate for tobacco
occurred on 29 April 2010, when the former Government increased the
excise and excise equivalent customs duty applying to tobacco products
by 25 per cent.
20
Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.9 This measure was announced3 along with a range of
anti-smoking measures applying to tobacco products including:
· the introduction of plain packaging;
· updated and expanded graphic health warnings;
· extending existing restrictions on advertising to Australian
internet advertising of products; and
· spending an additional $27.8 million on anti-smoking
campaigns aimed at high need and hard to reach groups,
including: pregnant women and their partners, people from
culturally and linguistically diverse backgrounds, people
living in socio-economically disadvantaged areas, people
with mental illness and prisoners.
2.10 These measures were in line with the major recommendations of
the National Preventative Health Taskforce, which was established in
2008 to develop the National Preventative Health Strategy (NPHS). The
NPHS focussed initially on health problems arising from obesity and
consumption of alcohol and tobacco. In its report Australia: the healthiest
country by 2020,4 released in September 2009, the Taskforce
recommended a sequence of increases in tobacco excise on public health
grounds. Specifically, it identified reducing the affordability of tobacco
products as a key action area to reduce tobacco consumption and the
prevalence of smoking by deterring young people from taking up
smoking, encouraging smokers to quit, or at least reduce consumption. It
recommended staged increases with the aim of increasing the price of a
pack of 30 cigarettes to at least $20 (in 2008 dollar terms) within
three years.
3 Prime Minister, Treasurer, Minister for Health, Anti-Smoking Action, Media Release,
29 April 2010.
4 Australia: the healthiest country by 2020 Technical Report 2 Tobacco control in Australia:
making smoking history including addendum for October 2008 to June 2009,
Commonwealth of Australia 2009.
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Customs Tariff Amendment (Tobacco) Bill 2014
Government commitments to reduce smoking rates
2.11 In 2008, the Commonwealth and state and territory
governments, meeting as the Council of Australian Governments
(COAG), committed to reducing the adult daily smoking rate to
10 per cent of the population, and to halving the daily rate of smoking
among Aboriginal and Torres Strait Islander people by 2018.5 This
commitment was affirmed in 2012.6
2.12 The National Tobacco Strategy (NTS) 2012-2018 is an
overarching tobacco strategy that draws together a number of
tobacco-related initiatives and policies. It takes into account the public
consultation on the draft for consultation of the NTS 2012-2018, the
review of the National Tobacco Strategy 2004-2009, key policy contexts
for tobacco control, such as the COAG National Healthcare Agreement,
the COAG National Partnership Agreement on Preventive Health, the
Australian Government`s response to the National Preventative Health
Taskforce Report, state and territory tobacco strategies and policy
frameworks, and recent Australian Government tobacco reform initiatives.
2.13 The NTS 2012-2018 sets out nine priority areas for action on
tobacco control in Australia, including priority area 6 Continue to reduce
the affordability of tobacco`, under which priority action 6.3.2 is to
Continue to implement regular staged increases in tobacco excise as
appropriate, to reduce demand for tobacco`.7
Australia's Future Tax System review
2.14 The December 2009 Report to the Treasurer on Australia's
Future Tax System (AFTS) recommended that the existing regime for
tobacco taxation in Australia should be retained, with the rates of tax
substantially increased, depending on further evidence on the costs of
harm from tobacco smoking` (Recommendation 73).8
5 Council of Australian Governments. National Healthcare Agreement. 2012, Council of
Australian Governments Canberra.
6 COAG Reform Council (2013). Healthcare 2011-12: Comparing performance across
Australia, Report to the Council of Australian Governments, 30 April 2013. Available
from: www.coagreformcouncil.gov.au.
7 Intergovernmental Committee on Drugs. 2012. National Tobacco Strategy 2012-2018.
Commonwealth Of Australia: Canberra.
8 The final report of the Australia`s Future Tax System Review (AFTS), 2011
Commonwealth of Australia 2011. Available from
http://taxreview.treasury.gov.au/content/Content.aspx?doc+html/home.htm.
22
Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.15 The AFTS review noted the following about tobacco taxation:
While consumer sovereignty is an important principle in tax
policy design, government intervention in the tobacco market is
justified by the strongly addictive qualities of tobacco, its
serious health impacts, its uptake by minors and the costs that
smoking imposes on non-smokers.
Tobacco taxes raise prices and reduce both smoking rates and
smoking intensity. Australian retail prices for cigarettes are
moderate by international standards and taxes constitute a
relatively small share of the retail price.
As Australia's tobacco taxes are low by international standards,
it is feasible to increase them substantially.
2.16 The AFTS review also recommended that tobacco excise should
be indexed to a broad measure of wages rather than the CPI. This would
maintain policy effectiveness by preventing excise falling as a proportion
of wages (Recommendation 74).
WHO Framework Convention on Tobacco Control
2.17 In 2003, Australia became a party to the World Health
Organization (WHO) Framework Convention on Tobacco Control
(FCTC), which supports the use of price and tax measures to discourage
tobacco consumption. An increase in tobacco excise is consistent with
Australia`s obligations under this Convention, and represents a move
towards international best practice in the pricing of tobacco products.
· Article 4(4) of the FCTC states that comprehensive
multi-sectoral measures and responses to reduce consumption
of all tobacco products are essential.
· Article 6 of the FCTC describes price and tax measures as
an effective and important means` to reduce tobacco
consumption and Article 7 recognises that non-price
measures are also an effective and important means to reduce
tobacco consumption.
2.18 In May 2013, the World Health Assembly endorsed the WHO
Global Action Plan for the Prevention and Control of Non-communicable
Diseases 2013-2020. The Global Action Plan provides Member States,
international partners and WHO with options which will contribute to
23
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Customs Tariff Amendment (Tobacco) Bill 2014
progress towards the nine global non-communicable diseases (NCD)
targets, one of which is, a 30 per cent relative reduction in prevalence of
current tobacco use in persons aged 15+ years.`9
Impact of taxation on tobacco consumption
2.19 It is a widely held view among health professionals that higher
tobacco taxes which lead to higher prices, reduce tobacco use. Lower
consumption, in turn, reduces the health and social costs associated with
tobacco consumption.10
2.20 The WHO and the World Bank recognise that within any
tobacco control regime, tax is one of the most effective instruments
through its influence on price. Young people and poor people are
particularly sensitive to price given the strong competing demands on
their low incomes and the short exposure of the young to the addictive
properties of tobacco.11
2.21 The US Surgeon General stated in the most recent report (2014)
The Health Consequences of Smoking -- 50 Years of Progress we know
that increasing the cost of cigarettes is one of the most powerful
interventions we can make to prevent to smoking and reduce prevalence`.
12
2.22 The sensitivity of tobacco consumption to price is measured by
tobacco price elasticities.13 WHO studies have shown that a tax increase
that increases tobacco prices by 10 per cent can lead to a decrease in
tobacco consumption of about 4 per cent in high-income countries and by
up to 8 per cent in low and middle income countries.14
9 WHO Global Action Plan for the Prevention and Control of Non-communicable Disease
2013-2020. Available from: http://www.who.int/nmh/events/ncd_action_plan/en/.
10 WHO Framework Convention on Tobacco Control Price and tax polices (in relation to
Article 6 of the Convention) (Technical Report by WHO`s Tobacco Free Initiative,
2010 FCTC/COP/4/11 15 August 2010, paragraphs 4-6.
11 WHO report on the global tobacco epidemic, 2009: implementing smoke-free environments.
Geneva, World Health Organisation, 2009 and World Bank (1999) Curbing the Epidemic:
Governments and the Economics of Tobacco Control (Washington: World Bank).
12 The Health Consequences of Smoking -- 50 Years of Progress A Report of the Surgeon
General Executive Summary US Department of Health and Human Services Executive
Summary Message from Kathleen Seblius. Available at:
http://www.surgeongeneral.gov/library/reports/50-years-of-progress/index.html.
13 Price elasticity of demand is the proportionate reduction in consumption resulting from a
1 per cent increase in price. For example, a price elasticity of cigarette demand of
-0.5 indicates that a 10 per cent increase in cigarette prices reduces overall cigarette
consumption by 5 per cent.
14 Technical Report by WHO`s Tobacco Free Initiative, 2010 paragraphs 4 to 6.
24
Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.23 There is a link between tobacco consumption and poverty.
Lower income households are particularly vulnerable to the opportunity
cost` of expenditure on tobacco products. Tobacco may replace food and
other essential goods and services for the family. The health impact of
tobacco consumption also puts additional pressure on family budgets and
reduces the income-generating potential of family members.15
2.24 Opposition to tobacco excise increases has often focussed on the
argument that tobacco taxation is regressive` i.e. it has a
disproportionately greater impact on the economically disadvantaged.
However, expert opinion in the field of price and taxation for tobacco
control points to the opposite effect. Chaloupka et al make the following
observations:
The regressivity of existing taxes, however, does not necessarily
imply that tax increases are regressive as well. In many
countries, tobacco use among the lowest income/SES
populations is most responsive to price, while use among the
highest income/SES populations is least responsive. Thus, a tax
increase that raises tobacco product prices will lead to the
largest declines in smoking among the lowest income persons,
and the burden of tax increase will fall more heavily on higher
income consumers whose smoking behaviour changes little in
response to the tax increase.16
2.25 In 1999, the World Bank review Curbing the Epidemic:
Governments and the Economics of Tobacco Control concluded that, all
else being equal, price rises of about 10 per cent would on average reduce
tobacco consumption by about 4 per cent in developed countries. Further,
the review stated that there is thought to be a strong correlation between
sharp price increases and sharper declines in tobacco consumption,
although there may be a time lag.17
15 International Agency for Research on Cancer (2011). Chapter 7. Tax, price and tobacco
use among the poor, in Effectiveness of tax and price policies for tobacco control, IARC:
Lyon, France. Available from: http//www.iarc.fr/en/publications/list/handbooks/.
16 Chaloupka, F.J., A. Yurekli and Fong (2012). Tobacco taxes as a tobacco control strategy.
Tobacco Control; 21:172-180.
17 Prabhat Jha, Chaloupka, Frank J The World Bank Curbing the Epidemic Governments and
the Economics of Tobacco Control 1999 Washington DC, p. 6.
25
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2.26 The findings of the World Bank review are supported by a more
recent review by the WHO18, which states that a large and growing body
of empirical literature, dominated by studies from the United States of
America (USA) and to a lesser extent the United Kingdom (UK), has
found that tobacco consumption decreases when the price of tobacco
increases. The WHO review states that since the World Bank`s
publication Curbing the Epidemic the evidence suggests that, at least
based on aggregate demand studies, the consensus price elasticity of
around -0.4 is still valid for high income countries. However, the price
elasticity estimates for high-income countries other than the USA and the
UK are more dispersed.
2.27 The WHO review also noted that many econometric studies
from countries at all income levels find that smoking prevalence and
intensity among young people decrease as cigarette price increases. The
estimated overall price elasticity of demand for young people in most high
income country studies ranges between -0.5 and -1.2. As noted
previously, these high elasticities reflect the effects of generally low
incomes of young people and their short exposure to the addictive
properties of tobacco.
2.28 Additionally, there will be elasticity differences in the short term
compared with the longer term. That is, a reduction in smoking
prevalence due to current smokers quitting will have an immediate impact
on smoking rates whereas a reduction in prevalence due to a lower take-up
of smoking will have an impact over the longer term as it affects potential
future smokers. Studies that measured responses to price changes in the
short term tended to report lower elasticities than studies that reported
long-run estimates (-0.40 compared with -0.44).19
2.29 A recent US National Bureau of Economic Research (NBER)
study on tobacco taxes20 has questioned the effectiveness of taxes in
reducing cigarette consumption. The study claims that increases in
cigarette taxes are associated with insignificant decreases in adults`
consumption, and estimates that it will take a 100 per cent tax increase to
decrease adult smoking by as much as 5 per cent.
18 International Agency for Research on Cancer WHO IARC Handbooks of Cancer Prevention
Tobacco Control Volume 14 Effectiveness of Tax and Price Policies for Tobacco
Control 2011.
19 Gallet C and List J. Cigarette demand: a meta-analysis of elasticities. Health Econ 2003;
12:821-35.
20 Callison, K and Kaestner, R (2012), Do higher tobacco taxes reduce adult smoking? New
evidence of the effect of recent cigarette tax increases on adult smoking, National Bureau of
Economic Research.
26
Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.30 However, it is important to note that this study looks at the
effect on adult smokers, who are likely to have smoked for years and are
addicted to tobacco, and hence, are highly price inelastic. It has not taken
into account the effectiveness of tobacco excise increases in deterring
take-up by non-smokers, or in reducing consumption among young
people.
2.31 A Post-implementation Review of the impact of the April 2010
25 per cent excise increase compared consumption immediately prior to
the increase with consumption two years later. It showed a decrease in
consumption of licit tobacco by 11 per cent, using tobacco clearances
data.21
International best practice
2.32 The WHO recommends that tobacco excise taxes account for at
least 70 per cent of retail prices for tobacco products.22 According to the
2013 WHO report on the global tobacco epidemic, excise tax as a
percentage of the average price of a brand of 20 cigarettes in Australia
was around 60 per cent.23 This compares with New Zealand of around
61 per cent, France 64 per cent, Sweden 54 per cent.
2.33 For a pack of 25 Winfield cigarettes, increasing tobacco excise
by a series of four 12.5 per cent increases along with biannual indexation
by AWOTE is estimated to increase the excise rate per stick from
$0.35731 prior to 1 December 2013 to $0.64035 by 1 December 2016.
The combined impact of these increases is estimated to result in a tax to
price ratio of around 67 per cent by 1 December 2016.
2.34 Although the ratio of tobacco taxes to price is often used to
compare how different countries tax tobacco products, the use of this ratio
should be treated with caution. This is because the ratio depends on the
total retail price as well as the underlying tax rates. As tobacco product
prices are not regulated and retailers are free to increase prices at any
time, the tax-price ratio can fall even if tax rates do not change. Retail
21 Post-implementation Review 25 per cent tobacco Excise Increase The Treasury February
2013 p. 16 Available on the website of the Office of Best Practice Regulation.
http://ris.finance.gov.au/category/post-implementation-reviews p. 25.
22 World Health Organisation Technical Manual on Tobacco Tax Administration 2010
Reprinted 2011, available from:
http://whqlibdoc.who.int/publications/2010/9789241563994_eng.pdf, p. 104.
23 World Health Organization (2013) WHO Report on the Global Tobacco Epidemic, 2013,
Appendix IX available from:
http://www.who.int/tobacco/global_report/2013/en/index.html, Table 9.1. This percentage
was calculated prior to the 1 December 2013 increase in tobacco excise.
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prices can increase significantly over time for various reasons including
rising production and distribution costs, supply shortages or declining
profit margins.
Problem
2.35 The scope of the problem of tobacco use in Australia can be
defined by:
· rates of smoking;
· market failure which includes externalities of tobacco use
(that is, health, economic and social costs);
· information failure which lead to higher rates of smoking;
and
· the regulatory framework which requires consideration of the
effectiveness of existing government regulation to combat
tobacco use.
Smoking prevalence in Australia
2.36 Table 2.1 shows the daily rate of smoking of adults, 18 years or
older.
