13.2 Tobacco taxes in Australia

Tobacco taxes are favoured by governments because of their relatively low level of unpopularity with voters (see Section 13.12) and because of their low administrative costs relative to the income they generate.^1,2

A variety of taxes are applied to cigarettes and other tobacco products internationally. Virtually all countries apply excise duty specified as an amount payable per x number of cigarette sticks. A small number of countries charge excise payable per x grams of tobacco weight. Many countries also apply one or more forms of ad valorem taxes, that is, taxes based on the monetary value of products. These include taxes added to the wholesale value of product sold and sales tax or goods and service tax applied as a percentage to the (pre-tax) retail price.^3,4

13.2.1 Federal excise and customs duty

The federal government has imposed excise duty on Australian-made and customs duty on imported tobacco products since the passage in 1901 of the Excise Act⁵ and the Customs Act.⁶ Prior to federation, the colonies imposed their own tariffs.^7-9

Until 1999, federal excise and customs duty was calculated on the basis of the weight of tobacco products. The Excise Regulations, 1925,¹⁰  specified precisely how manufacturers needed to label, calculate and declare excise duty. These also specified how the weight of tobacco products (and the volume of alcohol and petroleum products) was to be calculated. For cigarettes, this included the weight of filter and paper, but not the weight of the packaging. ⁱ

In the early years of last century, manufactured tobacco was charged at a rate of one shilling per pound (of product weight) and cigars were taxed at one shilling and sixpence per pound. Since 1920, the rate of the duty has been set out in (frequently amended) schedules to the Excise Tariff Act passed in 1921.¹¹ Historically, duty on tobacco in cigarettes was levied at a higher rate than duty on non-cigarette tobacco ( Table 13.2.1). In November 1983, the then federal treasurer, the Hon. Paul Keating, changed customs and excise policy in several ways. First, the rate of federal excise and customs duty was linked with the Australian Consumer Price Index (CPI),¹² meaning that since that time, excise and customs duty have automatically increased twice each year. Between February 1984 and August 2013 these increases have been in line with changes in the CPI for the six months to the previous December and June. Since March 2014 increases have been in line with changes each six months between February and November in Average Weekly Earnings.  Second, the rate of duty for cigars was immediately made equal to that of cigarettes. Third, the rate for non-cigarette tobacco was increased by $5 a kilo. In subsequent budgets the rate for smoking tobacco was increased further (by another $5 a kilo in the 1984 and 1985 budgets ⁱⁱ , and then by $1.90 in the 1986 budget).

Table 13.2.1 compares the excise duty on cigarettes with that on cigars and smoking tobacco in selected years since 1965. As can be seen in Table 13.2.1, rates for smoking tobacco became equal to that for cigarettes in 1986. 

Historically, tobacco products produced in Australia were subject to a lower rate of duty than that applicable to imported tobacco products. Customs duty was brought into line with excise duty following the publication in June 1994 of a report of an inquiry by the Industry Commission into tobacco growing and manufacturing industries in Australia.¹³   Coinciding with the end of the Tobacco Stabilisation Plan (see Chapter 10, Section 10.8.2), the harmonisation of customs and excise duty was in line with government policy to reduce a range of direct and indirect subsidies in an attempt to improve international competitiveness of Australian exports. Table 13.2.2 compares rates of excise and customs duty (per kilo of tobacco weight) from 1987 to 1999.

As can be seen in Table 13.2.2, excise duty became equal to customs duty in 1995.

Throughout the 1990s, health groups lobbied for increases in federal excise duty.^{14 ,15}  In addition to the six-monthly CPI increases, the government increased the rate of federal excise applicable to cigarettes and other tobacco products on several occasions. These included a $5 per kilo increase in 1992¹⁶  and increases announced in the 1993 budget¹⁷  of 3% in August 1993 and 5% in February and August 1994 and February 1995.^{18 iii}  The final increment rise of 5% planned for August 1995 was brought forward and increased to an immediate 10% rise in the Federal Budget handed down on 10 May 1995.¹⁹

Figure 13.2.1 shows the rate of the federal excise duty on cigarettes over the period since 1958. The figure is expressed in constant 1989–90 dollars to take into account rising prices over that time. ^iv

It is evident from Figure 13.2.1 that, once its value was restored by the increase and introduction of indexation in the 1983 budget, federal duty on cigarettes remained fairly steady in real terms over the late 1980s and early 1990s, increasing significantly only in the late 1990s. The level of federal duty on cigarettes in 1998 was about 50% higher in real terms than it was at its lowest point in the early 1960s.

