Set up as a tool to curb smoking rates in Australia, the tobacco excise is no longer working as intended and is having devastating effects on legitimate retailers, writes Theo Foukkare, CEO of the Australian Association of Convenience Stores (AACS).
Tobacco excise in Australia has been a tool used by the government to reduce smoking rates and raise revenue. Initially, this approach worked; however, in recent years, we have seen a flatlining of adult smokers, significant write downs in tobacco excise, and thousands of illegal operators seize the moment.
The time has now come to review its effectiveness and consider the broader implications it has on both the legal market and the explosive rise of illegal tobacco. The current excise policy is not only inadvertently fuelling the illegal tobacco trade but also placing immense pressure on legitimate retailers who play by the rules. Continuing to apply the same approach and expect a different outcome is pure insanity.
A comprehensive review of the excise is urgently required as a strategy to reduce demand for illegal products, protect the community from the crime associated with illegal tobacco sales, and protect the ongoing viability of retailers operating within the law, whilst keeping age restricted products out of the hands of children.
Since 2010, federal excise increases have driven the price of legal tobacco to exorbitant levels, making Australia the most expensive country in the world to purchase cigarettes. While the original intent behind these price hikes was to discourage smoking and improve public health outcomes, this policy has led to an unintended and growing consequence: a booming illegal tobacco market and flatlining of smoking rates. The price disparity between legal and illicit tobacco has created one of the most attractive opportunities for criminal syndicates, who exploit the situation by selling significantly cheaper alternatives – up to three times cheaper.
For the convenience retail industry, this is not just a financial concern—it is a matter of fairness and ongoing community safety, given the more than 100 fire-bombings that have happened over the last 18 months. Legitimate retailers who comply with the strongest tobacco regulations in the world, who pay their taxes, and employ tens of thousands of Australians, simply cannot compete with illicit operators who face no such constraints or consequences.
These legitimate retailers, many of which are small family-owned businesses and serve as vital parts of their local communities, are being undercut by an illegal market that shows no signs of slowing down. Without intervention, these law-abiding retailers will continue to lose customers, income, and their livelihoods.
The revenue loss to the government is staggering – over $4.5 billion in lost excise annually. These funds could otherwise be invested in public services such as healthcare, education, and infrastructure. Instead, they are being siphoned off into the pockets of criminals that have no regard for the laws or the well-being of the Australian community.
The Federal Government must address this through an urgent review of the current tobacco excise policy. While the goal of reducing smoking prevalence remains valid, the approach must evolve. A more balanced and nuanced strategy is required – one that continues to discourage smoking but does so without fuelling the illegal market or punishing legitimate retailers.
This could involve exploring a freeze on excise increases or even considering excise reductions to bridge the large gap between legal and illegal products.
At the same time, a National Licensing and Enforcement framework with significant penalties is urgently required to put an end to the blame game between State and Federal governments.
By addressing both supply and demand, Australia can start to restore fairness to the market and ensure that legitimate retailers are not forced to pay the price for a policy that, while well intentioned, has had serious unintended consequences.
A review of the tobacco excise is not just about adjusting tax rates – it is about ensuring that we protect legitimate businesses, reduce the demand for illegal products, and protect communities. It is time for the government to act, protect our retailers, and send a clear message that illegal tobacco will not be tolerated.
This article was written by Theo Foukkare, CEO of AACS, and originally appeared in the October/November issue of Convenience and Impulse Retailing magazine.
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