Table 2.1: Daily rate of smoking of adults
1990 1995 2001 2004-05 2007-08 2011-12
Total %* 27.7 25.1 22.3 21.3 19.1 16.3
*age-standardised
Source: ABS Surveys; ABS Australian Health Survey: Updated Results, 2011 12
(AHS): released 30 July 2013
2.37 In 2011-12, 16.3 per cent of Australians aged 18 years and older
smoked daily (age-standardised rate). The following table shows daily
smoking rates for males and females aged 18 years and older between
2001 and 2011-12.
28
Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
Table 2.2: Daily smoking rates of adults -- males and females
2001* 2004-05* 2007-08* 2011-12*
Males 27.2 26.2 23.0 18.3
Females 21.2 20.3 19.0 12.6
All persons % 22.3 21.3 19.1 16.3
*age-standardised to the 2001 Australian population
Source: for 2001, 2004-05 and 2007-08 -- ABS, 4125.0 -- Gender Indicators, Australia, July 2012.
For 2011-12, ABS Australian Health Survey: Updated Results, 2011-12 (AHS) released 30 July 2013.
Health impacts
2.38 There are no safe levels of consumption of tobacco products.
The harms from smoking are well documented.
2.39 Tobacco smoking continues to be the largest cause of
preventable death and disease in Australia.24 In 2003 it was responsible
for 7.8 per cent of the total burden of disease and injury in Australia, with
lung cancer, chronic obstructive pulmonary disease (COPD) and
ischaemic heart disease, accounting for more than three-quarters of this
burden. In Indigenous communities, this burden was even greater:
smoking was responsible for 12.1 per cent of the total burden of disease
and injury, and accounted for 20 per cent of deaths.25
2.40 The latest 2014 report by the US Surgeon General The Health
Consequences of Smoking -- 50 Years of Progress states:
Since the 1964 Surgeon General's report, cigarette smoking has
been causally linked to diseases of nearly all organs of the body, to
diminished health status, and to harm to the fetus.26
2.41 The report goes on to state:
A half century after the release of the first report, we continue to
add to the long list of diseases cause by tobacco use and exposure
to tobacco smoke. This report finds that active smoking is now
24 Begg S, Vos T, Barker B, Stevenson C, Stanley L & Lopez A 2007. The burden of disease
and injury in Australia 2003. Cat. No. PHE 82. Canberra: AIHW p. 5.
25 Begg S, Vos T, Barker B, Stevenson C, Stanley L & Lopez A 2007. The burden of disease and injury
in Aboriginal and Torres Strait Islander peoples 2003 (School of Population Health, University of
Queensland p. 55.
26 The report is available at:
http://www.surgeongeneral.gov/library/reports/50-years-of-progress/index.html, Executive
Summary, p.4, para 3.
29
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Customs Tariff Amendment (Tobacco) Bill 2014
causally associated with age-related macular degeneration,
diabetes, colorectal cancer, liver cancer, adverse health outcomes
in cancer patients and survivors, tuberculosis, erectile dysfunction,
orofacial clefts in infants, ectopic pregnancy, rheumatoid arthritis,
inflammation, and impaired immune function. In addition,
exposure to secondhand smoke has now been causally associated
with an increased risk for stroke. 27
2.42 A British study found that about half of long-term smokers died
prematurely from cigarette smoking, and that the average number of years
of life lost by long-term smokers was 10 years.28 More recently
(11 October 2013), the Sax Institute reported on findings from the 45 and
Up Study that the first ever analysis of long-term Australian smoking
data has found that two-thirds of deaths in current smokers can be directly
attributed to smoking -- much higher than international estimates of
50 per cent`.29
2.43 In calculating the value of the private mortality costs of smoking
(for committed smokers over a lifetime, with a reference age of
24 years old) Viscusi and Hersch estimated that,
The economic value of the premature mortality due to smoking
dwarfs the purchase price of cigarettes. The mortality cost per
[cigarette] pack for men is $222 [US] in 2006 dollars. For
women, the cost is much lower than that for men but is still
large, with a cost per pack of $94 in 2006 dollars.30
2.44 Smoking cessation is associated with the following health
benefits:
· lowers the risk for lung and other types of cancer;
· reduces the risk for coronary heart disease, stroke, and
peripheral vascular disease. Coronary heart disease risk is
substantially reduced within 1 to 2 years of quitting;
· reduces respiratory symptoms, such as coughing, wheezing,
and shortness of breath. The rate of decline in lung function
27 Ibid. Preface.
28 Doll R, Peto R, Boreham J and Sutherland I. Mortality in relation to smoking: 50 years`
observations on male British doctors`. British Medical Journal, 2004. 328: 1519-33.
29 Sax Institute Media release. 2013. Even light smokers have double risk of early death,
Australian-first research reveals`. Friday, 11 October 2013.
30 Viscusi WK and Hersch J. 2007. The mortality cost to smokers`. NBER Working Paper
No 13599. National Bureau of Economic Research: Cambridge, MA. Available from:
www.nber.org/papers/w13599.
30
Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
is slower among people who quit smoking than among those
who continue to smoke;
· reduces the risk of developing chronic obstructive pulmonary
disease (COPD), one of the leading causes of death in the
United States; and
· reduces the risk of infertility of women during their
reproductive years. Women who stop smoking during
pregnancy also reduce their risk of having a low birth weight
baby.31
2.45 Compared with non-smokers (never smoked or ex-smokers),
smokers are more likely to rate their health as being fair to poor, more
likely to have asthma and more likely to suffer psychological distress. In
Australia, tobacco smoking is a major risk factor for coronary heart
disease, stroke, peripheral vascular disease, cancer and various other
diseases and conditions.32 Tobacco has been responsible for the greatest
disease burden in Australia.33
2.46 Smoking remains a significant cause of poor health among
newborn babies, and smoking is a major contributor to the poorer health
outcomes for Indigenous babies.34
2.47 Secondhand (or passive) smoking also poses health risks,
including children. Children exposed to secondhand tobacco smoke are
40 per cent more likely to suffer from asthma symptoms than children
who are not exposed. An estimated 8 per cent of childhood asthma is
Australia is attributable to passive smoking and is estimated to contribute
to the symptoms of asthma in 46,500 Australian children a year. Other
symptoms of passive smoking in children compared with their
non-passive smoking peers include ear infections, shorter physical stature,
31 U.S. Department of Health and Human Services (2010). How Tobacco Smoke Causes
Disease: The Biology and Behavioural Basis for Smoking Attributable Disease. Fact Sheet.
National Centre for Chronic Disease Prevention and Health Promotion, Office of Smoking
and Health. Atlanta. Available from:
http://www.cdc.gov/tobacco/data_statistics/fact_sheets/cessation/quitting/index.htm#benefit
s.
32 AIHW 2011 2010 National Drug Strategy Household Survey report 2011. Drug statistics
series no. 25. Cat. No. PHE 145. Canberra: AIHW: p xii, p. 1.
33 Begg S, Vos T, Barker B, Stevenson C, Stanley L & Lopez A The burden of disease and
injury in Australia 2003. PHE 82. Canberra: AIHW 2007.
34 Wills R and Coory M. Effect of smoking among Indigenous and non-Indigenous mothers
on preterm birth and full-term low birth weight. Medical Journal of Australia. 2008;189(9):
pages. 490-494.
31
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more absences from school, reduced lung function, and more serious lung
infections.35
Social and economic impacts
2.48 Smoking has been reported to kill over 15,000 Australians each
year.36 Annually, over 750,000 hospital bed days are attributable to
tobacco-related disease.37
2.49 The 2008 study by Collins and Lapsley, The costs of tobacco,
alcohol and illicit drug abuse to Australian Society in 2004/05, is the most
recent major study which seeks to quantify the social and economic costs
of tobacco use in Australia.38 The study estimates that the tangible and
intangible social costs of tobacco use amounted to $31.5 billion in
2004-05,39 which includes $5.7 billion attributed to absenteeism and a
reduction in the workforce.40
2.50 Table 2.3 sets out the key components of the tangible and
intangible social costs of smoking, (noting that tangible costs refers to the
extra resources which would have been available if there had been no past
or present abuse with intangible costs being costs that cannot be shifted,
for example, in the case of loss of life, there is no mechanism by which
this cost can be passed on to others).
Table 2.3: Key components of social costs of smoking
Component $m
Net healthcare costs (gross costs minus savings from 318.4
premature deaths
Total net labour costs (including lost production in the 8,009.1
workplace and in the household)
Resources used in tobacco consumption 3,635.6
41
Value of loss of life from tobacco consumption 19,459.7
35 National Tobacco Strategy 1999-2002-03 Fact Sheet The dangers of passive smoking
Department of Health and Ageing Available from:
https://www.health.gov.au/internet/main/publishing.nsf/.../tobpass.pdf.
36 Begg S, Vos T, Barker B, Stevenson C, Stanley L & Lopez A 2007. The burden of disease
and injury in Australia 2003. Cat. No. PHE 82. Canberra: AIHW p. 5.
37 Collins D and Lapsley H. 2008. The costs of tobacco, alcohol and illicit drug abuse to
Australian Society in 2004/05. Commonwealth of Australia: Canberra. p. 40, Table 13.
38 ibid.
39 ibid. p.65.
40 ibid. p.59.
41 For explanation of valuation of life see page 15 of the study.
32
Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
From Tables 33 and 34 of the study
2.51 Of the tangible costs shown in Table 2.3, the government sector
bore 8 per cent, while households and businesses bore 50 per cent and
42 per cent, respectively.42 The study also includes the cost of secondhand
(passive) smoking. It assumes that all smoking attributable symptoms
suffered by people aged less than fifteen years reflect involuntary
smoking.43
2.52 In their study, Collins and Lapsley adopt a demographic
approach` rather than a human capital` approach taking the definition of
the economic costs of drug abuse as:
The value of the net resources which in a given year are
unavailable to the community for consumption or investment
purposes as a result of the effects of past and present drug
abuse, plus the intangible costs imposed by this abuse.44
2.53 The demographic approach is based on the calculation of the
size and structure of a hypothetical population in which no drug abuse has
occurred.45 The counterfactual scenario used by Collins and Lapsley is
where there has been no abuse of tobacco for at least 40 years before
2004-05.46 In the case of premature mortality, the actual and hypothetical
outputs are compared to yield the production costs in the year of study of
past and present substance abuse.47 The average potential years of life lost
for tobacco is 16.48
2.54 Collins and Lapsley break down the calculation of net healthcare
costs of $318 million set out in Table 2.4 which is the gross costs of health
care reduced by savings from premature death. These savings arise
because, had the prematurely deceased been still alive, they would have
been placing demands on healthcare resources, which have been avoided
as a result of premature death.49
42 ibid. p.67.
43 ibid. p.14.
44 ibid. p.3.
45 ibid. p3.
46 ibid. p.3.
47 ibid. p.6.
48 ibid. p.6.
49 ibid. p.50.
33
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Customs Tariff Amendment (Tobacco) Bill 2014
Table 2.4: Healthcare costs and savings from tobacco use
Medical Hospital Nursing Pharmaceuticals Ambulances Total
($m) ($m) homes ($m) ($m) ($m)
($m)
Gross cost 462.1 669.6 436.6 205.2 62.5 1,836.0
Savings
from
premature 303.7 446.2 613.9 127.9 25.9 1,517.6
deaths
Net costs 158.4 223.4 (177.3) 77.3 36.6 318.4
2.55 Collins and Lapsley identify the costs of a premature loss of life
also referred to in Table 2.3 as the loss of productive capacity and the
psychological effects borne by user and others. Using the demographic
approach the study estimates the value of the loss of one year`s living, not
the value of a lost life.50 In 2004/05 prices this was calculated to be
$53,267.51
2.56 The Collins and Lapsley study is the latest and definitive
research that the Australian Department of Health uses as the estimate of
the social and economic (including healthcare) costs of tobacco use.
2.57 Collins and Lapsley take a conservative approach to the
estimation of costs.52 Susan Hurley notes:
Collins and Lapsley's estimates of the social costs of tobacco abuse
are extremely conservative; the actual costs are likely to be much
higher. Lack of data prevented Collins and Lapsley assigning
values to many of the social costs known to be attributable to
smoking. For example, the following are not included: the
purchase of over-the-counter medicines, domiciliary care and
allied health services.53
50 ibid. p.15.
51 ibid. p.16.
52 ibid. p.xi.
53 Hurley, S. Chapter 17: The economics of tobacco control, in Scollo, MM and Winstanley,
MH [editors]. Tobacco in Australia: Facts and issues. 4th ed. Melbourne: Cancer Council
Victoria; 2012. Last updated November 2011. Available from:
http://www.tobaccoinaustralia.org.au/downloads/chapters/Ch17_Economics.pdf.
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.58 Furthermore, the study did not cost reduced on-the-job
productivity. However, a study published in 2006 estimated that between
eight to 30 minutes per day are lost due to smoking. If five minutes are
spent daily on smoking outside of normal break times, the employee is
one per cent less productive.54
2.59 As noted above, Collins and Lapsley acknowledge that some of
their cost estimates were almost certainly too low. For example, the cost
of pharmaceutical products is based only on the highest volume drug
categories on the PBS. The hospital cost estimates are based on average
treatment costs for each condition and do not reflect the fact that health
care costs for smokers are likely to be higher than for non-smokers.55 For
example, smoking up to the time of any surgery increases cardiac and
pulmonary complications, impairs tissue healing and is associated with
more infections, therefore increasing the average length of stay, staff
workload and requirements for medicines.56 57 Costs associated with the
management of birth complications for women in the United States who
smoke during pregnancy exceed those of non-smokers by 66 per cent.58
Costs for smokers having orthopaedic surgery can be up to 38 per cent
higher than those of non-smokers due to infections resulting in prolonged
hospital stay and double the re-admission rate.59
54 Javitz HS, Zbikowski SM, Swan GE and Jack LM. Financial burden of tobacco use: an
employer`s perspective. Clinics in Occupational and Environmental Medicine.
2006;5(1):9-29, vii. Available from:
http://www.ncbi.nlm.nih.gov/sites/entrez?cmd=Retrieve&db=PubMed&list_uids=16446251
&dopt=Abstract.
55 Bertakis KD and Azari R. The influence of obesity, alcohol abuse, and smoking on
utilization of health care services. Family Medicine. 2006;38(6):427-34. Available from:
http://www.stfm.org/fmhub/fm2006/June/Klea427.pdf.
56 Peters MJ. Should smokers be refused surgery? British Medical Journal.
2007;334(7583):20. Available from: http://www.bmj.com/cgi/content/full/334/7583/20.
57 Theadom A and Cropley M. Effects of preoperative smoking cessation on the incidence and
risk of intraoperative and postoperative complications in adult smokers: a systematic review.
Tobacco Control. 2006;15(5):352-8. Available from:
http://tc.bmjjournals.com/cgi/content/abstract/15/5/352.
58 Medical care expenditures attributable to cigarette smoking during pregnancy -- United
States, 1995. Morbidity and Mortality Weekly Report. 1997;46(44):1048-50. Available
from: http://www.cdc.gov/mmwr/PDF/wk/mm4644.pdf.
59 Whitehouse JD, Friedman ND, Kirkland KB, Richardson WJ and Sexton DJ. The impact of
surgical-site infections following orthopedic surgery at a community hospital and a
university hospital: adverse quality of life, excess length of stay, and extra cost. Infection
Control and Hospital Epidemiology. 2002;23(4):183-9. Available from:
http://www.journals.uchicago.edu/ICHE/journal/issues/v23n4/4183/4183.text.html?erFrom=
-2198106237673852801Guest.
