13.6 Revenue from tobacco taxes in Australia

Last updated: December 2016 

Suggested citation: Scollo, M, Bayly, M. 13.6 Revenue from tobacco taxes in Australia. In Scollo, MM and Winstanley, MH [editors]. Tobacco in Australia: Facts and issues. Melbourne: Cancer Council Victoria; 2016. Available from http://www.tobaccoinaustralia.org.au/chapter-13-taxation/13-6-revenue-from-tobacco-taxes-in-australia 

For most forms of taxation, revenue can be expected to increase over time due to increases in population and consequently the number of people from whom tax may be collected. As outlined in Section 13.1, smokers are only moderately price sensitive, and as outlined in Section 13.2 –duties have been indexed and duties and fees on tobacco products have been periodically increased over the past 30 years. The increasing number of potential smokers and increased level of tax might lead one to expect tobacco tax revenue to have risen significantly since the 1970s. However, offsetting the effects of population growth and increased tobacco taxes, population use of tobacco has been falling steadily since the 1980s due to the combined impact of increased costliness, awareness about health risks, declining social acceptability of smoking, campaigns encouraging quitting, improved treatments for tobacco dependence, and greatly reduced opportunities for smoking. This section examines the changes in revenue from tobacco products that result from the combined impact of increased population, increased tax rates and steadily falling consumption.

13.6.1 State revenue from tobacco products to June 2000


Over the late 1980s and early 1990s, licence fees on tobacco wholesalers or retailers were an increasingly important source of revenue for state and territory governments. Table 13.6.1 shows the revenue to each jurisdiction between 1974, when business franchise fees on tobacco were first introduced in Victoria, and 1997, when the fees were effectively invalidated by the High Court ruling (see Section 13.2.2 for a full explanation). It also shows revenue from 1997–98 to June 2000i from tobacco replacement fees. Tobacco replacement fees ended in July 2000 under the terms of the Intergovernmental Agreement on the Reform of Commonwealth–State Financial Relations1 that put into place the reforms to the tax system including the introduction of a goods and services tax (GST).2   


Table 13.6.1
Revenue collected from Australian state and territory tobacco licence fees, 1975 to 1997, and from tobacco replacement arrangements from 1997–98 to 1999–2000

Sources: Australian Tobacco Marketing Advisory Committee 1994,3 Appendix Q, to 1993–94; ABS 19974, p20-21; Victorian State Revenue Office, Compilations of state franchise fees on tobacco, all states and territories, electronic file provided to M Scollo, The Cancer Council Victoria August 19975; Costello 19986 and 1999,7 Table 8, Revenue replacement payments to the states; Costello 20008 Table 28, Revenue replacement payments to the states; Costello 20019 Table 28, Revenue replacement payments to the states and territories

* Current dollars: the price in the applicable year; no adjustment has been made for inflation

† Residual revenue that was received after the end of the 1999–2000 financial year

Between 1975 and 1997 revenue from state and territorial tobacco taxes increased (without adjustment for inflation) more than one thousand-fold from just under $2.5 million in 1975 to just over $2.85 billion in 1996–97. Revenue to states and territories peaked in 1999–2000. Between 1988–89 (by which time all jurisdictions had instituted fees) and 1999–2000 (at which time tobacco replacement payments were phased out) revenue to states and territories from this source increased by 500%, or by 350% in real terms.

13.6.2  Federal revenue from tobacco products to June 2012


As described in Section 13.2.1, the value in real terms of the federal duty payable on tobacco products remained fairly steady in the early part of the century but fell in the late 1970s and the early 1980s due to the effects of inflation. The value of the duty was restored with indexation in 1983 and once again remained steady until a series of increases in the early 1990s.

Table 13.6.2 shows the total revenue received by the federal government from excise duty on tobacco products for selected years until 1980 and then for every year until 2012, highlighting the change in tax arrangements from 2001. It shows the total revenue from excise duty collected in current dollars, and the same total expressed in constant 2012 dollars. 

