Ms FLINT (Boothby) (18:39): I am speaking on the Treasury Laws Amendment (Illicit Tobacco Offences) Bill 2018 today because I support reforms to the penalty and offence framework for illicit tobacco and our government's commitment to stopping the importation, possession, purchase, sale and production of illicit tobacco. This bill delivers on our 2016-17 budget commitment, and it will have a significant positive financial impact on revenue over the forward estimates.
The estimate just provided by my colleague the member for La Trobe, who gave an excellent speech on this issue —he is a former law enforcement officer himself, so he really understands the issues involved—of the impact on our budget bottom line was something in the order of $1.6 billion. So that's a very significant amount of money. Without the measures this bill introduces to stop the supply of illicit and illegal tobacco, the tobacco black market will continue to operate and potentially expand. Without this bill, the Australian Taxation Office and the Department of Home Affairs will continue to find it difficult to prosecute suppliers of illicit and illegal tobacco. The Black Economy Taskforce has recommended that measures be introduced to deal with this problem.
Otherwise, people dealing in the trade will have an unfair advantage over businesses that legally sell tobacco, such as our supermarkets, service stations, corner stores and hotels.
When we have a large illicit tobacco trade, we are also far less able to ascertain how many people are smoking, in what amounts and at what rates in our community. When we don't know this, how can we help people to quit? How can we identify where to target assistance and resources and which factors to look at that might be encouraging people to smoke cigarettes?
I support this bill for all the reasons I have just mentioned but also because we need to stand up for businesses that are obeying the law and selling tobacco products according to the law. We need to ensure that we do not continue to allow the illegal sale of tobacco to threaten our small, medium and even larger businesses that are losing revenue and downsizing their workforces, sometimes because of this.
I am a member of the Standing Committee on Tax and Revenue. The committee recently heard evidence from a range of business organisations on this very issue. We heard from Master Grocers Australia. Master Grocers Australia represents more than 2,500 independent supermarket and liquor retailers of all sizes employing more than 115,000 hardworking Australians. These businesses have a turnover of around $14.8 billion, so they are obviously very important to our economy. The chief executive officer of Master Grocers Australia, Mr Jos de Bruin, told our committee:
… we have had great concerns about the illicit and illegal tobacco market. At first we did not think much of it or hear much about it but over a period of time we started to get a lot of feedback, as an industry organisation, from various states that it was becoming an issue and it was having an effect on the sales of tobacco in our member stores. Like it or not, it is a legal product. We spend a lot of money to comply. We spend a lot of money to train people to serve tobacco and so the rigor is just endless.
We have had some of our members quote figures of losing 20 to 25 per cent of their measured weekly sales, not knowing where those sales have been lost, only to discover that it seems to be illicit tobacco, tobacco that was found to be sold on Facebook or some other social media form that they discovered was affecting their sales. The committee also heard alarming evidence about the rate of successful and attempted break-ins targeting tobacco products. The Australian Retailers Association estimated that their membership owned around 50,000 shopfronts and, of those shopfronts, around half stocked cigarettes and tobacco products. The Australian Retailers Association told the committee that, of the 25,000 or so shopfronts that stock tobacco products, almost all of
them had had an attempted break-in. In fact, break-ins are now reported to be so common amongst businesses that stock tobacco that they can no longer get insurance or are forced to hire security at their own cost. For a lot of small businesses obviously this just isn't an option.
This tells us that something has gone quite wrong with the sale of tobacco in Australia. Thanks to the work of the Black Economy Taskforce and the Standing Committee on Tax and Revenue, and thanks to the evidence provided by the peak industry associations and bodies who represent our retailers and businesses, and thanks to the information provided to them by hardworking Australians who are the owners and the staff who own and work in these businesses—and a lot of these businesses are small and medium retailers; they're often family owned businesses—we know that customers and consumers are turning to the black market, where cigarettes are so much cheaper that normally law-abiding citizens are willing to take the risk to purchase tobacco illegally.
We know that there should be, and there must be, a tax on cigarettes and on tobacco. The tax is designed to address the very well documented negative health impacts of tobacco. We know that we, as a government, must do everything to support people who use tobacco products, who smoke cigarettes and who want to quit. We know this is important for their health and for the health of our health system. Unfortunately, however, with the tax on this product it seems we have reached a tipping point where the rise in illegal and illicit tobacco sales is the unintended consequence of taxing tobacco at a rate that is now too high. I understand that in Australia now approximately 70 per cent of the cost of a packet of cigarettes is made up of tax. According to the Australian Taxation Office, cigarettes are subject to the twice-yearly excise increases on tobacco products. The increase is applied in March and September and is based on average weekly ordinary-time earnings. In addition, excise rates for tobacco will increase by 12½ per cent on 1 September this year and for a further two years until September 2020.
While this bill does obviously address the illicit and illegal tobacco market, we must also have a very careful look at the cause of this market. The current tax regime on tobacco products is not only making our campaign to address the very real health concerns and impacts less effective than it could be; it's hurting law-abiding Australian businesses and increasing costs that are ultimately borne by consumers. Mr de Bruin, the CEO of Master Grocers, told the tax and revenue committee:
We have an issue in regards to the fact that we are losing sales, and sales are what keep our doors open. It is a very low-margin items for us. It is high turnover and low margin. Grocery is a razor thin margin so to lose any percentage of sale on any product will affect our profitability and our ability to employ and to be sustainable. It's not just businesses that are suffering; it's also government. When people buy illegal or illicit tobacco, the federal government loses tax revenue, and, as I outlined earlier, the tax revenue that we are losing is significant. I believe that we all accept that tobacco products should be taxed and that this tax revenue helps to fund general revenue for spending on services, some of which include specific services related to tobacco and tobacco products, such as education and prevention campaigns. It also funds our health system for tobacco related health treatments. We are losing out on a very significant amount of tax revenue because we have reached the stage, as I said earlier, where the level of tax on tobacco has reached a tipping point.
We've reached the point where a large illicit and illegal tobacco market has been the unintended consequence of the level of taxation applied in this area. In closing, I would like to congratulate the minister on this bill. I support reforms to the penalty and offence framework for illicit tobacco and our government's commitment to stopping the importation, possession, purchase, sale and production of illicit tobacco. This bill delivers on our budget commitments and will have a significant positive financial impact on revenue over the forward estimates. Without the measures this bill introduces to stem the supply of illicit and illegal tobacco, the tobacco black market will continue to operate and potentially expand. We do not want this outcome. We want to know how many people are using tobacco so we can do everything that we, as a government, can to support people who want to quit. This bill will improve the health of Australians by reducing their exposure to tobacco products. It also helps to ensure that tobacco products
consumed domestically are fully taxed and comply with Australian regulations. This bill is important for the health of Australians and for the health of our health system.