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2.60 Tobacco-related health expenditure includes more than primary
healthcare and hospital costs. It also includes expenditure on the
prevention of tobacco use through strategies such as social marketing
campaigns and Quitline. In 2008-09, Australian governments spent
60
$55.6 million on these types of prevention programs.
2.61 In terms of health care costs, studies show that smokers have
higher health service usage and costs than non-smokers. A Western
Australian study, based on data for 1978-94 in Busselton, showed that
former smokers` hospitalisation utilisation rates and hospital bed-days
were higher than for never smokers but lower than for smokers. There are
also health care costs associated with exposure to second-hand smoke
(or `passive smoking`) such as in the home. Due to limitations of
Australian databases, this is the only Australian study.61
Information failure
2.62 It is recognised internationally that many people are not fully
informed about the health effects of smoking. As noted above, Australia
is a party to the WHO FCTC. FCTC Guidelines for Article 11, Packaging
and labelling of tobacco products, states Globally, many people are not
fully aware of, misunderstand or underestimate the risks for morbidity and
premature mortality due to tobacco use and exposure to tobacco smoke.`62
2.63 International studies report that while most smokers agree that
smoking poses a health risk many have important gaps in their knowledge,
are unable to recall specific health effects and tend to underestimate the
magnitude of the risks.63
2.64 It is possible that even if some consumers had full information
about the harms and costs of smoking (and excluding the influence of
addiction on rational decision making), they might still choose to smoke.
However, there are gaps in smokers` knowledge of the mechanisms the
tobacco industry uses to influence the experience of smoking. For
60 Australian Institute of Health and Welfare. (2011) Public health expenditure in Australia
2008-09. Health and welfare expenditure series no. 43. Cat. no. HWE 48. Canberra:
AIHW.
61 op. cit. Hurley, S. Chapter 17.
62 See Principles section of the WHO Guidelines for the implementation of Article 11 of the
WHO FCTC Packaging and labelling of tobacco products. Full copy of the text can be
found at http://www.who.int/fctc/guidelines/article_11.pdf.
63 Hammond, Fong, McNeill, Borland, Cummings. 2006 Effectiveness of cigarette warning
labels in informing smokers about the risks of smoking: findings from the International
Tobacco Control (ITC) Four Country Survey Tobacco Control 115 19-25. Available at
http://tobaccocontrol.bmj.com/content/15/suppl_3/iii19.full.
36
Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
example, additives can be used to improve the flavour and aroma of
cigarettes, and decrease the harshness of tobacco.64,65 The combined
effects of increased filtration and increased ventilation make the smoke
more dilute so it tastes weaker or milder` and produces less harshness
(the immediate burning/scratching sensations in the mouth and throat) and
irritation (the lingering tingling sensations in the throat and chest).66 This
lighter` or milder` taste can support the smoker`s perception that these
cigarettes deliver less tar and nicotine, and by tasting less harsh, stimulate
beliefs about diminished dangers to health.67
2.65 Findings from the International Tobacco Control Four Country
Survey, which included Australian smokers, has reported significant
knowledge gaps among adult smokers (age 18 years or older), regarding
the health effects and the magnitude of risk associated with smoking .68
For example, among the Australian smokers in the survey, 10 per cent did
not believe smoking caused heart disease, 20 per cent did not believe
smoking caused stroke and 30 per cent did not believe smoking caused
lung cancer in non-smokers.
2.66 Studies also indicate that many smokers fail to personalise the
risks, believing that their own risk is less than the risks faced by other
smokers.69 Studies have also shown that smokers know relatively little
about the nature of illnesses caused by smoking or what it might be like to
experience these illnesses.70 For example, one study found that smokers
64 Rabinoff M, Caskey N, Rissling A, Park C. Pharmacological and chemical effects of
cigarette additives. Am J Public Health Nov 2007;97(11):1981-1991.
65 Tobacco Products Scientific Advisory Committee Menthol Cigarettes and Public Health:
Review of the Scientific Evidence and Recommendations. A report to the US FDA, 2011.
Available from
http://www.fda.gov/downloads/AdvisoryCommittees/CommitteesMeetingMaterials/Tobacc
oProductsScientificAdvisoryCommittee/UCM269697.pdf.
66 King B, Borland R. The low tar` strategy and the changing construction of Australian
cigarettes. Nicotine & Tobacco Research 2004;6(1):85-94. Available from
http://www.informaworld.com/smpp/content~db=all?content=10.1080/14622200310001656
907.
67 Kozlowski & O`Connor. Cigarette Filter Ventilation is a Defective Design Because of
Misleading Taste, Bigger Puffs and Blocked Vents. Tobacco Control 2002:11(Suppl I):i
40-i50.
68 ibid.
69 Weinstein, Marcus and Moser. 2005. Smoker`s unrealistic optimism about their risk.
Tobacco Control Vol 14 pp 55-59. Available at
http://tobaccocontrol.bmj.com/content/14/1/55.full.pdf+html.
70 Weinstein, Slovic, Waters et al. 2004 Public understanding of the illnesses caused by
cigarette smoking. Nicotine & Tobacco Research. 6(2) p349-355. AND Weinstein,
Marcus and Moser. 2005. Smoker`s unrealistic optimism about their risk. Tobacco Control
Vol 14 pp 55-59. Available at http://tobaccocontrol.bmj.com/content/14/1/55.full.pdf+html.
37
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underestimate lung cancer death rates, overestimate survival from lung
cancer, and only a minority realise that emphysema is incurable.71
Research has also found that some smokers believe myths about reducing
their risk including that exercising or taking vitamins can reverse most of
the effects of smoking.72
2.67 Studies have also documented that adults, and young smokers in
particular, misunderstand addiction, fail to recognise the signs of
addiction in themselves or others and believe that their personal risk of
addiction is less than others.73, 74 Young smokers also tend to believe they
are unlikely to become addicted and that the health risks are only
associated with long term use and are therefore irrelevant.75
2.68 Almost no one starts smoking after age 25. Nearly 9 out of
10 smokers started smoking by age 18, and 99 per cent started by age 26
and progression from occasional to daily smoking almost always occurs
by age 26.76
2.69 The evidence around the health effects of tobacco use also
continues to grow each year. The National Preventative Health Taskforce
acknowledged in 2009 that there was extensive new evidence about the
health effects of smoking that Australian consumers had not yet been
warned about.77
71 Weinstein, Slovic, Waters et al. 2004 Public understanding of the illnesses caused by
cigarette smoking. Nicotine & Tobacco Research. 6(2) pp 349-355.
72 Weinstein, Marcus and Moser. 2005. Smoker`s unrealistic optimism about their risk.
Tobacco Control Vol 14 p55-59. Available at
http://tobaccocontrol.bmj.com/content/14/1/55.full.pdf+html.
73 Weinstein, Slovic & Gibson, 2003. Accuracy and optimism in smokers` beliefs about
quitting. Nicotine & Tobacco Research. 6(Suppl 3) pp 375-380.
74 Eureka Strategic Research, 2005. Youth Tobacco Prevention Project. Australian
Government Department of Health and Ageing available at
http://www.health.gov.au/internet/main/publishing.nsf/Content/C0A3291951BC1115CA257
BF0001D7925/$File/youth_research.pdf.
75 Eureka Strategic Research, 2005. Youth Tobacco Prevention Project. Australian
Government Department of Health and Ageing available at
http://www.health.gov.au/internet/main/publishing.nsf/Content/C0A3291951BC1115CA257
BF0001D7925/$File/youth_research.pdf.
76 U.S. Department of Health and Human Services. Preventing Tobacco Use Among Youth
and Young Adults: A Report of the Surgeon General. Atlanta, GA: U.S. Department of
Health and Human Services, Centers for Disease Control and Prevention, National Center
for Chronic Disease Prevention and Health Promotion, Office of Smoking and Health, 2012.
77 National Preventative Health Taskforce. 2009. Australia: the healthiest country by 2020,
National Preventative Health Strategy -- the roadmap for action 30 June 2009.
Commonwealth of Australia: Canberra.
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.70 Given the multitude of anti-smoking campaigns to raise
awareness of the health risks of tobacco, the perceived information
deficiency may be explained by the addictive nature of smoking, rather
than a lack of public awareness.
2.71 Most smokers regret starting smoking and have the desire to
quit. A major international study of smokers, including Australian
smokers, reports an overwhelming` high level of regret among adult
smokers about starting to smoke, with nearly 9 out of 10 agreeing with the
statement If you had to do it over again, you would not have started
smoking`.78
2.72 A survey, conducted annually from 2002 to 2009, reports that
each year an average 72.8 per cent of Australian smokers are interested in
quitting and plan to make a quit attempt either within the next month,
within 6 months or at some point in the future.79 Additionally, around
39 per cent of Australian smokers report making an actual quit attempt in
the previous 12 months.80
2.73 Because of the highly addictive nature of tobacco, many
attempted quits are unsuccessful. Typically, quitting should be viewed as
a process with most smokers making multiple quit attempts before they
succeed in quitting for good.81 The number of quit attempts before
success varies widely and studies use different methods to measure quit
attempts. An average of 4.7 quit attempts before success has been
reported in the past although a more recent study indicated that the
average 40 year old smoker who started smoking in their teens may have
made more than 20 attempts to quit.82
78 Fong, Hammond, Laux et al, 2004 The near universal experience of regret among smokers
in four countries: Findings from the International Tobacco Control Policy Evaluation
Survey. Nicotine & Tobacco Research. Vol 6 (Suppl 3) p341-351. Available at
http://ntr.oxfordjournals.org/content/6/Suppl_3/S341.abstract.
79 Cooper, Borland & Yong. 2011 Australian smokers increasingly use help to quit, but
number of attempts remains stable: Findings from the International Tobacco Control Study
2002-2009. Australian & NZ Journal of Public Health. Vol 35 no 4 p 368-376 available at
http://onlinelibrary.wiley.com/doi/10.1111/j.1753-6405.2011.00733.x/pdf.
80 Cooper, Borland & Yong. 2011 Australian smokers increasingly use help to quit, but
number of attempts remains stable: Findings from the International Tobacco Control Study
2002-2009. Australian & NZ Journal of Public Health. Vol 35 no 4, pp368-376 available at
http://onlinelibrary.wiley.com/doi/10.1111/j.1753-6405.2011.00733.x/pdf.
81 US Surgeon General. 2010. How Tobacco smoke causes disease: The biology and
behavioural bases for smoking-attributable disease. A report of the Surgeon General. US
Department of Health and Human Services, p171.
82 Borland, Partos, Yong et al, 2011. How much unsuccessful quitting activity is going on
among adult smokers? Data from the International Tobacco Control Four Country cohort
survey. Addiction. Vol 107, pp673-682.
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2.74 Data from the 2010 Australian National Drug Strategy
Household Survey indicates that over a 12 month period 19.1 per cent of
smokers aged 14 years and over had successfully given up smoking for
more than a month while 29 per cent had unsuccessfully tried to quit.83
2.75 The 2010 US Surgeon General`s report on how tobacco smoke
causes disease notes that of those who try to quit, less than 5 per cent are
successful at any one time.84
2.76 There is evidence from the International Tobacco Control Four
Country Survey (USA, UK, Canada, Australia) of a strong relationship
between people`s intentions to quit smoking and the number of quit
attempts. Given the highly addictive nature of tobacco, it usually takes
smokers multiple quit attempts before they can successfully quit smoking
(as outlined above). A significant relationship was observed between the
participants` intentions to quit at Wave 1 and remaining quit at Wave 2 of
the Survey. The difficulty of quitting and the link to quit attempts are
important considerations for designing and implementing tobacco control
policies and interventions as part of a multi-strategy regulatory
framework, of which excise on tobacco is a key component. This is in
line with the comprehensive approach to tobacco control under the
WHO FCTC.85
Effectiveness of current regulatory regime
2.77 Australia has a long history of tobacco control measures, and
currently has a comprehensive set of tobacco control strategies in place at
the national level and in every state and territory.
2.78 Multi-pronged approaches that are population wide in reach
have proved to be the most successful public health responses to the
prevalence of preventable risk factors (for example, tobacco use) for
chronic diseases. Based on historical experience, smoking rates do not
decline without major and comprehensive policy intervention to
successfully change community-wide behaviour to non-smoking`. These
tobacco control strategies include addressing tobacco use and withdrawal,
83 Australian Institute of Health and Welfare. 2011. 2010 National Drug Strategy Household
Survey Report. Drug statistics series no. 25. Cat no PHE145. Canberra: AIHW. p. 4.
Available at http://www.aihw.gov.au/publication-detail/?id=32212254712.
84 US Surgeon General. 2010. How Tobacco smoke causes disease: The biology and
behavioural bases for smoking-attributable disease. A report of the Surgeon General. US
Department of Health and Human Services, p.105.
85 World Health Organization. 2008. MPOWER: A policy package to reverse the tobacco
epidemic http://www.who.int/tobacco/mpower/mpower_report_six_policies_2008.pdf.
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
secondhand (passive) smoking, tobacco advertising, taxation and pricing,
sales restrictions, public education, and smoke-free premises and
environments (for example, enclosed and public places).86
2.79 As outlined above, the last (non-CPI) general increase in the
excise rate for tobacco occurred on 29 April 2010, when the former
Government increased the excise and excise equivalent customs duty
applying to tobacco products by 25 per cent.
2.80 Prior to this increase, the previous (non-CPI) general increase in
the excise rate for tobacco occurred in the 1995-96 May Budget, which
increased the excise rate by 10 per cent.
2.81 In addition to taxation measures, at the national level, other
recent comprehensive tobacco control initiatives include the following:
· investment in anti-smoking social marketing campaigns;
· listing of nicotine replacement therapies on the PBS, which
subsidises access for lower-income Australians and people
with a prescription from their GP, and extended listings for
the smoking cessation support drugs bupropion (available in
two brands) and varenicline (Champix®);
· investment in support for Aboriginal and Torres Strait
Islander communities to reduce smoking rates, including:
- the $14.5 million Indigenous Tobacco Control Initiative,
which funded 18 innovative tobacco control projects in a
mix of urban, rural and remote Indigenous communities;
and
- $100.6 million Tackling Smoking and $35.6 million
Healthy Lifestyle measures under the COAG Closing the
Gap in Indigenous Health Outcomes National Partnership
Agreement to support Regional Tackling Smoking and
Healthy Lifestyle Teams in 57 regions;
· legislation to restrict Australian internet advertising of
tobacco products, from 6 September 2012, bringing
restrictions on tobacco advertising on the internet into line
with other points of sale;
· legislation to mandate the plain packaging of tobacco
products from 1 December 2012 all tobacco products sold
in Australia are required to appear in a drab, dark brown
86 Gruszin, S, Hetzel D and Glover J. Advocacy and action in public health: lessons from
Australia over the 20th century. Canberra: Australian National Preventive Health Agency,
pp 118-120.
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colour with a matt finish. Tobacco industry logos, brand
imagery, colours and promotional text other than brand and
product names must be in a standard colour, position, font
style and size;
· regulations to update and expand the graphic health warnings
appearing on tobacco products, in line with tobacco plain
packaging requirements;
· a reduction in the duty-free allowance for tobacco products
from 250 cigarettes or 250g of cigars or tobacco products to
50 cigarettes or 50g of cigars or tobacco products per person,
from 1 September 2012;
· introduction of a maximum penalty of ten years`
imprisonment for tobacco smuggling offences, from
6 November 2012; and
· four staged increases in excise and excise equivalent customs
duty on tobacco and tobacco-related products: the first
12.5 per cent increase commenced on 1 December 2013
and further 12.5 per cent increases will occur on
1 September 2014, 1 September 2015 and 1 September 2016.
These increases are in addition to the change to bi-annual
indexation of tobacco products (from CPI to AWOTE),
which will take effect from 1 March 2014. (These excise
measures are the subject of this RIS.)