Table 13.6.2 
Federal excise revenue on cigarettes, cigars, smoking tobacco, and other tobacco products, selected years 1965–80 to 1981–2012, Australia

Sources: Australian Tobacco Marketing Advisory Board 1994,3 Willis 1995,10 Australian Taxation Office 2006,11 201112 and Swan 201213

* Current rate: the rate in the applicable year; no adjustment has been made for inflation

† Expressed in 2012 dollars

‡ Listed as $6387 in the Final Budget Outcomes released six months earlier in October 2011

Note: Figures include only revenue from excise duty. Revenue from customs duty would have added a further 5% to 10% to these figures–for instance an extra $92 million in 1998–99—and increasing larger amounts since that time.

During the period of 1965–2000, when state and territory tobacco licensing fees were collected, total revenue increased in current dollars in every year apart from 1993, 1998–2000. In real terms, revenue fell between 1980 and 1986 and fluctuated between 1987 and 2000. Revenue from federal duty was highest in real and per capita terms in the mid-1970s, the period when smoking prevalence in Australia was at its highest (see Chapter 1). 

Excise revenue received from tobacco following the introduction of new tax arrangements implemented between November 1999 and February 2001 is set out in the second half of Table 13.6.2. Between 2001 and 2010, federal excise revenue on tobacco products increased by about 24% in current dollar terms, a real decline of just under 4%. The increase between 2001 and 2012 was 39%, an increase of 2% in real terms.

Figure 13.6.1 plots excise collected per person (Australians of all ages) in $2012 for every fifth year since 1965.

Figure 13.6.1 
Federal excise collected per person, 1965 to 2010, Australia 

 Sources: As for Table 13.6.1 and Australian Bureau of Statistics 201414 and 201615
 Note: Excise duty revenue expressed in constant 2012 dollars

Federal revenue paid per capita gradually declined in real terms until, by 1999–2000, it was just a little over half of what it had been at its peak in 1975. The large real reduction in per capita federal revenue between 1965 and 2000 resulted from an 85% increase in the population,16 and a 20% reduction in the total amount of tobacco consumed, but only a 40% real increase in the level of duty payable (see Section 13.1, Figure 13.1.2 ).

Customs revenue received on tobacco following the introduction of the 1999–2001 tax reforms is set out in Table 13.6.3. 

Table 13.6.3 
Annual customs revenue from tobacco products, Australia, 1999–2000 to 2010–11: cigarettes, cigars, other tobacco products and total 

Sources: Australian Bureau of Statistics unpublished data17 and ABS 2005,18  200719 and 201120

Notes: ABS reports drawn from data published in several sources including:

1233.0 – Australian Harmonized Export Commodity Classification (AHECC), Jan 2007
5368.0 – International Trade in Goods and Services, Australia
5372.0.55.001 – International Merchandise Trade: Confidential Commodities List
5439.0 – International Merchandise Imports, Australia
5487.0 – Information Paper: International Merchandise Trade Statistics, Australia: Data Confidentiality, 1999

5489.0 – International Merchandise Trade, Australia, Concepts, Sources and Methods, 2001
5498.0.55.001 – Information Paper: Ensuring International Trade Data Quality, 2008

* Current rate: the rate in the applicable year; no adjustment has been made for inflation 

Customs revenue has increased substantially since 1999 in line with increasing quantities cigarettes produced offshore since the merger of Rothmans Holdings and WD and HO Wills Holdings and the entry into the market of Imperial Tobacco, which does not operate production facilities in Australia (see Section 10.4.3).

13.6.3  Total federal and state revenue from tobacco products

Table 13.6.4 sets out total excise revenue from tobacco products combined with total revenue from state fees and tobacco replacement payments until 2000ii.

