I too rise to make some contributions to this debate on the Excise Tariff Amendment (Tobacco) Bill 2016 and the Customs Tariff Amendment (Tobacco) Bill 2016. I wish to talk briefly about what the bills will do and, possibly more importantly, why the government is taking these steps. I would identify and congratulate the opposition: some of their policy positions have been very similar to this. Clearly, there is a bipartisan interest in supporting the health of Australians. I would like also to talk a little bit about what potential unintended consequences there could be and what measures the government is taking to make sure that they do not come into effect. They are things like the potential for increasing demand for and, therefore, trade in illicit tobacco and whether there are socio-economic impacts that are unfair or vary across our community.
I will start with what the Excise Tariff Amendment (Tobacco) Bill 2016 and the Customs Tariff Amendment (Tobacco) Bill 2016 will actually do. These bills, as previous speakers have highlighted, will increase the tobacco excise which is charged on domestic production and the equivalent customs duties charged on imports by way of four annual increases of 12.5 per cent a year from 2017 until 2020. It is not the first time this has happened; this legislation replicates the annual increases that were put in place from 2013 to 2016. In addition, the increases which were indexed to changes in the adult weekly average ordinary time earnings will continue, and the next increase under that scheme occurs in March of 2017. What that means is that from September this year, the excise and excise equivalent duty rates on tobacco are around $763 per kilogram of tobacco content. This equates to around $15 in excise on a pack of 25 cigarettes, which currently retails for approximately $25. Ignoring the biannual indexation, the 12 per cent increases will increase excise per pack of cigarettes by around $2 each year.
So that is broadly what the bill is seeking to do. Why? There are a number of reasons. Partly that Australia is linked in with what people like the World Health Organization are doing. As they look at the damage that tobacco causes to individuals and communities around the nation, they have set a target recommending that excise should account for nearly 70 per cent of the retail price of a packet of cigarettes. Achieving that has been somewhat problematic for Australia because, in the past, when excise has increased the facts indicate that companies tend to also increase their prices at the same time—I am assuming in an attempt to shift the blame for that price increase onto the government’s increase in excise as opposed to onto the fact that they are putting in an additional profit margin on top of that. So, because the price keeps going up in absolute terms, with retailers putting in extra margin, it is harder for us to reach that excise level of 70 per cent. But the target is there because of the damage that is done to health as a result of tobacco use.
The use of tobacco is one of the leading causes of preventable death and disease here in Australia. When I think back to when I first enlisted in the Army in the early 1980s, we were in an environment where it was accepted that the use of alcohol and tobacco was a commonplace part of work. That was common in the military college. But even when I first qualified as a military pilot, aircraft were still provided with ashtrays. In fact, I do recall flying once in an aircraft with another crew member who was a heavy smoker. We have two sets of rules in flying. One is visual flight rules, where you can see. One is called instrument flight rules, which is when you use your instruments because you are in cloud and when you look out the windscreen and all you can see is grey and cloud. On that particular flight I basically had to revert to instrument flight rules techniques even though it was a blue sky day, because the smoke was so thick in the cockpit that it was actually difficult to see outside and see the horizon. I recall that because of its impact on my flying, but as I look back now I wonder what the impact was on my health, as studies have shown the impact of passive smoking. So in my own professional career I have seen the dramatic change that tobacco control measures have made in terms of curtailing the acceptance of the use of tobacco in the workplace because of the damaging effect that it has.
Now ABS data indicates that daily smoking rates in 2014-15 have dropped to 14½ per cent amongst adults, compared to 16 per cent in 2011-12 and 22 per cent back in 2001. As I say, anecdotally, from my own experience, the numbers are far higher than that as you go back further in our history. I am very pleased to report now that not only is smoking banned in the back end of the Qantas planes and Virgin aircraft that we fly in regularly, but the crew also, even in military aircraft, no longer have the opportunity to smoke in that very confined workspace.
So these tobacco control measures that Australia has brought in over several decades now have a multifaceted approach, but they have been broadly effective in seeing that decline in the prevalence of national smoking rates. Those interventions have included things like the increases in excise, the education programs and the campaigns, and most recently—again, credit to the opposition—plain packaging, which has enabled the prevalence of the fairly graphic health warnings, as opposed to the slick marketing, to be the thing that people see when they look at cigarettes. Those measures and the prohibition on tobacco advertising and promotion, particularly around sports and things, all work together to see smoking reduce. This is because reducing that preventable disease and preventable early death is important. So that is why we have brought in this legislation, and we have talked about the controls.
The other thing that I think is important to consider with each piece of legislation is the unintended consequences that could occur. One of the objections that has been raised around this whole topic of indexation is the impact on people in lower socioeconomic groupings. There is data to indicate that many of them smoke. Therefore, the argument goes that the burden of these measures will fall more harshly on people in lower socioeconomic groupings.
I accept the fact that not everyone who smokes is necessarily going to be damaged by it. I have great memories as a young lad of being out in Kapunda, where my family were farmers, and sitting outside the kitchen window in the morning. The sun would come up, my grandfather would smoke his pipe and the magpies would be in the trees. They are really nice memories. He never suffered from cancer or any ill effects, but I have to say that, statistically, he is in the minority, as the vast majority of people do. And it has an impact not just on the individual—it has an impact on their family and on our society in terms of the cost burden of providing healthcare services to people who are struggling with cancer and the other problems that occur from smoking.
