A prominent Australian supermarket chain has issued a stark warning that up to 90 per cent of cigarettes could be sourced illegally within a few years unless the federal government takes decisive action to reduce the tobacco excise. Ritchies IGA, which operates 156 supermarkets across Victoria, New South Wales, and Queensland, argues that cutting the excise would not only repair the budget by billions of dollars but also undermine the operations of criminal gangs profiting from the illicit trade.
Plummeting Sales and Widening Price Gaps
Tobacco sales across Ritchies IGA's stores have seen a dramatic decline, plummeting from $300 million to just $60 million over the past four years. This sharp drop is attributed to the growing price disparity between legal and illicit tobacco products. An analysis conducted by Oxford Economics, commissioned by Ritchies, reveals that the widening price gap is the primary driver pushing consumers away from the legal market.
Economic Impact and Revenue Losses
Over the last decade, illicit cigarette prices have increased at a significantly slower rate compared to legal products, with annual rises of 3.8 per cent versus 11.3 per cent. This trend has caused the estimated price gap to expand from $11 to $47, making Australian cigarettes among the least affordable in the world. Consequently, excise revenue has declined sharply from a peak of $16.3 billion in 2019/20, with current Treasury estimates projecting only $5.5 billion for 2025/26.
Billions of dollars are being lost to the Australian economy through the illicit tobacco trade, exacerbating budget shortfalls. The forecast gap between the Commonwealth's expected tobacco excise collection in 2018/19 and the 2028/29 forecast now stands at a staggering $67 billion. Based on historical growth patterns of the illicit market, Oxford Economics anticipates that excise revenue for 2028/29 could be as low as $1.5 billion.
Proposed Solutions and Industry Support
Oxford Economics recommends slashing excise rates to their 2019 levels and then freezing them until the legal cigarette market stabilises. This measure would reduce the price of a legal packet of cigarettes by approximately one-third. The Australian Association of Convenience Stores has voiced its support for the excise cut, with CEO Theo Foukkare emphasising that while enforcement is crucial, it cannot succeed in isolation.
'The Prime Minister has a clear choice: a regulated market that pays tax and adheres to the law, or a market entirely controlled by organised crime. If we fail to act soon, that decision will be made for us,' Mr Foukkare stated.
Public Health Concerns and Government Response
However, tobacco control policy experts caution that reducing the excise to compete with illicit sellers may not address the underlying issues. Professor Becky Freeman from the University of Sydney's public health school argues that such a move could inadvertently make illicit tobacco even cheaper and potentially drive up smoking rates.
Prime Minister Anthony Albanese defended the current excise policy, highlighting its role in achieving historic low smoking rates. 'There are two key reasons behind this policy: it's not solely about revenue—it's also about sending a strong health message,' Albanese explained during an interview on ABC Radio. 'Regarding illegal tobacco, the taxes collected are being used to clamp down on illicit trade and the criminals involved.'
NSW Premier Chris Minns has urged the federal government to consider an excise cut in 2025, but Treasurer Jim Chalmers has firmly ruled out any such move, indicating a continued focus on enforcement and public health objectives.