2.82 These measures are in addition to a number of long-standing
tobacco control initiatives including:
· minimum age restrictions on the purchase of tobacco
products;
· comprehensive advertising bans under the Tobacco
Advertising Prohibition Act 1992;
· retail display bans;
· bans on smoking in offices, bars, restaurants and other indoor
public spaces, and increasingly outdoor places where
children may be exposed to environmental tobacco smoke;
· extensive and continuing public education campaigns on the
dangers of smoking;
· PBS subsidies for smoking cessation supports; and
· Quitlines and other smoking cessation support services in
each state and territory to help people quit.
42
Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.83 As shown in Tables 2.1 and 2.2 above, Australia has made
significant gains in reducing smoking prevalence over many years.
However, Australian smoking rates are still too high. As noted in
paragraph 2.11, COAG committed to the following performance
benchmark: By 2018, reduce the national smoking rate to 10 per cent of
the population, and halve the Indigenous smoking rate, over the 2009
baseline`. Progress against this benchmark is measured by reference to the
adult daily smoking rate.
2.84 Despite Australia`s comprehensive efforts on tobacco control,
the COAG Reform Council`s most recent report states that while good
progress has been made in reducing smoking rates over the last decade
Australia`s smoking rate may need to fall more quickly than it has since
2004-05 (when it was 21.3 per cent) in order to meet the target of
10 per cent by 2018.
2.85 Figure 2.1 below shows smoking rates dropping but they need to
fall faster to meet the 10 per cent target.
Figure 2.1: Decline in smoking rates
Source: ABS, presented as Figure 4.2 in the COAG Reform Council Report (2013).
Note: The ABS Australian Health Survey 2011-12 Updated Results released
on 30 July 2013 (after the COAG Reform Council report was published)
revised the age-standardised rate for daily smoking among people aged 18 year
or older to 16.3 per cent.
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2.86 In 2009 it was projected that based on patterns of uptake and
quitting, prevalence of daily smoking would still be over 14 per cent in
2020 and that smoking cessation rates would need to double for
Australian smoking prevalence to reach a policy target of 10 per cent
by 2020.87
2.87 Figure 2.2 below shows daily smoking rates among Australians
18 years and older and some of the key policy interventions, 1990 to
2011-12.
Figure 2.2: Daily smoking rates and policy interventions
Source: ABS National Health Surveys 1989-90, 1995, 2001, 2004-05 and 2007-08, and ABS
Australian Health Survey, Updated Results, 2011-12.
2.88 Given the health, community and economic costs associated
with tobacco consumption, any action that can be taken to reduce the
consumption and prevalence of tobacco in Australia, including actions of
Government, should be considered.
87 Gartner CE, Barendregt J and Hall W. Predicting the future prevalence of cigarette smoking
in Australia: how low can we go and by when? Tobacco Control 2009; 18: pp183-189.
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.89 As outlined above, it is well recognised that price and tax
measures are one of the most effective instruments to reduce tobacco
consumption.88 Tobacco control measures interact synergistically as a
suite of measures, to help bring down smoking rates and keep them down
over a sustained period of time.
2.90 It is difficult to separately quantify the dollar value of individual
measures within the comprehensive package of measures.89 A study
prepared by the consultancy firm Applied Economics for the then
Department of Health and Ageing estimated that over a 30 year period
(from 1970), government investment of $176 million in public health
programs to reduce tobacco consumption returned a net benefit of about
$8.4 billion, and averted 17,400 premature deaths. Benefits attributed to
tobacco control public health programs (including national mass media
campaigns, health warnings on cigarette packets, regulations restricting
the promotion of cigarettes as well as the conditions under which the
cigarette products might be consumed, and changes in taxes, which
contributed to a 154 per cent increase in the price of tobacco products)
were estimated at a total of $12.3 billion, comprising longevity gains
(approximately $9.6 billion), improved health status gains ($2.2 billion)
and lower health care costs ($0.5 billion). 90
88 Australian Government. Preventative Health Taskforce. 2009. Australia: the healthiest
country by 2020. Technical Report No. 2. Tobacco control in Australia: making smoking
history. Canberra: Commonwealth of Australia.
89 Department of Health and Ageing. 2003. Returns on investment in public health: An
epidemiological and economic analysis prepared for the Department of Health and Ageing
by Applied Economics, p. 22. Available at:
http://www.health.gov.au/internet/main/publishing.nsf/Content/8E28958A40B64604CA257
BF0001A4CCF/$File/roi_eea.pdf).
90 As cited in Gruszin, S, Hetzel D and Glover J. Advocacy and action in public health:
lessons from Australia over the 20th century. Canberra: Australian National Preventive
Health Agency, pp127-128.
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2.91 New research conducted by the NSW Cancer Institute and
reported in the Medical Journal of Australia91 is evidence of immediate
and actual behaviour change following the introduction of tobacco plain
packaging, demonstrating that people are taking action to obtain support
to quit smoking. The report states:
There has been a sustained increase in calls to the Quitline after
the introduction of tobacco plain packaging. This increase is
not attributable to anti-tobacco advertising activity, cigarette
price increases nor to other identifiable causes. This is an
important incremental step in comprehensive tobacco control.
2.92 Also, as noted in the Post-implementation Review for the
25 per cent tobacco excise increase that took effect from 29 April 2010,
the increase exceeded the objective of cutting licit tobacco consumption
by around 6 per cent as indicated by the decline in tobacco clearances.
Objective
2.93 The two measures will meet the Government`s election
commitment to proceed with the two tobacco excise and excise equivalent
customs duty measures as announced by the former Government.
2.94 The broader objective is to reduce tobacco consumption in
Australia. Excise taxation is at the centre of Australia`s tobacco control
policy. Compared to other taxes, excise can be applied selectively to
pursue non-revenue objectives like the problems of smoking outlined
above.
Implementation options
2.95 The Government has committed to implementing the change in
indexation for tobacco excise and excise equivalent customs duty to
AWOTE instead of CPI and increasing excise and excise equivalent
customs duty on tobacco and tobacco-related products under a staged
process.
91 Jane M Young, Ingrid Stacey, Timothy A Dobbins, Sally Dunlop, Anita L Dessaix and
David C Currow (2014). Association between tobacco plain packing and Quitline calls: a
population-based, interrupted time-series analysis. MJA 2014;200:29-32
doi:10.10.5694/maja13.11070 Available at:
https://www.mja.com.au/journal/2014/200/1/association-between-tobacco-plain-packaging-
and-quitline-calls-population-based.
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.96 Consequently, alternative options to the commitment are not
required to be examined.
Assessment of impacts
Analysis of costs/benefits
Costs
2.97 The costs of the two measures, which will result in an increase
in tobacco prices for consumers are:
· a reduction in real incomes for those continuing to smoke at
the same rate or take up smoking (see Impact Group
Identification);
· a loss of any benefits to consumers from smoking;
· possible increased compliance costs for various stakeholders
in the industry including licenced tobacco manufacturers,
distributors and retailers (see Impact Group Identification);
· increased administrative costs for the ATO and ACBPS (see
Impact Group Identification); and
· a shift to illicit tobacco and other unregulated products.
Loss of benefits from smoking
2.98 There are possible benefits from smoking but these benefits are
extremely small. That is, consumption of tobacco appears to provide
some protective effect from Parkinson`s disease in males and females and
endometrial cancer in females.92
2.99 If, as a result of the price rises, smokers quit or reduce their
smoking or not take up smoking, these benefits will be lost.
Shift to illicit tobacco and other unregulated products
2.100 The ACBPS is responsible for collecting customs duty and also
for detecting illicit tobacco at the Australian border and for administering
related penalties. Imported tobacco is considered to be illicit or illegal if it
is not declared at the border and does not have the appropriate duty paid.
92 Collins and Lapsley, op. cit, p. 40.
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2.101 The ACBPS does not differentiate between counterfeit (fake)
and contraband (or smuggled) tobacco, as tobacco smuggling offences
under the Customs Act 1901 are primarily concerned with the evasion of
excise equivalent customs duty, rather than copyright or trademark
infringements.
2.102 Australia has a strong legislative and regulatory framework to
control illicit trade in tobacco products. The maximum penalty for
tobacco smuggling, including conveying or possessing smuggled tobacco
products, is now 10 years imprisonment in addition to pecuniary penalties
of up to five times the amount of duty evaded.
2.103 The ATO and the ACBPS do not formally estimate the size of
the amount of excise or excise equivalent customs duty forgone through
the sale of illicit tobacco consumed in Australia. They instead focus on a
risk-based intelligence-led approach to focus on high risk areas of
non-compliance.
2.104 The tobacco industry`s estimates of the size of the illicit market
are not considered to be accurate. A KPMG report prepared for the
tobacco industry (British American Tobacco Australia, Philip Morris Ltd
and Imperial Tobacco Australia Ltd) and released on 4 November 2013,
claims that during 2012-2013, consumption of illicit tobacco grew from
11.8 per cent to 13.3 per cent of total tobacco consumption in Australia.
The report claims that this represents a loss of $1 billion in excise
revenue.
2.105 Like previous illicit trade reports commissioned by the tobacco
industry, the KPMG report appears to substantially exaggerate the size of
the illicit tobacco market in Australia and the consequent loss of excise
and duty revenue. According to Australia`s National Drug Strategy
Household Survey conducted in 2010, only 1.5 per cent of smokers use
illicit tobacco half the time or more.93
2.106 The Cancer Council Victoria`s published detailed critique of the
KPMG report94, highlights multiple flaws in the surveys used to obtain the
data underpinning the report, and the analyses used by KPMG.
93 AIHW 2011 2010 National Drug Strategy Household Survey report 2011. Drug statistics
series no. 25. Cat. No. PHE 145. Canberra: AIHW.
94 Available at:
http://www.cancervic.org.au/downloads/mini_sites/Plain-facts/analysis-kpmg-llp-report-illic
it-tobacco-aust-2013.pdf.
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.107 While increases to excise and excise equivalent rates have the
potential to increase the illicit trade in tobacco, ACBPS detection data
does not support the premise that the total volume or value of tobacco
smuggled increased significantly following previous excise rate increases.
However, ACBPS detection data does indicate that previous excise
increases have led to increased detections of small scale personal illicit
tobacco imports through the international mail and by international
travellers.
2.108 The table below provides information on average monthly
detections of illicit tobacco and cigarettes in the sea cargo stream for
recent financial years. Sea cargo detections are responsible for
95-99 per cent of the volume and value of illicit tobacco detected by the
ACBPS. The equivalent tobacco weight in this table is calculated by
combining tobacco and cigarette weights, and assumes a cigarette stick
contains 0.8g of tobacco. This table shows that, except for a decrease in
2008-09, the total weight of tobacco detected by the ACBPS has remained
relatively constant since 2007-08.
Table 2.5: ACBPS detection of illicit tobacco
Equivalent
Cigarettes Duty
No. of Tobacco tobacco
Year (millions of evaded
detections (tonnes) weight
sticks) ($ million)
(tonnes)
2007-08 58 287 107 114 373
2008-09 33 180 50 70 220
2009-10 42 311 68 120 365
2010-11 55 258 82 135 324
2011-12 45 177 141 125 289
2012-13 76 183 200 151 343
2013-14
(YTD until 51 112 96 85 189
31 Dec 13)
2.109 Following the significant excise increase in April 2010, the total
volume and value of illicit tobacco detected by the ACBPS decreased. In
the nine months prior to the increase (July 2009-March 2010), ACBPS
detected an average of 39 tonnes of illicit tobacco per month in sea cargo.
In the 15 months after the increase (April 2010-June 2011), an average of
24 tonnes of illicit tobacco per month was detected in sea cargo.
2.110 However, there is evidence of a correlation between previous
excise increases and increased detections of small scale personal illicit
tobacco imports through the international mail and by international
travellers. These imports are primarily opportunistic in nature and do not
appear to be associated with organised crime. While the small quantities
involved do not significantly increase the overall volume or value of illicit
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tobacco detected, there are moderate additional workload and resourcing
impacts for the ACBPS around processing the increased number of small
scale imports.
2.111 A comprehensive approach to the ongoing risk associated with
increasing volumes of smaller scale imports could include regulatory
changes to the importation of tobacco products. This could be as far
reaching as a complete ban on the importation of tobacco by unlicensed
individuals, which has been introduced in other countries.
2.112 The Australian Government does not consider that tobacco plain
packaging led to an increase in the illicit trade in tobacco products.
Tobacco plain packaging is unlikely to be a significant factor in
facilitating the activity of counterfeiters as the Tobacco Plain Packaging
Act 2011 provides for tobacco companies to use certain anti-counterfeiting
techniques, including alphanumeric codes, on packaging on a voluntary
basis.
2.113 The WHO FCTC Protocol to Eliminate the Illicit Trade in
Tobacco Products95 was adopted by the fifth session of the Conference of
the Parties, in Seoul, Republic of Korea on 12 November 2012. The
Protocol was open for Parties to the FCTC to become signatories until
9 January 2014 (New York time). As at 10 January 2014 (Australian
time), 54 countries have signed and one country, Nicaragua, has acceded
to the Protocol.
2.114 Australia has commenced work on the domestic processes
(including a regulation impact statement) that precede a decision on
whether to accede to the Protocol.
Benefits
Benefits for individuals and society
2.115 As outlined above, there are significant overall negative health,
social and economic impacts for individuals, their families and society
from tobacco usage. The benefits associated with anti-smoking measures
should reduce these impacts.
95 The Protocol can be accessed at: http://www.who.int/fctc/protocol/illicit_trade/en/.
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.116 However, these benefits are reduced because of changes in
smoker behaviour. A survey conducted in November 2010 (Victorian
Smoking and Health Survey) to assess smokers` reported changes in
smoking habits following the 25 per cent increase in tobacco excise in
April 2010 indicates a range of behaviour change. It reported as follows:
Of all smokers surveyed (recent quitters were not asked such
questions), 45% reported that they had changed their smoking
behaviour in response to the price increase, either by trying to
quit (28%) or by smoking fewer cigarettes (34%). Younger
smokers were most likely to report that they tried to quit as a
result of the price increase (37% tried to quit, compared with
27% of mid-aged and 23% of older smokers.) Approximately
half of smokers from the low socio-economic status (SES) group
who were still smoking reported trying to change their
behaviour compared with 45% of mid-SES and 37% of high-SES
smokers (p=0.04). In 2010, 48% of smokers had changed their
purchasing behaviour in at least one way following the price
increase. More than 20% had looked for a cheaper source for
their regular brand, while 15% switched to a cheaper brand or
bought in bulk. Small proportions reported having bought loose
tobacco since the price increase-9% had bought roll-your-own
tobacco, and 3% reported that they had purchased unbranded
tobacco. Only 18% of smokers changed their purchasing
behaviour without attempting to change their smoking behavior
(sic) .... 96
2.117 The survey data shows that about two-thirds of the smokers
(62 per cent) surveyed said they had changed their smoking behaviour,
with younger respondents (37 per cent) and low SES smokers (about half)
more likely to have done so. Less than one in five (18 per cent) of the
smokers surveyed only changed the types of tobacco products purchased
without also trying to quit or cut down.