In 1999, after extensive lobbying by health groups,¹⁴ the government moved from levying excise and customs duty on cigarettes on the basis of weight to a system based on the number of cigarettes (see Section 13.3.1.2 for full details). Excise and customs rates on cigarettes and other tobacco products applicable since 1999 are set out in Table 13.2.3.

Between 1999 and 2010 there were no increases in tobacco excise and customs duty on tobacco products apart from adjustments for CPI. Excise and customs duty was increased by 25% on 30 April 2010, and 12.5% annually from 2013 (Figure 13.2.2). Four annual 12.5% excise and customs duty increases were scheduled over the period from 2013 to 2017,^{20 , 21} followed by a further four 12.5% annual increases to the year 2020.^{22 , 23}

Excise and customs duty for smoking tobacco (and cigars and cigarettes weighing greater than 0.8 grams of tobacco per stick) is set at a per kilogram rate that is equivalent to factory-made cigarette sticks assuming 0.8 grams of tobacco is used per cigarette. However, smokers generally use less tobacco per cigarette than this, so that in practical terms RYO tobacco attracts less tax per stick than FM cigarettes. In 2017, the Australian Government determined that the customs duty and excise on RYO tobacco (and cigars and cigarettes weighing greater than 0.8 grams of tobacco per stick) would be harmonised with FM cigarettes over a period of four years beginning September 2017. The changes were announced in the May 2017 Federal Budget.²⁴ The excise (and excise-equivalent) customs duty for smoking tobacco was increased so that it would be equivalent to than on factory-made cigarettes when 0.775 grams was used in each stick in 2017, reducing to 0.75 grams in 2018, then 0.725 grams in 2019, and reaching 0.7 grams in 2020.^{25 , 26}

By reducing the quantity of smoking tobacco assumed per cigarette, this measure was intended to reduce the extent to which the duty on and consequently the price of roll-your-own tobacco was lower relative to factory-made cigarettes,^{27 , 28} curbing the growing disparity in prices of these types tobacco products—see also Section 13.3.1.2. At September 2020, the excise on a 0.7 gram roll-your-own cigarette was equivalent to a typical factory-made cigarette. However, given RYO smokers tend to roll cigarettes using much less tobacco than this—0.5 grams on average²⁹ — in 2020 a typical RYO smoker still paid about 28% less duty per cigarette than a FMC smoker.

Figure 13.2.2 clearly shows the impact of the eight annual 12.5% increases on the real value of tobacco excise and customs duty. After adjusting for inflation, excise was 173% higher in 2020 than it was in 2012. There was negligible change in the real value of tobacco excise from 2020 to 2021, and then a decline was seen in 2022 for the first time in more than twenty years.

13.2.2 State tobacco licence fees

In November 1974 Victoria became the first Australian jurisdiction to introduce a licence fee (known as a business franchise fee) on the sale of tobacco products.³⁰   The business franchise fee on tobacco had two components. The first was a set amount charged each year. The second was an amount based on the value of tobacco sold in the immediately preceding month. The monthly (variable) rate was set at 2.5% in 1974 increasing to 10% in 1975. Between 1975 and 1989, all state and territory governments introduced similar fees.^31-37

The fixed licence fee and the percentage levy varied from state to state. Generally the fees were forwarded to state or territory government revenue collection offices by tobacco wholesalers; however, if retailers purchased stock from suppliers other than licensed wholesalers, they also were required to pay both the set and the variable licence fees. The percentage component was by far the more lucrative for governments, and the rate of the levy was frequently increased in all jurisdictions, sometimes more than once within the same budget period.  Table 13.2.4 shows the rates applicable in each year in each state and territory.

To cover the cost of these fees, wholesalers built in a component to the wholesale prices that charged retailers for products.

The dollar value of the state fee component on a typical packet of cigarettes was quite small in early years–just a few cents in 1974. However, as the rate increased , ^v   so did the dollar value of the fee. Figure 13.2.3 shows the dollar value (in constant $-1989–90) of the fee applicable on a typical packet of cigarettes, Winfield 25s, in New South Wales between 1975 and 1999. ^vi

Since they were first introduced, the state business franchise fees were somewhat controversial and several legal challenges were mounted asserting that the schemes were in breach of s. 90 of the Australian Constitution, which prohibits Australian states and territories from raising revenue from the sale of products ^vii . The wording of the various pieces of state business franchise legislation attempted to ensure that the fees were not regarded as excises, based as they were on the value of sales in a previous period rather than on the quantity or volume of products currently being transacted. When the state business franchise fees were first introduced, the fees were quite low, arguably providing revenue sufficient merely to cover administration costs. By 1996 however, fees in New South Wales and other Australian states had become so high that they were clearly an important source of government revenue, and not merely a levy to cover the cost of regulation.