Table 13.6.4
Federal and state/territory revenue arising from excise duty, tobacco licensing fees, tobacco replacement fees and GST, 1974–75 to 1999–2000, Australia

Sources: Australian Tobacco Marketing Advisory Council 1994,3 Appendices O and Q; ABS 19974 and 200621 Table 4, 1999–2000, Table 5, 2000–01; Victorian Office of Revenue Compilations 1997;5 Willis 1998,10 6  (and Fahey) 1999,7 20008 and 2001;9 Australian Taxation Office 2007;22 Costello 200723

* Revenue from customs duty is not included in these figures.

† Current rate: the rate in the applicable year; no adjustment has been made for inflation

‡ The revenue going to state and territories between 1997–98 and 2000–01 is in the form of tobacco revenue replacement grants.

^ This figure is from the Final Budget Outcomes Statement. The figure listed in the ABS publication was $3217.0, possibly a transcription error.

 

From July 2001 under the new tax system tobacco replacement payments to states and territories ceased, and all federal excise duty on tobacco products was retained by the federal government. All revenue from the GST has been distributed to states in line with the terms of the Intergovernmental Agreement.1 Revenue from the GST on tobacco products is not reported separately from other GST revenue but can be calculated based on information about revenue from ABS estimates of household expenditure on tobacco. Estimated total revenue from the GST on tobacco products is also set out in Table 13.6.5. The proportion of revenue going to each state and territory is adjusted for various demographic and economic factors as per the Intergovernmental Agreement,1 spelled out in detail each year in Part IV of the Federal Financial Relations sections of Final Budget Outcome reports.20 iii   

Table 13.6.5

Annual revenue from tobacco products, Australia, 2000–01 to 2015–16: excise revenue, customs revenue and estimated GST revenue

Sources: Excise and customs revenue data to 2003 provided by email by the Australian Taxation Office to K Lindorff of The Cancer Council Victoria 200624; Australian Taxation Office 200722; Swan 201213,25;  Hockey 201426; Hockey 201527; Morrison 201628; GST revenue calculated from the value of retail sales of tobacco products, Australian Bureau of Statistics 2011 ABS 5206.0 Australian National Accounts, Private Final Consumption29

* Current rate: the rate in the applicable year; no adjustment has been made for inflation

† Expressed in 2012 dollars

‡ For 2001–11, revenue is a combination of excise and customs revenue from the Australian Taxation Office for cigarettes, cigars, smoking tobacco, and other tobacco products. For 2012–16, revenue is the total customs and excise duty reported in the Final Budget Outcome statements for each year (cash receipts). Final tobacco data was not provided for 2012–13 and was instead sourced from the mid-year economic and fiscal outlook.


Data on revenue from excise and customs duty are provided in Table 13.6.5 along with estimates of GST revenue from the sale of cigarettes and other tobacco products since 2000–01. This represents total tax revenue from sales of tobacco products in Australia for the 16 years to 2015–16. Total revenue in 2010 was marginally higher than it was in 2001 in real terms, representing an increase of about 1%. Revenue has increased by about 31% in real terms between 2001 and 2016, and by about 15% between 2011 and 2016.

Increases in state and territory licence fees resulted in considerable real increases in state and territory income from this source, in contrast to the much more limited growth in federal income—see Figure 13.6.2iv. Between 1984–85 and 1999–2000, revenue to the federal government almost doubled, but revenue to states and territories increased 10-fold. Following changes to the tax system, federal revenue increased four-fold in current dollar terms from 1999–2000 to 2014–15, while state/territory revenue more than halved.

Figure 13.6.2 
Federal and state/territory revenue in $million†: 1975 to 2010, Australia

Sources: As for tables 13.6.4 and 13.6.5
Notes: Federal data prior to 2000 is excise revenue only. Data for 2000, 2005 and 2010 includes revenue from customs duty. Customs duty prior to 2000 was very low.
† In current dollars, no adjustment has been made for inflation.
* Following the abolishment of state/territorial license fees, revenue calculated from GST on the value of retail sales of tobacco products for 2005 onwards.