2.118 While some smokers may choose to switch to cheaper cigarettes
to avoid paying more for their tobacco products, many smokers who
would consider switching to cheaper brands (or down trading`) are likely
to have already done so in response to the increased availability of value`
brands by tobacco companies. Some smokers may also switch to lower
priced cigarettes or cut down on the amount of cigarettes they consume as
an intermediate stage before choosing to quit altogether.
96 Scollo, M. Chapter 13, The pricing and taxation of tobacco products in Australia, in Scollo,
MM and Winstanley, MH [editors]. Tobacco in Australia: Facts and issues. 4th edn.
Melbourne: Cancer Council Victoria; 2012. Available from:
http://www.tobaccoinaustralia.org.au/chapter-13-taxation.
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2.119 As noted, many smokers indicated that they were smoking fewer
cigarettes as a result of the tobacco excise increase applying from
29 April 2010. The Royal Australian College of General Practitioners
Supporting Smoking Cessation: a guide to health professionals (the
Guide) states:
Research has shown that smoking reduction by 50% significantly
reduces the risk of lung cancer in heavy smokers (15 or more
cigarettes each day). But studies have not shown a decrease of
fatal or non-fatal myocardial infarction, hospitalisation for COPD
or all cause mortality compared with heavy smokers who do not
change smoking habits.97
2.120 Individual behavioural responses to the 29 April 2010
25 per cent excise increase indicate why a comprehensive and sustained
approach to tobacco control and smoking cessation is required.
Revenue
2.121 The revenue from these two measures is estimated to be
$6,540 million, including $560 million in goods and services tax
payments to the states and territories over the forward estimates period.
Impact group identification
Different socio-economic groups
2.122 The tobacco excise increase will increase tobacco prices for
consumers.
2.123 Table 2.6 below shows the estimated impact of the staged excise
increases and AWOTE on cigarette prices and additional tax paid
(including GST) over time, using an example of a pack of 25 Winfield
cigarettes with a retail price of $21.00 as of January 2014, which is
inclusive of the 1 December 2013 excise increase.98
97 Royal Australian College of General Practitioners. 2011. Supporting smoking cessation: a
guide to health professionals. Melbourne: RACGP. Available from:
http://www.racgp.org.au/your-practice/guidelines/smoking-cessation/.
98 Note that this is an example only, and the retail price varies between retailers. The figures
in Table 1.6 indicate the amount of additional tax that will apply to a 25-pack of Winfield
cigarettes in September 2014, 2015 and 2016, compared to the amount of tax that currently
applies as of January 2014. The estimates in Table 1.6 also rely on no future changes to the
current tax-exclusive price of a packet of Winfield Cigarettes. Although this is not a likely
assumption, it is necessary for the benefit of this analysis. The estimated additional tax
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
Table 2.6: Additional tax paid as a result of excise increase
Date Retail price per pack after Increase in total tax as a
excise increase result of excise increase
1 Sep 2014 $22.86 $1.86
1 Sept 2015 $25.02 $4.02
1 Sept 2016 $27.56 $6.56
2.124 As an indication of the excise increase`s impact across
the socio-economic spectrum, Table 2.7 below, derived from the
2010 National Drug Strategy Household Survey99 shows smoking rates
across socio-economic status groups.
Table 2.7: Incidence of smoking across socio-economic status groups
Socio-Economic Smokers (per cent)
Rating
1 (lowest) 24.5
2 20.7
3 17.7
4 16.3
5 (highest) 12.5
2.125 This table indicates that smoking among people from low
socio-economic groups is much higher than in the general population.
2.126 Other studies or surveys show that:
· in 2008, 47 per cent of Aboriginal and Torres Strait Islander
people aged 15 years and over were daily smokers;100
- the latest data are from the Aboriginal and Torres Strait
Islander Health Survey: First Results, 2012-13, released
paid each year until 2016 does not take into account likely rises in cigarettes prices beyond
the excise increases, which would further increase the GST payable and thus the total
amount of tax paid.
99 Australian Institute of Health and Welfare (2011). 2010 National Drug Strategy Household
survey report. Drug statistics series no. 25. Cat No. PHE 145. Canberra: AIHW.
100 2008 National Aboriginal and Torres Strait Islander Social Survey Cat. no. 4714.0
Australian Bureau of Statistics 2009.
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on 27 November 2013.101 These preliminary results are
based on a sample size of 9,300 Indigenous Australians
but the final results, due to be published in June 2014, will
be of the full Indigenous sample of around 12,300;
- the report shows that 41 per cent of Indigenous
Australians aged 15 years and over and 43.8 per cent aged
18 years and over smoked daily;
· in 2011, 35.8 per cent of all teenage mothers reported
smoking;102
· in 2007, around 32 per cent of people with mental illness
smoked cigarettes and this increased to 73 per cent for people
with psychotic conditions such as schizophrenia;103 and
· in 2010, 27.6 per cent of unemployed people were
smokers.104
2.127 Smoking rates among the most disadvantaged groups are
extremely high.105 In 2007, children living in households in the most
disadvantaged areas in Australia were more than three times more likely
to be exposed to tobacco smoke in the home compared with those living
in more advantaged areas.106 People experiencing socio-economic
disadvantage and Aboriginal and Torres Strait Islander people represent
higher proportions of the population in remote and very remote areas
compared with metropolitan areas.107
101 ABS, Aboriginal and Torres Strait Islander Health Survey: First Results, 2012-13 --
Australia, released 27 November 2013. Table 10.3 Health Risk Factors. (NT: non age
standardised ata has been used.).
102 Zeki R, Hilder L & Sullivan EA (2013). Australia`s mothers and babies 2011. Perinatal
statistics series no. 28. Cat. No. PER 59. Canberra: AIHW National Perinatal
Epidemiology and Statistics Unit.
103 ABS (2008) National Survey of Mental Health and Wellbeing -- Summary of Results
2007, 4326.0.
104 AIHW 2011 2010 National Drug Strategy Household Survey report 2011. Drug statistics
series no 25. Cat no. PHE 145. Canberra AIHW.
105 AIHW 2011 2010 National Drug Strategy Household Survey report 2011. Drug statistics
series no. 25. Cat. No. PHE 145. Canberra: AIHW.
106 AIHW 2009 A picture of Australia`s children 2009, Canberra.
107 Australian Institute of Health and Welfare (2011). 2010 National Drug Strategy
Household survey report. Drug statistics series no. 25. Cat. No. PHE 145. Canberra:
AIHW.
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.128 There is a link between tobacco consumption and poverty.
Lower income households are particularly vulnerable to the opportunity
cost` of expenditure on tobacco products. Tobacco may replace food and
other essential goods and services for the family. The health impact of
tobacco consumption also puts pressure on family budgets and reduces the
income-generating potential of family members.108
2.129 As noted in paragraph 2.24 above, opposition to tobacco excise
increases has often focussed on the argument that tobacco taxation is
regressive` that is, it has a disproportionately greater impact on the
socio-economically disadvantaged. However, expert opinion in the field
of price and taxation for tobacco control points to opposite effect.
2.130 According to the Cancer Council of Victoria, for those low
income people who do not give up smoking and do not cut down, it is true
that the price of purchasing their regular pack of cigarettes would be
greater following an excise increase. However, the effects of an excise
increase would be offset by consumers cutting down on the number of
cigarettes smoked. A recent cohort study of Victorian smokers showed
that while consumption among light smokers did not decline, heavy
smokers reduced consumption substantially after the April 2010 price rise.
Further, the numbers of smokers experiencing financial stress did not
change significantly following the tax increase.109
2.131 A similar argument applies to Aboriginal and Torres Strait
Islanders, who are more than twice as likely to be daily smokers as
non-Indigenous people.
2.132 As the Cancer Council of Victoria has noted, failing to increase
taxes on tobacco products does not ensure that smokers will pay less for
cigarettes. As occurs in many countries,110 tobacco companies in
Australia have consistently over-shifted` tax increases to consumers, that
is, charged consumers higher prices than required by tax increases,
thereby benefiting from the increase of revenue while consumers blame
the government`s tax increase for the price rise.
108 International Agency for Research on Cancer, Chapter 7. Tax, price and tobacco use
among the poor, in Effectiveness of tax and price policies for tobacco control 2011,
IARC: Lyon, France. Available from: http://www.iarc.fr/en/publications/list/handbooks/.
109 Scollo, M., et al., Impact in Victoria of the April 2010 25 per cent increase in excise on
tobacco products in Australia. Short-term effects on prevalence, reported quitting and,
reported consumption, real cost, and price-minimising strategies, 2012, Centre for
Behavioural Research in Cancer, Cancer Council Victoria: Melbourne, Australia.
110 International Agency for Research on Cancer, Chapter 3. Tobacco industry pricing,
price-related marketing and lobbying, in Effectiveness of tax and price policies for tobacco
control2011, IARC: Lyon, France. Available from:
http://www.iarc.fr/en/publications/list/handbooks/.
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2.133 Increasing tobacco taxes, in combination with investment in
other tobacco control measures, will contribute to improving the situation
of low-income people.
2.134 Staged introduction of excise increases will give smokers
several chances to quit prior to the transition to higher prices at each stage.
2.135 In addition to the incentive of price increases, a range of
initiatives are available to help people quit smoking including Quitline
and smoking cessation support services in each State and Territory.
Subsidised smoking cessation aids including nicotine replacement therapy
(for example, nicotine patches and medicines to assist with quitting
smoking) have been available on the subsidised PBS since February 2011.
Electronic cigarettes
2.136 Smokers may attempt to reduce the impact of increases in the
price of tobacco by seeking out other comparatively cheaper nicotine
delivery systems. An emerging product worldwide is electronic cigarettes
(or electronic nicotine delivery systems -- ENDS).111
2.137 However, e-cigarettes containing nicotine are prohibited from
retail sale in Australia through state and territory legislation. Some states
and territories (eg, Western Australia, South Australia) also have
regulations that apply to the sale of e-cigarette devices without nicotine.
2.138 However, therapeutic preparations (eg, TGA-evaluated nicotine
replacement therapies) for therapeutic purposes (such as assistance to quit
smoking), are schedule 4 Prescription only` medicine. These products
are rigorously assessed for efficacy and safety and, therefore, approved by
the Therapeutic Goods Administration for use as aids in withdrawal from
smoking.
111 Electronic cigarettes are devices for making mists for inhalation that usually simulate the
act of cigarette smoking and are sometimes marketed as a tobacco replacement.
Australian health authorities are concerned about the use of electronic cigarettes in
Australia because of a lack of evidence on their safety and efficacy. The impact of wide
scale use of these devices on tobacco use is not known, and the outcome in the community
could be harmful.
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
Licenced tobacco manufacturers/wholesalers
The Australian tobacco market
2.139 In 2012, KPMG noted that the total legal market for cigarettes in
Australia was for 17 billion sticks, while the loose tobacco market
accounted for 1.8 million kilos of tobacco112.
2.140 Trends in volumes of products traded in the Australian legal
tobacco market are shown below in Table 2.8.
Table 2.8: Legal Tobacco Market, Australia 2000-2013
(millions of kg)
Cigarettes Loose Total
tobacco
2000 17.6 1.3 18.8
2001 16.5 1.3 17.8
2002 16.7 1.5 18.2
2003 17.0 1.5 18.5
2004 16.8 1.5 18.3
2005 16.3 1.6 17.9
2006 15.9 1.5 17.5
2007 16.0 1.6 17.6
2008 15.9 1.6 17.5
2009 15.9 1.7 17.6
2010 14.6 1.8 16.4
2011 13.9 1.8 15.7
2012 13.5 1.8 15.3
2013 13.3 1.8 15.1
Source: KPMG LLP Strategy Group London (2013). Illicit Tobacco in
Australia: 2013 Half Year Report (London: KPMG) p. 11.
112 KPMG LLP Strategy Group London (2013). Illicit Tobacco in Australia: 2013 Half Year
Report (London: KPMG) p. 11.
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2.141 While KPMG noted that there has been a 2.2 per cent annual
rate of decline in manufactured cigarette volumes over the last 12 years,
tobacco volumes for loose tobacco volumes over the same period have
experienced an annual rate of increase of 3.0 per cent113. This has clearly
resulted in a change in the mix of tobacco products towards more loose
tobacco, but the fall in the weight of tobacco in the cigarette market could
have resulted from a fall in the average amount of tobacco in each
cigarette.
2.142 There are three major tobacco companies operating in Australia;
British American Tobacco (Australasia Holdings) Pty Ltd (British
American Tobacco), Philip Morris Limited (Philip Morris) and Imperial
Tobacco Australia Limited (Imperial Tobacco). Philip Morris and British
American Tobacco have Australian manufacturing and distribution
operations while Imperial Tobacco, which formerly contracted with
British American Tobacco to supply some of its products and relied on
imports for other products114 now imports all of these products from its
New Zealand factory115 and is now a distributor or wholesaler of tobacco
products.
2.143 In the period January to May 2013, citing Nielsen Australia`s
BAT Tobacco Industry Database, KPMG noted that the cigarette market
is divided into three broad price categories -- high, medium and low
price. In terms of cigarettes, the market shares of each category were
15 per cent, 48 per cent and 36 per cent respectively.
2.144 The market shares of manufacturers have been reported for
British American Tobacco as 66.6 per cent and Philip Morris as
33.4 per cent.116 KPMG has reported the legal tobacco market shares in
Tables 2.9 and 2.10 below and referenced the data to Euromonitor`s report
Tobacco in Australia August 2012.
113 (KPMG LLP Strategy Group London (2013). Illicit Tobacco in Australia: 2013 Half Year
Report (London: KPMG) p. 10.
114 IBISWorld Smoked out: Rising health concerns and excise taxes affect industry revenue
IBISWorld Industry Report C1220 Cigarette and Tobacco Product Manufacturing in
Australia July 2013 p.5.
115 Cleo Fraser (2012) New Zealand boosts Australian tobacco exports`, The Australian, Web
Edition of 6 August 2012, and consulted on 21/1/2014.
116 IBISWorld Industry Report C1220 op. cit. pp.22.23.
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
Table 2.9: Australian legal tobacco market -- percentage
market shares
Cigarettes
British American 45
Tobacco
Philip Morris 35
International
Imperial Tobacco 19
Others 1
Source: KPMG LLP Strategy Group London (2013). Illicit Tobacco in
Australia: 2013 Half Year Report (London: KPMG) p.11.