When the  Ngo Ngo Ha & Anor v. State of New South Wales & Ors case was lodged in the High Court in 1996, many lawyers and government officials correctly predicted that the Court would find the fees to be unconstitutional (memorandum from Francey N, Wentworth Chambers Sydney, 8 July 1997 to Michelle Scollo, Director Victorian Smoking and Health Program). The High Court ruling on 5 August 1997³⁸   effectively invalidated not just business franchise fees based on sales of tobacco in New South Wales, but also business franchise fees based on sales of tobacco, alcohol and petroleum in all states and territories.

Several state Treasury officials, aware of the possibility of the Ngo Ngo Ha v. NSW case succeeding, had commenced negotiations with their federal counterparts late in 1996 and had extracted an undertaking that the federal government would increase federal excise duties on tobacco, alcohol and petroleum, and would pass back a share of the increased revenue to the states should the case succeed. After the High Court handed down its decision, arrangements with the states and territories to honour that commitment were rapidly set in motion–seeTechnical Appendix 13.2.1 for further details.

The Commonwealth agreed to collect a surcharge on each of the three products, and then to pass on the revenue to the states and territories.

In 1997 the federal (Coalition) government announced a comprehensive review of the tax system. It called for a major overhaul of federal and state taxes, the abolition of state business franchise replacement fees and a raft of state sales taxes and the introduction of a goods and services tax. It was agreed that the revenue from the new goods and services tax (GST) would go to the states and territories to compensate for the revenue no longer to be received from state sales taxes and business franchise fees.

On 13 August 1998, two weeks prior to calling an election, the government released its long awaited tax reform package, titled Tax Reform: Not a New Tax; a New Tax System.³⁹  The proposal included plans to abolish tobacco replacement payments and to introduce a per stick system of raising customs and excise duty, with the level of the duty to be set so that the excise payable on any brand of cigarettes would be no lower than the existing level of duty. ^viii The fee payable on large packets of cigarettes would increase substantially, making them much closer in price (per stick) to cigarettes sold in smaller pack sizes.

After the government was re-elected, following a short delay reforms were implemented in November 1999.⁴⁰

13.2.3 Goods and Services Tax

Unlike in many other countries which introduced goods and services taxes, in Australia (as requested by health groups) the excise duty on tobacco was not adjusted downward when the 10% goods and services tax (GST) was introduced.³⁹  The GST came into force in Australia on tobacco and all other retail services and products excluding grocery items on 1 July 2000.^41-43

As with all other taxable products and services in Australia, the GST is calculated by adding 10% to the pre-GST price. In this way, the GST makes up one-eleventh or 9.1% of the final price of each packet of cigarettes, cigars or smoking tobacco.⁴⁴

13.2.4 Excise levels in Australia compared with other developed countries

Figure 13.2.5 shows tax levels in Australia compared with selected other developed countries for the year 2020. At that time, excise duties in Australia on the most commonly used brand of cigarettes at that time made up about 65% of the final price. It should be noted that excise/customs duty makes up a higher proportion of the final prices of many low-cost brands of Australian cigarettes that are cheaper than the leading brand, and a much lower proportion of final price on many premium brands, and mid-range brands that were until recently the top-selling brands in Australia. ^ix

Figure 13.2.6 compares the rates of excise duty in Australia and New Zealand from 2000 to 2023 as an index based on dollar values in the original currency. Excise increased very little during the 2000s, during a period of indexation-only adjustments in both countries. Australia introduced a 25% excise increase in April 2010, returning to indexation only for 2011-2012, then eight 12.5% annual increases from 2013 to 2020. In contrast, New Zealand introduced 10% annual excise increases from 2011 onward. The effect of these two taxation approaches meant that excise in both countries was 80% higher in 2012 than it was in 2000. From that point the compounding effect of the annual 12.5% versus 10% increases mean that tobacco excise tripled in Australia in 2012 from 2020, while it more than doubled in New Zealand over the same period. Increases from 2021 onward have been based on changes in the Consumer Price Index of each country.