 
 
Total revenue per capita (federal and state combined) in constant dollar terms is plotted in Figure 13.6.3. 

Figure 13.6.3
Total revenue from tobacco per capita (federal and state/territory combined): 1975 to 2015, Australia

Sources: As for tables 13.6.4 and 13.6.5
Note: Revenue expressed in 2012 dollars

 

As can be seen from Figure 13.6.3, in real terms total revenue per head of population increased sharply between 1990 and 1995 and continued to rise until 2005 so that per capita revenue was almost twice as high in 2005 as it was in 1990. Total revenue per head of population in 2010 was lower in real terms than it was in 2000 and 2005, but increased again in 2015. 

13.6.4 Revenue from tobacco taxes as a proportion of total government revenue

 

It is sometimes said that governments are reluctant to tackle tobacco use in the community because of reliance on income from tobacco taxes. Table 13.6.6 sets out revenue from tobacco products as a percentage of total government revenue in 1998–99 before reforms to the tax system, in 2003–04 and in 2010–11.

As can be seen from Table 13.6.6, tobacco tax revenue as a percentage of total government revenue declined sharply for states and territories following introduction of the reforms associated with the new tax system.2 Tobacco tax revenue as a percentage of total revenue increased significantly for the Australian government but still represented only a very small percentage of total government revenue–less than 2.5% in 2010–11 and 2.4% in 2014–15.

Table 13.6.6
Tobacco tax revenue as a percentage of total government revenue: Australian government and state and territory governments combined, 1998–99, 2003–04 and 2010–11

Sources: Table 13.1.5 and Australian Bureau of Statistics 200030; Australian Bureau of Statistics 201230; Australian Bureau of Statistics 201631

* Current rate: the rate in the applicable year; no adjustment has been made for inflation

† This figure is from the Final Budget Outcomes Statement. The figure listed in the ABS publication was $3217.0, possibly a transcription error.


13.6.5 International comparisons in tobacco tax revenue as a proportion of total government revenue

Table 13.6.7 lists tobacco excise tax revenue as a proportion of total tax revenue for a number of countries for which data were available in 2005.

Table 13.6.7 

Tobacco excise tax revenue as a proportion of total tax revenue, selected countries, 2005

Source: European Commission 200832

At the time this analysis was prepared, the contribution of revenue from tobacco to total government revenue was comparable in percentage terms in Australia compared with most other high-income countries for which data are available, but lower than for most middle-income and low-income countries.


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References

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2. Costello P. Not a New Tax: a New Tax System. Canberra: Australian Government, 1998. Available from: http://archive.treasury.gov.au/contentitem.asp?ContentID=167&NavID=022  

3. Australian Tobacco Marketing Advisory Committee. Annual Report 1994: year ended 31 December 1994 regarding the operation of the Tobacco Marketing Act 1965. Canberra: Australian Tobacco Marketing Advisory Committee, 1995.

4. Australian Bureau of Statistics. 5506.0 Taxation Revenue, Australia 1996-97. Canberra: ABS, 1997. Available from: http://www.abs.gov.au/AUSSTATS/abs@.nsf/allprimarymainfeatures/4EC77F42306CAD94CA25722E001A8037?opendocument.

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i Plus a small amount of residual revenue that was received after the end of the 1999–2000 financial year

ii Revenue from customs duty is not included in this table.

iii In 2005–06 the shares were as follows: New South Wales 27.9%, Victoria 21.1%, Queensland 20.7%, Western Australia 10.2%, South Australia 9.3%, Tasmania 4.0%, Australian Capital Territory 1.9% and Northern Territory 4.9%.

iv Large price increases resulting from increases in state fees were accompanied by significant declines in consumption over the 1980s. The effects of reduced consumption were offset for state and territory governments by the increase in state fees, but, because levels of excise and custom duty were subject only to indexation, federal revenue did not increase in real terms.

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