Table 2.10: Australian legal loose tobacco market -- percentage
market shares
Loose tobacco
British American 29
Tobacco
Imperial Tobacco 62
Others 9
Source: KPMG ibid. p. 11
2.145 The major market for the tobacco manufacturers is tobacco
product wholesalers, which purchase tobacco products from
manufacturers or import these products from overseas. The independent
wholesale market is declining as manufacturers increasingly sell directly
to retail customers.117
2.146 Tobacco manufacturers have been affected by falling
demand over the past five years because of increasing health concerns,
anti-smoking campaigns, increasing regulations and higher excise
taxation. Australian Industry revenue after excise is expected to decline
at an annualised 0.2 per cent over the five years to 2013-14, to total
$1.8 billion in that year.118 It is further forecast to decrease at a
compound annual rate of 3.4 per cent over the five years to 2018-19 to
reach $1.5 billion.119
117 IBISWorld Industry Report C1220 op. cit., p.4.
118 IBISWorld Industry Report C1220 op. cit., p.4.5.
119 IBISWorld Industry Report C1220 op. cit., p.4.
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2.147 However, profit margins of manufacturers are expected to
increase as manufacturers shift their resources towards low-cost
manufacturing activities, such as unpackaged tobacco.120
2.148 The tobacco wholesaling sector has been declining at an
annualised 1.9 per cent over the past five years, to reach $2.2 billion in
2013-14.121 In 2013 there were around 46 tobacco wholesalers in
Australia with British American Tobacco, Philip Morris and Imperial
Tobacco accounting for more than 60 per cent of industry revenue.122
Impact on compliance costs
2.149 Tobacco companies are well accustomed to excise and excise
equivalent duty rate changes as these rates have increased biannually in
line with CPI indexation. The main compliance cost of these increases is
adjusting prices, which has previously been reported as taking two to
three days.123 These price changes occur with bi-annual indexation of
tobacco excise and excise equivalent customs duty. There was an
additional price increase as a result of the first staged increase as from
1 December 2013.
2.150 Tobacco companies reported difficulties resulting from the
25 per cent increase in tobacco excise in April 2010. This was because of
the short notice given and the flow-on impact on companies. However, in
relation to the recent measures, tobacco companies have been provided
with a significant lead time before the increases take effect, especially for
those which occur in later years. The increases also take effect on the
same day as bi-annual indexation (except the 1 December 2013 increase),
which minimises costs for the tobacco companies.
2.151 The long lead time provided for adjustment also means that
there should be no difficulty in terms of excise payments. As a result of
the 25 per cent excise increase in April 2010, orders that had left the
bonded warehouse before the announcement but did not arrive until after
the announcement required a change of price list during transportation.
Difficulties of this nature should not arise because of the long lead times.
120 IBISWorld Industry Report C1220 op. cit., p7.
121 IBISWorld Going up in smoke: Demand suffers due to government reforms and health
consciousness IBISWorld Industry Report F3606b Tobacco Product Wholesaling in
Australia August 2013 p.5.
122 IBISWorld Industry Report F3606b ibid., p.5,6.
123 Post-implementation Review: 25 per cent tobacco excise increase op. cit. p.25.
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Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
Quotas
2.152 A further cost may arise to businesses because of tobacco
quotas. Quotas may be imposed to protect government revenue from
anticipatory behaviour and stockpiling of product prior to the new rate
taking effect. The quotas have the effect of setting the amount of
tobacco products that could be released into home consumption at the
excise and excise equivalent customs duty rates prior to the rate rise
taking effect. The quota system is administered by the ATO.
2.153 Where quotas are imposed, the amounts are determined by
reference to the expected levels of product that would be released into the
market place if there were no anticipation of rate increase present. The
ATO administers quotas in a manner to provide sufficient amounts for
suppliers to continue supplying product at normalised levels at the current
rate of duty. The quotas allow an uplift factor to adjust for seasonal
variations and known individual circumstances. However, there is also
provision for entities that have quotas imposed to have their individual
circumstances reviewed and quota amounts adjusted.
2.154 The declared period for the tobacco quotas for the first staged
increase on 1 December 2013 commenced on 3 October 2013 and ended
on 30 November 2013. The ATO will decide whether quotas will
be imposed for the next three staged increases.
2.155 While the quotas are in operation, the allocation of tobacco
products to specific retailers is a business decision for tobacco
manufacturers, importers and distributors upon which the quotas have
been imposed. The imposition of a quota does not prohibit the release of
tobacco products for sale to retailers above the quota amounts. Quotas do
no more than effectively limit what can be entered into the Australian
market at the current rate of duty. However, if a manufacturer importer or
distributor exceeds their quota limit they would in effect have to pay duty
at the rate applicable from the date of the staged increase on that excess
amount.
2.156 The quota system may impose some additional costs on
manufacturers, and distributors as these businesses will have to monitor
their sales to ensure that they operate within the quota or otherwise pay a
higher rate of duty on the excess over the quota limit. The costs of either
of these two options are not expected to be significant.
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Changing business strategies to respond to price rises
2.157 Tobacco companies in Australia have the potential to
over-shift` tax increases to consumers by charging consumers higher
prices than required by tax increases, thereby benefiting from the increase
of revenue. By increasing tobacco prices above that required by the
excise increases and bi-annual indexation, tobacco companies have been
able to counteract some of the impact of a decline in total tobacco
consumption on their revenue and profit.
2.158 Profit margins for tobacco manufacturers have been increasing
as manufacturers increase their production prices at the same time as
excise increases, engage in wholesale bypass and consumers demonstrate
a greater preference for unpackaged tobacco, which costs less to
produce.124
2.159 As part of consultation on the Post-implementation Review for
the 25 per cent tobacco excise increase from 29 April 2010, tobacco
companies submitted that the 25 per cent increase encouraged adult
smokers to move from their current product to cheaper brands and
roll-your-own` (RYO). One tobacco company claimed that the market
share of low cost brands had increased from 24.9 per cent in 2010, to
31.0 per cent in 2012. Another company submitted the total retail sales of
cheap cigarettes had increased from virtually nothing in 2007 to comprise
around 9 per cent of the total market for cigarettes in 2011.
2.160 Table 2.6 below shows the composition of the Australian
cigarette market. Particularly noteworthy is the increasing share
comprised by cheap` cigarettes.
124 IBISWorld Industry Report C1220 Cigarette and Tobacco Product Manufacturing in
Australia July 2013 op. cit. p.5.
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Table 2.6: Composition of the Australian retail cigarette market
Mainstream
Value for money
Premium
Cheap
2.161 One tobacco company advised that the price gap between the
recommended retail price of a well-known premium price brand and the
equivalent price brand in a leading low-cost brand is 18.8 per cent. Price
differentials for the same sized pack range from $2.90 to $6.05.
2.162 One of the companies submitted that the increase in quantity of
cheap cigarettes consumed was an unintended effect of the 25 per cent
tobacco increase. That is, increases in tobacco excise or excise equivalent
duties had unintentionally encouraged smokers to down trade` to
smoking cheap cigarettes, rather than reducing the total number of
cigarettes they consume.
2.163 The same tobacco company submitted the excise increase had
the effect of unintentionally altering the relative competitive positions of
cigarette suppliers in the markets for not only their products, but also in
the markets for their inputs of raw materials and factors of production
(that is land, labour and capital). The company argued that this, in turn,
reduced the effectiveness of excise and excise equivalent duties as a
means of reducing cigarette consumption.
2.164 The tobacco companies reported that the 25 per cent increase
had also driven a consumer shift from cigarettes to RYO tobacco. In
2010, one tobacco company saw a 3.2 per cent increase in the RYO
segment over the course of the year. The upward trend was more evident
in the second half of 2010, where the average increase between July and
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December was 4.2 per cent. Although the trend did not continue in 2011,
the volume gained in 2010 was retained within RYO and the segment was
flat compared with 2010.
2.165 Tobacco companies submitted that there was no public health
benefit in a policy which encourages adult smokers to move from their
current product to a cheaper and / or illicit or unregulated product.
2.166 It is expected that further excise increases will create an increase
in cheaper brands and RYO. This shift combined with any consequent
decline in tobacco consumption may affect business decision-making of
the tobacco companies. It may require them to adapt their strategies to try
to capture market share of an increasingly competitive market, for
example, by increasing their range of products at various price points.125
Further, as highlighted above by the Victorian Smoking and Health
Survey, strategies aimed at encouraging consumers to switch` to an
alternative product have not been overly successful to date (see
paragraphs 2.116 to 2.117 above).
2.167 However, the staged tobacco excise increases and change of the
indexation from CPI to AWOTE are not likely to create any significant
distortion in business decision-making of the tobacco companies in
addition to the range of anti-smoking measures that are already in force.
A shift to illicit and unregulated products
2.168 As part of consultation to the Post-implementation Review for
the 25 per cent tobacco excise increase from 29 April 2010, tobacco
companies submitted that the excise increase in 2010 also contributed to
an increase in the illicit tobacco trade.
2.169 As outlined above, while increases to excise and excise
equivalent rates have the potential to increase the illicit trade in tobacco,
ACBP detection data does not support the premise that tobacco smuggling
increased following previous excise rate increases.
Retailers
2.170 Tobacco product wholesalers are the major purchasers of
tobacco products from manufacturers. These wholesalers distribute
products to retailers such as supermarkets, grocery stores, convenience
stores, service stations and tobacco stores. Supermarkets are estimated to
125 IBISWorld Industry Report C1220 Cigarette and Tobacco Product Manufacturing in
Australia July 2013 op. cit.. p.8.
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account for the largest share of industry revenue making up 41 per cent of
revenue in 2013-14 with convenience stores contributing an estimated
26 per cent of revenue and tobacconists 18 per cent.126 As noted above,
tobacco product manufacturers are increasingly selling their products
directly to some retail outlets lowering demand from wholesalers in
2013-14.127
2.171 Retailers do not pay excise but will incur the cost of changing
their displayed prices for tobacco products, but as all staged increases
other than the 1 December 2013 increase occur at the same time as
bi-annual indexation, the compliance costs are expected to be limited.
Retailers are accustomed to changing their prices when price lists from
wholesalers and tobacco manufacturers` change and it is expected that
there will be no incremental costs to retailers arising from the staged
increases.
2.172 Retailers may suffer from declining sales. However, daily
smoking rates in Australia have been declining gradually for the last few
decades. Any further decrease in tobacco consumption that occurs as a
result of the staged increases will occur in this context. The impact of a
further decrease in tobacco consumption is difficult to quantify and will
vary considerably depending on the size of the retailer, their reliance on
income from tobacco products and their product mix. The significant lead
time before the commencement of most of the staged increases provides
retailers with an opportunity to adapt their business if required.
2.173 There will be no additional compliance costs arising for retailers
from the imposition of quotas. However, if their suppliers choose to
withhold supplies of tobacco products rather than pay duty on the excess
over the quota limit, there is a potential restriction on supply that may
have an opportunity cost attached to it through an imbalance between
supply availability and customer demand.
Importers
2.174 Importers are required to pay excise equivalent customs duties.
The ACBPS advises of the changes in rates by way of the publication of
an Australian Customs and Border Protection Notice and advice on the
ACBPS website via the ICS message facility for customs brokers and
agents. Importers will need to change their price lists and make
adjustments to their computer systems. It is expected that compliance
126 IBISWorld Going up in smoke: Demand suffers due to government reforms and health
consciousness IBISWorld Industry Report F3606b Tobacco Product Wholesaling in
Australia August 2013 p13,14.
127 ibid. p.5.
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costs of these changes will be minimal with any additional costs arising
only from the 1 December 2013 increase as it was additional to bi-annual
indexation increases.
Duty free shops / providores
2.175 There are a number of duty free shops / providores in Australia
that are required to pay duty on tobacco in certain circumstances, for
example when goods are not exported. These businesses are informed of
excise increases by the ATO and, apart from being aware of the changes,
are not expected to experience additional compliance costs resulting from
the 1 December 2013 excise increase.
Business Cost Calculator
2.176 Table 2.10 below sets out the estimated additional compliance
costs for business arising from the changes in the indexation factor from
CPI to AWOTE and the four staged increases. As outlined above, the
only entities that may incur increased compliance costs are the three major
tobacco companies, British American Tobacco, Philip Morris and
Imperial Tobacco.
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Table 2.11: Regulatory Burden and Cost Offset (RBCO) Estimate
Average Annual Compliance Costs (from Business as usual)
Costs Business Community Individuals Total Cost
Organisations
Total by Sector $2,119.5 $ $ $2,119.5
Cost offset Business Community Individuals Total by
Organisations Source
Agency $2,119.5 $ $ $2,119.5
Within portfolio $ $ $ $
Outside portfolio $ $ $ $
Total by Sector $2,119.5 $ $ $2,119.5
Proposal is cost neutral? yes no
Proposal is deregulatory yes no
Balance of cost offsets ($127,749,637.08)
2.177 The costs in the above table have been calculated on the
assumption that two of the major tobacco companies incur transitional
costs for extra administration required as a result of four staged increases
with three of the companies incurring additional administrative costs as a
result of quotas being imposed during this period.
· One company stated positively that there are additional
compliance costs in managing price rises; another company
stated there are no additional costs; and the third company
did not respond to this consultation issue so it assumed that
additional costs are incurred.
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· One company indicated positively that the imposition of
quotas resulted in increased administrative costs while the
other two companies did not respond so it is assumed that
these companies incur additional costs from the
administration of quotas.
2.178 The compliance costs resulting from price increases are based on
30 additional hours of labour for technicians/clerical/administrative staff
assuming average earnings of $33.20 per hour and 5 additional hours for
management assuming average earnings of $41.60 per hour. For quotas,
the costs of administering quotas are based on 10 hours of labour for
clerical/administrative staff assuming average earnings of $30.40 per hour
and 10 additional hours for management assuming average earnings of
$41.60 per hour. A 16 per cent loading is added to take account of costs
such as superannuation. The costs are calculated over a 10 year period.
2.179 The regulatory costs are transitional, that is, the calculated
compliance costs take into account the additional hours required for the
four staged increases occurring on 1 December 2013, 1 September 2014,
1 September 2015 and 1 September 2016 where price rises are above
normal because of the 12.5 per cent price increase and AWOTE
indexation. It is assumed that there are no on-going compliance costs
after the last staged increase on 1 September 2016 after which prices
increases revert to bi-annual indexation. It assumes that quotas will not be
applied after the last staged increase on 1 September 2016.
2.180 A regulatory offset has been identified from within the Treasury
portfolio. This offset relates to the Future of Financial Advice (FOFA)
reforms.
Administrative impacts
2.181 The ATO and the ACBPS incurred one-off administrative costs
as a result of the measures. The costs arose as a result of the 1 December
2013 increase, which is outside the bi-annual indexation of tobacco
excise. The increase involved a change to ATO systems and
communications material as a result of the increase and notifying
manufacturers / duty-free shops / providores of the increase. The ACBPS
also had to change their systems and notify importers of the changes to
excise equivalent rates.
2.182 These costs are minimal as ATO and ACBPS systems already
make changes to excise rates as a result of the bi-annual increases. The
staged increases are one-off with excise increases reverting to bi-annual
increases after the final staged increase is made in December 2016.
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2.183 The ATO incurs some additional cost in its administration of
quotas. However, these are minimal and arise from monitoring market
behaviours, determining whether quotas should be imposed, preparation
of quota orders, settling variation requests and recovering additional
revenues where applicable.
Options-stage RIS
2.184 The agency has fully complied with the options-stage RIS
Does the options-stage RIS include a minimum of three elements --
the problem, objective and options? Yes
Does the options-stage RIS include at least three options (including a
regulatory option, a non-regulatory or light-handed regulatory option, and
a do-nothing option)? Yes
Has the options-stage RIS been certified at the secretary or deputy
secretary level and provided to the OBPR before consideration by the
decision-maker? Yes
Has the options-stage RIS been published following the public
announcement of an initial decision to regulate? Yes
Consultation
2.185 Following the announcement of the tobacco excise increases, the
tobacco excise measures, in particular, the staged increases received
strong support from the health sector. The tobacco industry raised
concerns about substitution with illegal tobacco and cheaper legal
products, while many smokers, as anticipated, demonstrated resistance to
the price increases.
2.186 A broader consultation was undertaken with a wider range of
stakeholders than was undertaken as part of the NPHS and NTS which is
summarised below.