If we accept the fact that, as a society, these intervention measures are valid, warranted and desirable, then the impact on people in a lower socioeconomic grouping, in net terms, is positive. If something provides incentive for all of society to either not take up smoking or, indeed, to quit, then it will actually support people to make that decision earlier if their income is more limited. I do not say that from a position of being here in the parliament; I am referring here to studies, to journal articles from, for example, the Medical Journal of Australia. Dr Nathan Grills of the Nossal Institute for Global Health, based out of the University of Melbourne, has looked at excise and this aspect of the multifaceted intervention approach from a medical perspective. He specifically addresses the issue of people in lower income brackets, and the argument he puts forward is that tobacco excise is actually a pro-poor policy. Those are his words—that is the title of his article in the Medical Journal of Australia.
His reasoning goes that, because more poor people smoke, the ‘tax increase targets the poor, as they end up paying more tax’. He is saying that is a short-sighted analysis because it does not demonstrate a good understanding of tobacco control intervention based on strong evidence. He argues that, in reality, the policy actually benefits the poor far more than the rich because it is a progressive tax in terms of public health and long-term economic benefit. He says:
This tax will reduce the long-term financial losses and payments more in lower than in higher socio-economic groups, by reducing medical expenses and protecting livelihoods especially in poorer groups. Ultimately it saves more lives in lower SES groups than in higher SES groups.
Professor Ian Olver, the CEO of the Cancer Council, also addresses this point. He makes the argument that, whilst there is a view that increased tobacco excise punishes those on lower incomes, tobacco taxes are particularly effective in prompting people in lower socioeconomic groups to quit smoking. He says that this is very important, because disadvantaged groups bear a disproportionately heavy tobacco death and disease burden.
The argument that both of these groups put forward is that if we, as a society, accept that intervention is warranted because of the effect on health of the individual and the family, and the cost to community, then if we have a system whereby people on higher incomes can choose to pay if they want to and suffer those consequences, but people on a lower income have a greater incentive to not start or to give up smoking and therefore will receive the greater health benefits for them and the family benefits of retaining that person as a productive and healthy member of the workforce, then in net terms this is a policy that is slanted towards advantaging those in lower socioeconomic groups. Whilst I understand the argument that is put forward, I think it is fair to say that there is an equally strong argument that this does actually work to the benefit of people who currently suffer the greatest burden of health disease from tobacco.
The other unintended consequence that is raised by people who are concerned about the increase in excise is whether or not there will be more illicit tobacco coming into the country because of the high prices. There will be more reward and, therefore, incentive and opportunity. The primary responsibility for dealing with the illicit trade in tobacco rests with Border Protection and the Australian Taxation Office. What this government has done to try and make sure that we have the resources that are required at our borders in a range of areas, but particularly here in tobacco, is provide additional funding in the 2016-17 budget to deal with tobacco. So $7.7 million over two years, the 2016-17 and 2017-18 period, has been specifically provided to expand the department’s tobacco strike team. That will effectively triple the size of its workforce, allowing for three specialised investigative teams to work to detect, to disrupt and to deter the illicit trade in tobacco.
In this financial year to date the Australian Border Force has detected almost 30 tonnes in the equivalent weight of tobacco—tobacco leaf or cigarette sticks—and this equates to an evaded duty of nearly $20 million. Clearly there is already an illicit trade in existence, and we are putting resources in to make sure that we have effective measures to not allow that trade to increase but in fact to detect, to deter, to interrupt it and to close the trade down. But I would make the argument that, just because there is potential illegal activity, that should not deter us from taking steps that have the primary purpose of protecting people’s health.
Just as we have border control methods for other prohibited imports, whether they be weapons, narcotics or in this case tobacco, the fact that criminal elements may wish to seek to profit from people in Australia should not sway us from putting in place policies that achieve the long-term health benefits that we are looking towards. We will take the steps necessary, and the government has made the investments necessary, to combat things such as illicit tobacco imports. We will continue to do that with not only tobacco but other areas with border control. I think one of the strong achievements of this government since 2013—and it will continue under the government recently elected—is that we will continue to make the investments and have the strength of our policy positions and convictions so that the men and women who serve in our Border Force units, as well as the Defence Force, AFP and other police units who support them, can make sure that our borders are secure.
I have outlined what this bill will do in terms of the excise and imports. I have outlined why, and it is predominantly around health. These measures have proven, as I have seen in my own life experience from those early days in the military through to now, the significant impact they have had in Australia in terms of the prevalence of smoking. Given the impact on individuals, their families and the broader productive community, I support these measures. I believe we have taken the appropriate steps to make sure that any unintended consequences like illicit trade are dealt with. I do not support the argument that the burden falls unfairly on people in lower socioeconomic groups; in fact, as articles from the Medical Journal and the Cancer Council show, that group in our society in the medium to long term are actually the greatest beneficiaries of measures like this. I commend these measures to the Senate.