Australia - illicit cigarette trade increase since federal tax inrease in April 2010..

March 1, 2011 - Illicit trade of cigarettes in Australia has soared 25 per cent since the federal government last year moved to increase tax on cigarettes sharply and promised to bring in mandatory plain packaging, one of the world's most powerful tobacco company executives has claimed.

Background:
April 29, 2010 - Tobacco tax increase - April 29, 2010 - the 25 percent increase was announced by then Prime Minister Kevin Rudd and put into force overnight on the same day (adding about $2.16 to a pack of 30 cigarettes). According to Maurice Swanson, tobacco control spokesperson for the Heart Foundation, the tobacco tax had not been increased in real terms for a decade. There are now even calls to further increase the tobacco tax. (Australia - tobacco tax increase results in more people quitting..

Australia - tobacco tax increase now in force, next comes plain tobacco packaging..

Directly related news brief:
Australia - tobacco tax increase results in more people quitting..

"The big concern is illicit trade," New York-based Louis Camilleri, chairman and chief executive of Philip Morris International, said. "Since the tax increase last summer [April], illicit trade has increased by 25 per cent in Australia."

The alleged rise in cigarette smuggling poses a direct threat to the government's revenue base, with the Australian Taxation Office collecting nearly $6 billion a year in tobacco excise and duties. Budget papers have forecast that last April's decision to hit smokers with an immediate tax rise of 25 per cent would deliver an extra $5 billion in tax revenue over five years. Those extra taxes were earmarked to support the National Health and Hospitals Network Fund.

It is believed a grouping of US and British tobacco companies, with operations in Australia, is set to release as early as today an independent report that will show a clear link between the decision to increase tobacco taxes in April and a rise in smuggling and counterfeiting by criminals.

Tobacco companies also claim that plain packaging will make it easier for counterfeiters to pass their packets as legal product. Plain packaging legislation is expected before Parliament this year and to come into affect on January 1, 2012.

Question: (PMI - q4 2010 business results..)
And then lastly, could you update us on the status of plain packaging in Australia? And then also your view on the plain packaging discussions underway in the UK and European Union?

Louie Camilleri

Yes. It appears that the Australian government remains intent on pursuing legislation calling for plain packaging. We’ll see what happens. My guess is we’ll know a lot more by this summer, but there certainly seems to be a strong intent to pursue it. It sort of defies logic, because I don’t think that it will affect consumption levels in any way.

Furthermore, the big concern is illicit trade, which since the tax increase last summer illicit trade has increased by 25% in Australia. So, I’m hopeful that the government is looking at that very closely, because plain packaging will certainly not address that issue and will not address smoking incidence or smoking prevalence.

The U.K., I said that, they would study it, but that they would have to have clear unequivocal evidence that it would in fact address smoking prevalence or incidence and that they would have to look at very carefully. Legal ramifications of such a measure with regard to constitutional issues as well as IP issues also related to trade issues in the trade agreements and the intellectual property protection that comes with those trade agreements, so, the UK is looking at it very sensibly.

In the EU, DG SANCO, the Health Commission as it were, has started a revision of the tobacco product directive, and is looking at host slew of measures. That’s probably a three-year to five-year process. But as I said, I think plain packaging doesn’t make any sense and we’ll fight plain packaging in every way possible.

EU - proposing a full-scale ban on branded cigarettes..

Data published by the Australian Customs and Border Protection Service does show an increase in tobacco smuggling in 2009-10, a year that includes two months of the stiff rise in cigarette taxes. Detection of illicit tobacco totalled 310,707 kilograms last financial year, nearly double the 175,405 kilograms detected in 2008-09. More than 68.72 million cigarettes were detected, up from 50.177 million the year before.

Tim Wilson, director of the Institute of Public Affairs' free trade unit, said higher taxes would encourage criminal behaviour. "The more prices rise the greater there's a temptation for organised crimes to supply the market and for consumers to buy out of the black market, and in the process taxes to pay for the health consequences go out the window," he said.

Even the government's own adviser, Intellectual Property Australia, has warned against plain packaging's risk to increase counterfeit tobacco products entering Australia. "The government likes to argue they're leading the world by introducing plain packaging, but they seem oblivious to the serious legal risks from stripping trademarks when the UK, Canadian, New Zealand, Lithuanian and mid-1990s Australian government have rejected plain packaging on intellectual property grounds."

Fiona Sharkie, executive director of Quit Victoria, said a rise in illicit trade was expected when the tax was increased, but this would pale in comparison against the revenue raised. She said earlier figures on illicit trade in a report commissioned by the tobacco companies were strongly criticised and disputed at the time.

Reference: Illicit smokes up 25% since tax rise : tobacco boss, Eli Greenblat, The Sydney Morning Herald, 3/1/2011.