References  

Harvard University Institute for the Study of Smoking Behavior and Policy. The cigarette excise tax. in Smoking Behavior and Policy Conference Series. Cambridge, Massachusetts. Cambridge Massachusetts: John F Kennedy School of Government, Harvard University; 1985.

2. US Department of Health and Human Services. Reducing the health consequences of smoking: 25 years of progress. A report of the Surgeon General. Rockville, Maryland: US Department of Health and Human Services, Public Health Service, Centers for Disease Control, Center for Chronic Disease Prevention and Health Promotion, Office of Smoking and Health, 1989. Available from: htt://profiles.nlm.nih.gov/NN/B/B/X/S/.

3. Chaloupka FJ, IV, Peck R, Tauras JA, Xu X, and Yurekli A. Cigarette excise taxation: The impact of tax structure on prices, revenues, and cigarette smoking. NBER Working paper No. 16287 Cambridge, Massachusetts: National Bureau of Economic Research, 2010. Available from: htt://www.nber.org/papers/w16287.

4. World Health Organization. WHO technical manual on tax administration. Geneva, Switzerland: WHO, 2010. Available from: htt://www.who.int/tobacco/publications/tax_administration/en/index.html.

5. Excise Act. 1901 (Cth); Available from: htt://www.comlaw.gov.au/comlaw/management.nsf/lookupindexpagesbyid/IP200401597?OpenDocument.

6. Customs Act. 1901 (Cth); Available from: htt://www.comlaw.gov.au/comlaw/management.nsf/lookupindexpagesbyid/IP200401390.

7. Department of Customs and Excise. A brief history of Australian customs activities prior to Federation. Canberra: Department of Customs and Excise, 1965.

8. James D. Coffers or coffins? Government policy on death from smoking. Information and Research Services Current Issues Brief, 1998; 16(1997–8). Available from: htt://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Publications_Archive/CIB/CIB9798/98cib16

9. Department of Customs and Excise. Excise Tariff history (since 1901). Canberra: Department of Customs and Excise, 1965.

10. Excise Regulations, 1925 (Cth). Available from: htt://www.comlaw.gov.au/Details/F2012C00423.

11. Excise Tariff Act. 1921 (Cth)  Act no. 26 of 1921; Available from: htt://www.comlaw.gov.au/Details/C2012C00517.

12. Excise Tariff Amendment Act. 1983 (Cth)  Act no. 27 of 1983; Available from: htt://www.comlaw.gov.au/Details/C2004A05276.

13. Industry Commission. The tobacco growing and manufacturing industries.  Industry commission inquiry report no. 39. Canberra: Australian Government Publishing Service, 1994. Available from: htts://www.pc.gov.au/inquiries/completed/tobacco/39tobacc.pdf.

14. Scollo M. Closing the loophole--the need for action in 1997. Melbourne, Australia: Anti-Cancer Council of Victoria, 1996.

15. Scollo M. Federal excise duty on tobacco--proposals for reform. Melbourne, Australia: Anti-Cancer Council of Victoria, 1998.

16. Dawkins J. Budget speech 1992-93. 18 August Canberra: House of Representatives, 1992.

17. Dawkins J. Budget speech 1993-94. 17 August Canberra: House of Representatives, 1993.

18. Willis R. Budget speech 1994-95. 10 May: House of Representatives, 1994.

19. Willis R. 1995-96 Commonwealth budget. Canberra: The Parliament of the Commonwealth of Australia, House of Representatives, 1995.

20. Excise Tariff Amendment (tobacco) Act 2014. 2014; Available from: htt://www.comlaw.gov.au/Details/C2014A00009.

21. Customs Tariff Amendment (tobacco) Act 2014. 2014; Available from: htt://www.comlaw.gov.au/Details/C2014A00008.

22. Excise Tariff Amendment (tobacco) Act 2016. 2016; Available from: htts://www.legislation.gov.au/Details/C2016A00060.

23. Customs Tariff Amendment (tobacco) Act 2016. 2016; Available from: htts://www.legislation.gov.au/Details/C2016A00059.

24. Morrison S and Cormann M. Budget 2017-18. Budget paper no. 2.Part 1. Revenue measures. Canberra: Treasury, 2017. Available from: htt://www.budget.gov.au/2017-18/content/bp1/html/.

25. Customs Tariff Amendment (tobacco duty harmonisation) Bill 2017, 2017. Available from: htt://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr5892%22;src1=sm1.

26. Excise Tariff Amendment (tobacco duty harmonisation) Bill 2017, 2017. Available from: htt://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5893.

