Retailers huffing and puffing over government’s 12.5% hike for tobacco excise

The government’s push to increase the tobacco excise tax by 12.5% may help bring the budget back into balance, but industry groups are concerned about how the extra charges will impact retailers.

The Australian Retailers Association told SmartCompany this morning that while it doesn’t support the tobacco industry, the higher charges will impact independent retailers.

“If you look at a city like Los Angeles, it’s been shown that education is far better than actually continuing to raise taxes,” ARA executive director Russell Zimmerman says.

“I don’t know if there’s any proof that introducing taxes actually makes an impact on smoking rates.”

The Australian tobacco industry has been through some significant changes over the past few years. Retailers are now mandated to keep cigarettes behind closed doors, while branding has been entirely done away with in favour of plain packaging.

Earlier this year, the federal government changed the indexation of tobacco by tying it to weekly earnings. In 2010, tobacco excises were increased by 25%, which was budgeted to raise over $5 billion. The change was not welcomed, either by retailers or taxpayers.

In a statement released this morning, Federal Treasurer Chris Bowen said the government will introduce a 12.5% increase in tobacco excise over the next four years, in order to combat both smoking-related cancer and the budget shortfall.

“We know that increasing excise is the single most effective way for government to reduce premature death and disease due to smoking.  We expect it to be particularly effective in dropping the number of young people who smoke,” Bowen says.

The initiative will raise $5.3 billion over the next four years. The increases will commence on December 1, followed by increases in September of each year between 2014-16, along with increases under indexation arrangements.

The hikes are part of the government’s strategy to put the budget in surplus by 2016 – a commitment Prime Minister Kevin Rudd is adamant about fulfilling.

Zimmerman says the extra hikes should be considered in context – “tobacco is a legal product”.

“At the moment, tobacco is a legal product, and at the end of the day, this is going to hit on those who can least afford it.

“I want to make it clear we do support healthy lifestyles, and we all know cigarettes aren’t, but we think education will be a far better way to go about this than taxes.”