2.187 Consultation was also undertaken with the tobacco industry and
retailers in relation to the change of the indexation factor from the CPI to
AWOTE and the four staged increases, the results of which are also
summarised below.
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Consultation under the NPHS
2.188 As outlined in paragraph 2.10 above, the NPHS was developed
by the National Preventative Health Taskforce (Taskforce) and released in
September 2009. The Taskforce recommended a sequence of increases in
tobacco excise on public health grounds with the aim of increasing the
price of cigarettes to $20 within three years.
2.189 The development of the NPHS took into account extensive
consultations from October 2008 to February 2009 with the public,
professional and consumer groups, and other interested stakeholders.
Feedback on the proposed excise increases indicated overall support for
the increases, particularly if they were complemented by a range of
tobacco control initiatives, including programs targeted towards smokers
from lower socio-economic backgrounds.
2.190 The feedback also suggested that the revenue raised from
tobacco excise should be re-directed towards other tobacco control
initiatives such as smoking cessation programs, tobacco control
prevention and research activities.
2.191 The Taskforce also received over 400 submissions from
interested individuals and organisations following the release of its
discussion paper -- Australia: the healthiest country by 2020, in
October 2008. The range of stakeholders who provided submissions
included the tobacco industry, tobacco retailers, smokers, non-smokers,
tobacco control advocates, researchers, and health consumer advocates.
The submissions received, combined with the consultations conducted,
were considered by the Taskforce and informed the development of the
NPHS, which was provided to the former Government on 30 June 2009.
Consultation conducted during the development of the NTS 2012-2018
2.192 The draft for consultation of the National Tobacco Strategy
(NTS) 2012-2018 was developed by the Intergovernmental Committee on
Drugs Standing Committee on Tobacco (Standing Committee). As noted
in paragraph 2.13, the draft for consultation included the priority action
area, 6.2 Continue to reduce the affordability of tobacco`.
2.193 At the 27 April 2012 meeting of the Standing Council on Health,
all Health Ministers approved the public release of the draft for
consultation of the NTS 2012-2018.
2.194 Public consultation on the draft for consultation of the
NTS 2012-2018 was conducted during June 2012 and included a national
call for written submissions, consultations with non-government
stakeholders with expertise in tobacco control, and consultations with
Aboriginal and Torres Strait Islander stakeholders with an interest in
tobacco control.
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2.195 Written submissions were received from academics, government
organisations, non-government organisations, Aboriginal and Torres Strait
Islander organisations, pharmaceutical and insurance organisations, retail
and hotel organisations, smokers and non-smokers, and the tobacco
industry and associated groups.
2.196 Feedback received on the draft for consultation of
NTS 2012-2018, in relation to priority action area 6.2, indicated that:
· the majority of stakeholders were supportive of further
proposed tobacco excise increases;
· many stakeholders agreed that further tobacco excise
increases are the most reliable way to accelerate declines in
national smoking rates, notwithstanding the importance of a
range of tobacco initiatives to support specific population
subgroups;
· some stakeholders opposed further proposed excise
increases. These stakeholders suggested that further tobacco
excise increases would increase the demand for cheaper
tobacco alternatives and illicit tobacco.
2.197 The Standing Committee considered the views of stakeholders
obtained during the public consultation on the draft for consultation prior
to revising and finalising NTS 2012-2018. The final NTS 2012-2018,
endorsed by all Health Ministers on 9 November 2012, includes the
priority action area, 6.3 Continue to reduce the affordability of tobacco
products.`
2.198 The consultation processes for the NPHS and the
NTS 2012-2018 provided substantial opportunity for stakeholders to
provide input on the issue of tobacco excise increases. Conducting
additional consultation on the new tobacco excise increases is unlikely to
reveal additional views and would consequently be an inefficient use of
public resources.
2.199 In addition, stakeholders, including the tobacco industry and
smokers, have been aware that the former Government announced the
four staged tobacco excise increases and that the new Government
adopted this position publicly during the 2013 election. This has allowed
stakeholders three months lead time to express any concerns and views to
the Government and their political representatives, and to plan for the
excise increases.
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Consultation with licenced tobacco companies / distributors
2.200 Tobacco companies opposed the tobacco excise increases with
their main concern being that the excise increases would result in a
significant increase in the market for illegal products.
Growth in illicit tobacco
2.201 Tobacco companies submitted that tobacco excise increases
would lead to a shift to illicit tobacco.
2.202 The companies stated that following the 25 per cent increase in
tobacco excise tax on 30 April 2010, there was a marked consumer shift to
cheaper products or illicit products. However, impacts abated to some
degree with the return to twice-yearly, CPI-linked tobacco excise tax
increases in 2011-12. The tobacco companies anticipate that further
increases will again result in a growth in the illicit tobacco trade.
· One company claimed that the latest tobacco excise increases
will see illicit trade grow annually by 1.85 per cent, from
13.3 per cent (see KPMG report below) to 20.7 per cent
by 2017 as a consequence of the four staged increases.
2.203 Referring to historical trends, tobacco companies referred to
reports commissioned by the tobacco industry.
· The report by Roy Morgan Research and Deloitte128 indicated
a rise in illicit tobacco to 15.9 per cent as a result of the
25 per cent increase in April 2010 but this declined to
10.5 per cent in 2011 after a period of relative pricing
stability and seizures by Australian authorities.
· The report by KPMG129 whose methodological approach130
showed a significant increase in illicit tobacco consumption
in 2010 following the 25 per cent increase (from 9.1 per cent
in 2009 to 12.8 per cent in 2010) followed by a levelling off
or decline in 2011 and 2012. The report found that in the
twelve months to the end of June 2013, the level of illicit
consumption, represented $1.0 billion in foregone revenue
for the Government with consumption growing from
11.8 per cent to 13.3 per cent of total consumption.
128 Deloitte, Illicit trade of tobacco in Australia, February 2010, 2011,2012.
129 Illicit Tobacco in Australia -- 2013 Half Year Report, KPMG LLP October 2013.
130 KPMG report uses a wide range of data (including Nielsen, Euromonitor, Datamonitor,
Exchange of Sales) and methods of validation (including Roy Morgan Research consumer
survey, empty pack survey, rolling papers sales data, ACBPS seizures data and internal
company intelligence data).
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2.204 Tobacco companies submitted that ACBPS data supports their
claims of an increasing trend to illicit tobacco. ACBPS annual reports
show an increase in detections from 42 in 2009-10 to 55 in 2010-11 but a
decline to previous levels in 2011-12 with the number of detections of
illegal tobacco entering Australia in 2013 at its highest in seven years at
76 with the number of cigarettes seized and the potential duty being
evaded at record highs. 131 This occurred despite ACBPS staff reductions
and with less than 5 per cent of all sea cargo containers being inspected or
scanned in 2013.132 133
2.205 A tobacco company submitted that ACBPS annual reports
support that there was a marked increase in the amount of illegal tobacco
and cigarettes detected following from the 25 per cent increase in tobacco
excise in April 2010 and this could be attributed in part to the excise
increase. 134 135 It also noted an ACBPS Report that tobacco detections
have increased between 2007 and 2013, with tobacco seized doubling
over the period.136
2.206 A tobacco company submitted that the announcement by the
Trident Taskforce137 of the closure of one of the biggest organised illicit
tobacco importation syndicates in the country`s history demonstrates that
tobacco smuggling is a significant problem. In commenting on changes to
penalties for individuals and businesses involved in selling illicit tobacco,
tobacco companies noted that the Victorian Premier, Denis Napthine
acknowledged that higher taxes tempt people to use illegal tobacco.138
2.207 A tobacco company noted that ACBPS annual reports indicate
that Task Forces Polaris, Yelverton and Trident had been responsible for
the seizure of 249 tonnes of illicit tobacco and 92 million cigarettes for the
year up to May 2013, preventing the evasion of approximately
$140 million in tax revenue from those seizures alone.139
131 ACPBS Annual Reports 2009-10 to 2012-13.
132 http://www.liberal.org.au/latest-news/2013/06/22labour%E2%80%99s-attack-customs
-makes-it-vulnerable-organised-crime.
133 http://www.customs.gov.au/aboutus/annualreports/2013/p2c.html.
134 ACBPS 2009-10 to 2012-13 Annual Report.
135 Chris Johnson, Canberra Times, Tuesday 2 November 2010 p 3.
136 ACBPS Intelligence and Targeting Division, Border Targeting, Illicit Cigarette and
Tobacco Detection Summary January to June 2013 p 3.
137 Media Release, Trident Taskforce shuts down multi-million dollar tobacco importation
syndicate`, Australian Federal Police, 24 October 2013 --
http://www.afp.gov.au/media-centre/news/afp/2013/october/media-release-trident-taskforc
e-shuts-down-multi-million-dollar-tobacco-importation-syndicate.aspx.
138 Radio interview, 3AW Melbourne, hosted by Neil Mitchell, 16 January 2014.
139 http://www.customs.gov.au/webdata/resources/files/ACBPSAnnualReport2012-13.pdf.
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2.208 The tobacco company noted that seizure statistics cannot do
more than represent a percentage of the illicit goods smuggled into a
country...`.140 It stated that ACBPS only searches a proportion of
containers that arrive in Australia with reports suggesting fewer than
1 per cent of shipping containers being inspected by ACBPS.141 The
company also noted media and other reports of bribery and corruption
within Commonwealth agencies that included offences related to imports
of border controlled precursors.
2.209 In its analysis, the tobacco company estimated that the illicit
tobacco trade will increase to almost 21 per cent by 2017 as a result of the
four successive 12.5 per cent excise increases. The growth in this trade
will represent approximately $2 billion in lost revenue by 2017 to the
Government and profit to organised crime groups. The $5.3 billion
revenue target will not be met, only delivering an additional $1.42 billion
over 4 years.
· The company submitted that there is an optimal rate of excise
which once exceeded, will result in a decrease in government
revenue. It submitted that under an analysis the optimum
scenario is a one-off 12.5 per cent excise increase followed
by AWOTE increases.
2.210 The company provided examples of other countries such as
Malaysia, Ireland, Singapore and Sweden where excise rates have been
frozen and even reduced as a result of smokers` reactions to substantial
excise increases. These countries experienced reduced revenue as a result
of reduced licit consumption because of diversion of demand to the illicit
tobacco market.
2.211 The tobacco company noted that Australia has significantly
higher cigarette prices than surrounding markets in Asia.142 This large
price variation necessarily creates an incentive and opportunity for those
involved in illicit trade.
2.212 The company also noted that recent seizures of illicit cigarettes
in Australia demonstrate how the Singapore Port and Free Trade Zones
are abused in order to facilitate the smuggling of cigarettes.143 Cigarettes
brought into the Port of Singapore from other countries are stored in a
Licenced Warehouse where they are prepared for export. In order to
140 International Tax and Investment Center (ITIC), The Illicit Trade in Tobacco Products and
How to Tackle It 2nd edition, p.9
141 http://www.smh.com.au/national/unchecked-cargo-stirs-fears-20111231-1pg9z.html.
142 KPMG, Illicit Tobacco in Australia, 2013 Half Year Report, October 2013.
143 ITIC, 2nd edition op cit.
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avoid detection upon arrival in Australia, the cigarettes are shipped under
false or mis-declared Bills of Lading that are only required to be
submitted once the vessel containing the cigarettes has departed
Singapore. This makes identification of the true nature of the cargo of
illicit cigarettes and the intended destination extremely difficult.
2.213 The tobacco company also noted that counterfeit and other
forms of illegal tobacco products are not part of the legal supply chain.
As a result, counterfeit producers and retailers are not accountable for the
product they sell, who they sell it to, or to the Governments for taxes that
should be paid.
2.214 Furthermore, it referred to a report by the Centre for Public
Integrity which states Tests reveal that counterfeit cigarettes carry a bevy
of products that could further shorten even a heavy smoker`s life: metals
such as cadmium, pesticides, arsenic, rat poison and human faeces.`144
Consumers will move to cheaper / illicit products
2.215 Tobacco companies submitted that the tobacco excise increases
will result in a shift by consumers to cheaper products including illicit
tobacco, which will go against Government public health objectives.
2.216 One tobacco company submitted that this may unfairly impact
on lower-income groups. One tobacco company noted that research
commissioned by ASH in the UK found that one in four low income
smokers buy illicit tobacco compared to one in eight of the most affluent.
Low income smokers are more likely to be tempted by cheaper prices, and
access to illicit tobacco undermines efforts to quit smoking, exacerbating
health inequalities.145
2.217 The tobacco company also noted the November 2011
Roy Morgan Research Tobacco Usage Study which identified that a key
reason for the purchasing decisions of illicit tobacco by consumers was
price. Currently the price of illicit products sits at least 30-50 per cent
below the lowest end of the legal market. The company provided
examples of overseas markets which demonstrate the role that an
affordable legal duty-paid product can have as a buffer to cheap illicit
cigarettes (Hungary and Germany). The tobacco company noted that once
consumers have a regular source of supply of illicit tobacco products it
becomes extremely difficult to get them to return to purchasing legal
tax-paid products.146
144 The Centre for Public Integrity Tobacco Underground by Marina Walker Guevara
(19 October 2008).
145 ASH factsheet on illicit trade (http://ash.org.uk/files/documents/ASH 122.pdf.
146 ITIC, 2nd edition, op. cit.
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2.218 One tobacco company stated that its sales data following the
April 2010 25 per cent excise increase supports that further excise
increases could create an increase in sales of cheaper brands and
RYO tobacco. The share of market held by low-priced brands increased
from 13.2 per cent in 2009 to 42.4 per cent in 2013.
2.219 The excessive excise tax increase in 2010 accelerated this
growth in the consumption of low cost and super low cost brands to
24.9 per cent in 2010, 28.9 per cent in 2011 and 31.1 per cent in 2012.147
2.220 The tobacco company advised that as at 1 December 2013, there
was a 20.7 per cent price gap between the RRP of Marlboro 25`s
(premium priced brand) and the RRP of an equivalent pack size in a
leading low-cost brand, JPS which amounts to a $4.30 price gap
per pack.148
2.221 The 2010 25 per cent excise increase also accelerated a
consumer shift from cigarettes to roll your own RYO tobacco. In 2010
there was a 3.2 per cent increase in the RYO segment over the course of
the year. The upward trend in the RYO segment was particularly evident
in the second half of 2010, where the average increase between July and
December was 4.2 per cent. Although the trend did not continue in 2011,
the volume gained during 2010 was retained within RYO and the segment
was flat versus during 2010. RYO now accounts for 14.2 per cent of the
overall legal market.
2.222 The tobacco company expects that each 12.5 per cent excise
increase will further accelerate the consumer shift to lower-priced
cigarette brands and segments, legal and illegal.
Price increases
2.223 One tobacco company stated although the time to adjust final
prices takes two to three days, additional complexities mean a greater time
lag between when excise rates are changed and when final prices are
locked in at a retail level. Therefore, the main compliance cost with
excise price changes is not adjusting the prices themselves, but rather the
process leading to final prices.
2.224 Once excise changes are enacted, manufacturers go through a
process of determining their own prices for all products. This process
involves a period of between a few days to several weeks where
manufacturers adjust their prices several times to ensure their products are
competitively priced. This process is more pronounced when the excise
increases are of higher magnitudes.
147 Infoview Industry Exchange.
148 ibid.