27. Customs Tariff Amendment (tobacco duty harmonisation) Bill 2017, explanatory memorandum, 2017. Available from: htt://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr5892%22;src1=sm1.

28. Excise Tariff Amendment (tobacco duty harmonisation) Bill 2017, explanatory memorandum, 2017. Available from: htt://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5893.

29. Branston JR, McNeill A, Gilmore AB, Hiscock R, and Partos TR. Keeping smoking affordable in higher tax environments via smoking thinner roll-your-own cigarettes: Findings from the international tobacco control four country survey 2006-15. Drug Alcohol Depend, 2018; 193:110-6. Available from: htts://www.ncbi.nlm.nih.gov/pubmed/30352334

30. Business Franchise (Tobacco) Act 1974 (Vic).

31. Business Franchise (Tobacco) Act  (replaced by tobacco products (licensing) Act 1986, and finally by the tobacco products Regulations Act 1997. 1974 (SA).

32. Business Franchise (Tobacco) Act. 1975 (NSW).

33. Business Franchise (Tobacco) Act. 1975 (WA).

34. Business Franchise (Tobacco) Act. 1980 (Tas).

35. Business Franchise (Tobacco) Act. 1981 (NT).

36. Business Franchise (Tobacco) Act. 1984 (ACT).

37. Business Franchise (Tobacco) Act. 1988 (Qld).

38. Brennan C, McHugh, Gummow, and Kirby J. Ha & Anor v State of New South Wales & Ors 71 ALJR 1080 at 1082 per, 1997. Available from: htt://www.austlii.edu.au/au/cases/cth/HCA/1997/34.html.

39. Costello P. Not a new tax: A new tax system. Canberra: Australian Government, 1998. Available from: htts://catalogue.nla.gov.au/Record/1916627.

40. Costello P. Explanatory memorandum. Excise laws Amendment (fuel tax reform and other measures) Bill 2006 and Excise Tariff Amendment (fuel tax reform and other measures) Bill 2006. The Parliament of the Commonwealth of Australia House of Representatives, 2006. Available from: htt://www.comlaw.gov.au/ComLaw/Legislation/Bills1.nsf/framelodgmentattachments/5F9F9AF8EA680FD5CA25716F0018F551.

41. A new tax system (goods and services tax imposition—customs) Act  1999 (Cth)  [cited 73; Available from: htt://www.austlii.edu.au/au/legis/cth/consol_act/antsastia1999634/.

42. A new tax system (goods and services tax imposition—Excise) Act. 1999 (Cth)  [cited C2005C00390 Available from: htt://www.comlaw.gov.au/comlaw/Legislation/ActCompilation1.nsf/0/A5166EC037FEE339CA2570260027F867/$file/ANTSGoodsServTaxImpExcisesAct1999WD02.pdf.

43. A new tax system (goods and services tax imposition—general) Act. 1999 (Cth)  [cited C2005C00391; Available from: htt://corrigan.austlii.edu.au/au/legis/cth/consol_act/antsastia1999586/.

44. Australian Taxation Office. The new tax system: Information for business. Canberra: Treasury, 2001.

45. Excise Tariff Amendment Act. 1997 (Cth)  No. 5 of 1997; Available from: htt://www.comlaw.gov.au/ComLaw/Legislation/Act1.nsf/asmade/bynumber/A9B1843D9F303B0BCA256F720019352C?OpenDocument.

Technical appendix 13.2.1 Abolition of state franchise fees on tobacco

Each state and territory had, over the years, developed different methods of collecting licence fees, with different levels of fees, different due dates and a variety of other arrangements to suit local needs and politics.

The Commonwealth was anxious to honour its commitment to the States to make up the revenue lost from the abolition of state franchise fees after the High Court ruled in August 1997 that these fees were unconstitutional. However, one of the key platforms of the (opposition Coalition) government in power prior to the previous election had been a promise not to increase taxes. A key political objective of the federal and some of the state governments was thus to protect consumers from possible price rises in tobacco, alcohol and particularly petroleum products.

Frantic negotiations ensued between state and federal representatives in the wake of the 1997 High Court decision. The first 'deal' that emerged involved the Commonwealth collecting revenue set to equal the highest rates applicable to each product in any jurisdiction. This meant that the Commonwealth would collect and distribute $6.5 billion rather than the $5 billion formerly collected by the states and territories. The states and territories, in turn, would provide rebates to manufacturers/wholesalers in lower taxing states, to ensure that no state received windfall revenue and no consumers faced huge price hikes. Refer to the States Grants (General Purposes) Amendment Act No. 1, 131 of 1997.

