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 a 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 an Intergovernmental Agreement on the Reform of Commonwealth–State Financial Relations1 that put into place the major reforms to the tax system that came into force in Australia in the year 2000, including the introduction of a goods and services tax (GST).2
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.
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.
Sources: As for Table 13.6.1 and Australian Bureau of Statistics 2014 14 and 2016 15
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.
Sources: Australian Bureau of Statistics unpublished data 17 and ABS 2005, 18 2007 19 and 2011 20
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 of 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 supplied products to Australia from production facilities in New Zealand(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 2000. ii
Table 13.6.5 sets out the combined revenue from excise and customs duty on tobacco products since 2001. An increasing proportion of federal revenue has been in the form of customs duty over that time, with all tobacco products being sold in Australia being imported since the closure of Philip Morris International and British American Tobacco factories at the end of 2014 and 2017 respectively –see Section 10.3.2.
Estimated total revenue from the GST on tobacco products is also set out in Table 13.6.5. 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 which applies to almost all goods and services in Australia apart from fresh food has been distributed to the 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. 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
The data on revenue from excise and customs duty provided in Table 13.6.5 along with estimates of GST revenue from the sale of cigarettes and other tobacco products since 2000–01 represent total tax revenue from sales of tobacco products in Australia for the 22 years to 2021–22.
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 13.6.2. iv 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 almost ten-fold in current dollar terms from 1999–2000 to 2019–20, while state/territory revenue reduced by just over 40%.
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, 2010, 2015 and 2020 includes revenue from customs duty. Customs duty prior to 2000 was very low. Revenue is exclusively from customs duty in 2020.
† 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.
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 2000. 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 and then again even more substantially in 2020.
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, and then ten years later in 2008-09 and ten years later again in 2018-19.
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 2.3% in 2008–09 and 2.7% in 2018–19.
13.6.5 International comparisons in tobacco tax revenue as a proportion of total government revenue (update in progress)
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.
At the time this analysis was prepared, the contribution of revenue from tobacco to total government revenue was comparable in percentage terms in Australia to what it was in high-income countries for which data are available, but lower than for most middle-income and low-income countries.
Plus a small amount of residual revenue that was received after the end of the 1999–2000 financial year
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References
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