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2.225 However, because of retailer deadlines (and the time it takes for
changes to be made via complex retailer pricing systems), this can lead to
retailers holding retail prices down and passing the differential costs of the
new excise rate on to manufacturers (which can be significant) until all
manufacturer prices are finalised.
2.226 Consequently, larger excise increases will mean more intensive
activity (adjusting prices) and the risk of exposure to retailer penalties
from these adjustments. This may result in significant costs to tobacco
companies to comply with these new excise changes in a competitive
environment.
2.227 The tobacco company submitted that there is no benefit to be
gained from significant lead times to the 12.5 staged increases and the
change to AWOTE indexation. This is because there is no consistent
increase in AWOTE levels, nor can they be reliably forecasted. As a
general practice, CPI in the past has only been released 1 week prior to an
excise increase and it expects AWOTE to be similar in its timing.
Accordingly the long lead time gives no certainty to manufacturers in
relation to pricing.
2.228 Another tobacco company stated that it is well practiced at
administering the twice-yearly, CPI-linked excise increases. It is well
placed to issue and implement new price lists and it has a sense of the
rate of increase of the CPI on 1 February and 1 August and have up to
five working days` notice on the actual rate of CPI before it is
implemented. The shift to AWOTE indexation implemented on 1 March
and 1 September is not expected to negatively impact this.
Quotas
2.229 One tobacco company submitted that there are more than
minimal costs to ensure that they operate within quotas. That is,
manufacturers must restrict volume to customers to operate within the
quota limits resulting in potential loss sales. In addition, significant
management time is required to manage distribution, demand, forecasting
and equitably manage the supply of stock between retailers over this
period.
2.230 If the manufacturer adopts the option of paying duty on the
excess over the duty, because no retailer wants to be disadvantaged if
manufacturers run out of stock under the quota, retailers may engage in
speculative buying at the same time that manufacturers are looking to
avoid exceeding the quota.
2.231 Speculative behaviour from retailers (and resulting impacts on
manufacturer stock levels and associated costs) is likely to be even greater
than current levels because of the forward notice of the significant but not
finally quantified excise increases.
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Customs Tariff Amendment (Tobacco) Bill 2014
2.232 Other companies did not comment on the compliance costs
associated with the administration of quotas.
Changing business strategies to respond to price increases
2.233 One tobacco company stated that it strongly believes that the
significant increases in tobacco excise will have a significant effect on
business decision-making by the industry.
2.234 The company notified that the cheap segment has grown more
than 5 times from 3.7 per cent of the market in June 2008 to be
22.1 per cent of the total legal cigarette market in October 2013. It has
overtaken the premium segment and at this rate will shortly become the
second largest segment, where four years ago it was a distant fourth.149
2.235 Not only has the volume in this segment grown over time, but
there have been a number of new products launched into the Cheap
segment since the ad hoc excise (for example, Just Smokes and
Bonds Street) while others have been repositioned in price to compete in
this segment (for example, Brandon has now become part of the JPS
brand).
2.236 It is therefore clear that industry business strategies have been
impacted in the past by excise increases, and going on these trends, will
continue to be impacted further by the future excise increases. This will
result in a greater amount of cheaper products being available to
consumers.
2.237 By way of example, the tobacco company anticipates a
significant increase in the price of a packet of Winfield 25s (the most
popular brand in the market, that is, by around 52 per cent between
August 2013 and December 2016 which does not include any price
increase levied by manufacturers, wholesalers or retailers as a result of
increased cost of sales. This increase will impact on consumer behaviour,
meaning that tobacco businesses may adjust towards the cheap segment of
the market.
Inflation
2.238 One tobacco company was concerned with the contribution of
the staged increases on inflationary pressures. It stated that the first
12.5 per cent implemented on 1 December has already contributed to
inflationary pressures.
149 Source: Neilson Australia -- BATA Tobacco Industry Database.
78
Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.239 The CPI rose 0.8 per cent in the December quarter with tobacco
price rises listed among the most significant price rises.
2.240 The ABS stated in a media release that tobacco prices rose
primarily due to the effects of the federal excise tax increase from
1 December 2013 and a flow on effect from the indexed rise in the excise
in August.`150 This was also supported by a separate forecast, the TD
Securities -Melbourne Institute Inflation Gauge was referred to by
Ivan Colhoun, Chief Economist at ANZ who said the 1 December tobacco
excise increase had contributed to the unusual rise in the Gauge`s inflation
forecast.151 152
2.241 The April 2010 25 per cent excise increase was also a key
contributor to inflationary pressure, but abated alongside the
Government`s return to the practice of twice-yearly, CPI-linked tobacco
excise tax increases in 2011 and 2012.153
2.242 The tobacco company stated that previous CPI-linked tobacco
excise tax increases had neutralised the inflationary pressure but increases
above inflation, naturally, increase the national inflation rate and this will
likely be the case for each of the next three scheduled 12.5 per cent excise
increases, as well as the move to index tobacco excise to AWOTE.
2.243 The tobacco company referred to a paper by Professor Sinclair
Davidson, Professor of Institutional Economics at RMIT University which
considered the interaction between tobacco excise and the CPI. The paper
states the interaction is not trivial and imposes higher prices and costs on
all Australians whether they consume tobacco or not. It also results in
higher welfare expenditure in the order of $2.4 billion over four years just
to maintain the real value of welfare spending.154
150 Media Release, ABS CPI December quarter rises 0.8 per cent, Australian Bureau of
Statistics, 22 January 2014.
151 TD Securities Press Release, TS Securities -- Melbourne Institute Monthly Inflation
Gauge December 2013,` 20 January 2014.
152 Afternoon Live, ABC News 24, 20 January 2014.
153 Refer to ABS webpage for more information:
http://www.abs.gov.au/AISSTATS/abs@nsf/second+level+view?ReadForm&prodno=640
1.0&viewtitle=Consumer%20Price%20Index,%20Australia~Jun%202011~Previous~27/0
7/2011&&tabname=Past%20Future%20Issues&prodno=6401.0&issue=Jun%202011&nu
m=&view=&.
154 The Inflationary Impact of Tobacco Excise`, Professor Sinclair Davidson, RMIT
University, September 2013
http://catallaxyfiles.com/files/2013/09/The-inflatonary-Impact-of-Tobacco-Excise.pdf.
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Customs Tariff Amendment (Tobacco) Bill 2014
2.244 The tobacco company responded to suggestions that the
inflationary impact of tobacco increases be tackled by removing tobacco
from the CPI. It submitted that this would be misleading to consumers
and voters who would by impacted by the tax increase and turn the CPI
into a political instrument.
Consultation with retailers
2.245 Consultation took place with two major retailers (Coles and
Woolworths) and industry associations representing retailers including the
Alliance of Australian Retailers Pty Ltd (and its member associations
comprising Australian Newsagents` Federation Ltd, National Independent
Retailers Association and the Service Station Association Pty Ltd), the
Australasian Association of Convenience Stores Limited and the
Australian Retailers Association.
Large Retailers
2.246 Large retailers have advised that they do not anticipate any
additional compliance costs as a result of the price rises and that the lead
time has been sufficient to prepare the business and to advise the customer
base of the changes.
2.247 For quotas, the retailers did not advise of additional compliance
costs but one major retailer recommended that the quota system operate
on a like to like, year on year basis. This will give a more accurate
indication of stock levels and enable retailers to operate more in line with
their set quotas.
Other retailers
2.248 One industry association strongly opposed the four staged
12.5 per cent excise increases because of the unfair impact on small
retailers and because the measures have not been proven to improve
public health but only exacerbate the increasing trade in illegal tobacco
and shift business to large supermarkets which have greater pricing
flexibility.
2.249 The association submitted that small businesses are already
under increasing pressure in the current economic environment and they
are also having to deal with excessive tobacco regulation. It raised the
same issues with the shift to illegal tobacco as provided by the tobacco
companies further stating that tobacco is an important category for many
small businesses who are already facing pressures from larger chains. The
shift to large retailers or to the illegal black market will further damage
corner shops and service station convenience stores, as well as jobs and
income for thousands of Australian families.
80
Regulation impact statement: tobacco excise and excise equivalent customs duty:
staged increases and change from CPI to AWOTE
2.250 The association submitted that the tobacco excise increases will
also act as a factor for an increase in the theft of tobacco products. Since
the last tobacco excise increase in April 2010, small retailers reported an
increase in robberies, theft and damages to premises.
2.251 The association further submitted that the 2010 25 per cent
tobacco excise increase had a considerable impact on small business; the
illegal trade increased significantly and there was a shift in business away
from small retailers to the larger chains with greater pricing flexibility.
2.252 One retail association stated that the excise increases have
affected business decision-making for the retail industry. This has been
reflected by the launching of several new brands in the cheap` segment as
well as brands being price repositioned into this segment.
2.253 The association further added that the two measures will
continue to create significant distortion in business decision-making as
these additional increases to already high tobacco prices will have a
compounding effect on retail prices for consumers and retailers.
2.254 Another retail association raised the following additional
concerns with the tobacco price increases:
· greater taxes push up the prices which impact retailers`
stockholding costs and potentially insurance costs;
· higher costs impact on and unfairly target consumers who
choose to smoke and buy their products legally;
· higher tobacco taxes could force smokers to reduce
consumption of other goods to maintain the same level of
cigarette consumption which may impact diverse retailers;
· severe sales reductions could affect retailer viability causing
stores to close and losses of employment placing more strain
on social security;
· retailers, particularly small businesses, catering to lower
socio economic customers may be unfairly disadvantaged as
these customers may seek cheaper alternatives such as illegal
tobacco or they may switch to buying from supermarkets
instead; and
· price discounting for tobacco may be necessary by retailers
to maintain sales volumes, but their profitability may be
adversely impacted.
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Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
Conclusion and recommended option
2.255 The implementation of the tobacco measures will meet
the Government`s commitment given both before and after the
2013 election to implement the two tobacco excise measures announced
by the former Government.
2.256 The measures will result in transitional compliance costs for
major tobacco companies which result from making adjustments to prices
and administering quotas that result from the four staged increases.
2.257 The two measures progress:
· the recommendations of the National Preventative Health
Strategy Report which recommended the staged increases
with the aim of increasing the price of a pack of cigarettes to
$20 within three years;
· the commitment by Commonwealth and state and territory
governments to reduce the adult daily smoking rate to
10 per cent of the population, and halving the rate of smoking
among Aboriginal and Torres Strait Islander people by 2018;
and
· priority area 6 of the National Tobacco Strategy 2012-18 to
continue to implement regular staged increases in tobacco
excise as appropriate, to reduce demand for tobacco`.
Implementation and Review
2.258 Changes to the rates of excise and excise equivalent customs
duty and indexation method for the rates of duty can be achieved through
amendments to the Excise Tariff Act 1921 and the Customs Tariff
Act 1995.
2.259 To allow the ATO and ACBPS to begin collecting the additional
duty on and from 1 December 2013, the increases were initiated using
excise and customs tariff proposals.
2.260 The tariff proposals were published by way of Gazette Notices
on 29 November 2013. The tariff proposals were tabled in the
House of Representatives on 10 December 2013, that is, within the
required seven sitting days of the Gazette Notice being published.
82
Index
Schedule 1: Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
Bill reference Paragraph number
Items 1 to 3 of the Excise Bill, Schedule (cells at subitems 5.1 and 1.16
5.5, column headed Rate of Duty`) to the ETA 1921; Schedule 1,
items 1 to 72 of the Customs Bill, Schedule 3 (subheadings
2401.10.00, 2401.20.00, 2401.30.00, 2402.10.20, 2402.10.80,
2402.20.20, 2402.20.80, 2403.11.00, 2403.19.10, 2403.19.90,
2403.91.00 and 2403.99.80, the rates of duty in column 3), Schedule
5 (cells at table items 43A, 44 to 51, 51A, 52 and 54, column 3),
Schedule 6 (cells at table items 46A, 47 to 54, 54A, 55 and 57,
column 3), Schedule 7 (cells at table items 46 to 54A, 55 and 56
column 3), Schedule 8 (cells at table items 52 to 60, 60A, 61 and 62,
column 3) and Schedule 9 (cells at table items 50 to 61, column 3) to
the CTA 1995
Items 3 and 4 of the Excise Bill, subsection 6AA(10) of the 1.37
ETA 1921; Schedule 1, items 73 and 75 of the Customs Bill,
subsection 19AB(10) of the CTA 1995
Item 4 of the Excise Bill, subsection 6AA(1) of the ETA 1921; 1.21
Schedule 1, item 75 of the Customs Bill, subsection 19AB(1) of the
CTA 1995
Item 4 of the Excise Bill, subsection 6AA(1) of the ETA 1921; 1.15
Schedule 1, item 75 of the Customs Bill, section 19AC of the
CTA 1995
Item 4 of the Excise Bill, subsections 6AA(1), (5) and (6) of the 1.25
ETA 1921; Schedule 1, item 75 of the Customs Bill,
subsections 19AB(1), (5) and (6) of the CTA 1995
Item 4 of the Excise Bill, subsections 6AA(1) and (6) of the 1.17
ETA 1921; Schedule 1, item 75 of the Customs Bill,
subsections 19AB(1) and (6) of the CTA 1995
Item 4 of the Excise Bill, subsections 6AA(1), (6) and (7) of the 1.28
ETA 1921; Schedule 1, item 75 of the Customs Bill, subsections
19AB(1), (6) and (7) of the CTA 1995
Item 4 of the Excise Bill, subsections 6AA(2) and (8) of the ETA 1.22
1921; Schedule 1, item 75 of the Customs Bill, subsections 19AB(2)
and (8) of the CTA 1995
Item 4 of the Excise Bill, subsections 6AA(3) and (12) of the 1.23
ETA 1921; Schedule 1, item 75 of the Customs Bill,
subsections 19AB(3) and (12) of the CTA 1995
83
Excise Tariff Amendment (Tobacco) Bill 2014
Customs Tariff Amendment (Tobacco) Bill 2014
Bill reference Paragraph number
Item 4 of the Excise Bill, subsections 6AA(4) and (12) of the 1.24
ETA 1921; Schedule 1, item 75 of the Customs Bill,
subsections 19AB(4) and (12) of the CTA 1995
Item 4 of the Excise Bill, subsection 6AA(7) of the ETA 1921; 1.27
Schedule 1, item 75 of the Customs Bill, subsection 19AB(7) of the
CTA 1995
Item 4 of the Excise Bill, subsection 6AA(9) of the ETA 1921; 1.26
Schedule 1, item 75 of the Customs Bill, subsection 19AB(9) of the
CTA 1995
Item 4 of the Excise Bill, subsection 6AA(11) of the ETA 1921; 1.29
Schedule 1, item 75 of the Customs Bill, subsection 19AB(11) of the
CTA 1995
Item 4 of the Excise Bill, subsection 6AA(12) of the ETA 1921; 1.19, 1.20
Schedule 1, item 75 of the Customs Bill, subsection 19AB(12) of the
CTA 1995
Item 4 of the Excise Bill, section 6A of the ETA 1921 1.31, 1.33
Item 5 of the Excise Bill; Schedule 1, item 76 of the Customs Bill 1.36
Items 6 to 12 of the Excise Bill, subsection 3(1) (definition of index 1.34
number`), subsection 5(1) (note), Schedule (note 2 to Schedule
heading and table heading) to the ETA 1921; Schedule 1, item 74,
subsection 3(1) (definition of excise item`)
Item 75 of the Customs Bill, sections 19, 19AA, 19AB and 19AC of 1.32
the CTA 1995
84