Within days, however, complications emerged in respect of tobacco. While Treasury officials had anticipated the High Court ruling and had prepared to compensate the States in broad terms, it seems that no-one had carefully enough thought through the precise details of exactly how revenue would be raised by the Commonwealth and exactly how it would be collected. Treasury officials and (relatively new) government advisers involved in negotiations with the States may not have had a very firm understanding of the price structure of cigarettes or the intricacies of collection.

Following the ruling, the Commonwealth announced that the federal excise duty on tobacco would be increased by $167 per kilogram (from $84.27 per kilogram). As had been predicted in the cigarette taxes and prices model developed by the Anti-Cancer Council of Victoria, this led to an immediate price rise in budget cigarettes, in particular in the Wills Horizon brand–heavier than its competitors Holiday (Rothmans) and Longbeach (Philip Morris). As a consequence, WD and HO Wills lodged the strongest possible protest with the Treasurer's office, suspended sales and requested that its shares be suspended on the Australian Stock Exchange (Adams, 1997). Wills Chairman, former NSW premier Nick Greiner, appealed to the Treasurer for the increased excise to be replaced by an ad valorem tax. Rothmans and Philip Morris were also unhappy about the increased excise duty, which would have increased prices by as much as $1.75 per packet, and raised an additional $500 million in revenue. They objected, however, to the Wills proposal, which would have been much more advantageous for the Wills brands.

By the end of the week, confusion reigned and further desperate rounds of negotiations were taking place between federal Treasury officials, officials in state governments and wholesalers and retailer associations for alcohol, tobacco and petroleum products throughout the country.

Confronted by pressure from alcohol wholesalers and retailers, the Victorian, Queensland and Australian Capital Territory governments agreed to fund the prepaid alcohol fees, thereby protecting consumers from a large increase in low alcohol beer and wine prices (Pinkney 1997). South Australia and New South Wales initially resisted pressure to provide such refunds, (correctly as it turns out) asserting that they would miss out on revenue once the Commonwealth took over responsibility for revenue collection, and collections were made on a cash rather than an accrual basis. The Western Australian government was then very concerned about the impact on its total revenue: it had been counting on the over-payments from alcohol and tobacco to subsidise low alcohol beer, cellar door wine sales and petrol prices for off-road users, previously exempted from the state's fuel levy. Western Australia, supported by South Australia and Tasmania, boycotted talks on 25 August with tobacco companies initiated by the Commonwealth (Washington 1997).

By the beginning of September, confusion had degenerated into chaos, and the federal Treasurer had little choice but to threaten withdrawal of the safety net unless the states agreed to his plan. The deal that emerged was a series of trade-offs between all the parties concerned, with the federal government more or less achieving its aims of: maintaining total revenue for the states, even if revenue from individual products might be reduced; minimising price rises particularly of low alcohol products and petrol; and in the case of tobacco, treating each of the three manufacturers in an equitable manner.

In the end, the legislation instituted to cover the new arrangements essentially replicated (exclusively at the federal level rather than at federal and state level) the tax and price structure in place on cigarettes prior to the High Court ruling.

Two pieces of legislation were passed to put these cumbersome arrangements into law.

First was the States Grants (General Purposes) Amendment Act (No. 2) 1997, which amended the States Grants (General Purposes) Act 1994. This determined a revised share of revenue to go to each state, roughly in line with previous expected revenue, but taking into account concerns raised by a number of the smaller states.

The second piece of legislation related to the manner in which the surcharge on tobacco was to be raised. On 17 September 1997, the government gazetted a new regime for the taxing of cigarettes, later to be instituted in the Excise Tariff Amendment Act (No. 5) 1997. ⁴⁵ After lobbying by manufacturers concerned about the differential effect of the proposed new arrangements on each company's products, the legislation in the end was formulated in a way that replicated the tax structure that was in place prior to the High Court decision. That is, part of the formula for determining excise (and customs) duty was based on weight, and part on the wholesale value of the product sold. The weight-based excise on tobacco increased from $84.27 to $86.92 per kilogram. The value-based component increased from 100% of the wholesale value of tobacco products to about 101.3%. The new schedule stated that the state surcharge would be based on 50.32% of the listed wholesale price, which is mathematically equivalent to 101.3% of the pre-wholesale price, just 1.3% higher ^x than the level that had been applicable under the states' business franchise legislation.