13.7 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. Revenue from excise and customs duty on tobacco is more complex than this and affected by numerous factors:

• The amount of excise/customs revenue on tobacco received by the Australian Government in any year is determined by the rate of excise/customs duty and the amount and type of stock imported and on which duty is collected. Since 2019, duty has been collected at the point of importation.
• The rate of customs duty and excise has at times not been increased above inflation and at other times has been subject to increases well above inflation (see Section 13.6).
• Tobacco products have a relatively long shelf life so that some of the products sold and consumed in a given financial year may have been imported in the previous financial year, or even in the year before that.
• Fluctuations in numbers of products on which duty is charged in any period can be caused by factors such as maximising stock volumes prior to increases in duty and management of inventory requirements.
• Costliness of tobacco products is affected not just by levels of excise/customs duty but also by industry pricing practices within and between brands and over time (see Section 13.4.6). Industry contributions to price increases also affect consumption.
• Consumption of tobacco is affected both by the number of people who smoke—see Chapter 1) and the amounts of tobacco they consume (see Chapter 2). These in turn are affected by the combined impact of costliness, awareness about health risks, declining social acceptability of smoking, campaigns encouraging quitting, improved treatments for tobacco dependence,  greatly reduced opportunities for smoking as well as use of other nicotine products.
• Consumption is also affected by changes in income and competing demands on income (see Section 13.5).
• Levels of use of untaxed tobacco—tobacco on which required customs or excise duty has not been paid­—also vary over time (See InDepth 13A).

In Australia, federal revenue from tobacco excise and customs duty has been collected since 1901, and state and territory governments collected revenue between 1974 and 1997 (and received tobacco revenue replacement grants from the federal Government between 1998 and 2001). Major structural changes to the revenue collected by federal and states and territory governments have occurred over time, in addition to changes to the rate of excise—see Section 13.6: What tobacco taxes apply in Australia? Tobacco taxes have been collected both as revenue from excise on locally manufactured products (until 2016, when local manufacturing ceased) and customs duty on imported products. From 2001, an additional 10% goods and services tax (GST) was included on the sale price of tobacco. Data on excise, customs duty, and GST revenue are presented here where available.

13.7.1  Total state and territory revenue from 2001

Table 13.7.1 shows total revenue from tobacco products from 2000–01 to 2023–24, and revenue projections from 2024-25 to 2026-27. Total federal revenue from excise and customs duty is presented, although over this time an increasing proportion of federal revenue has been in the form of customs duty, with all tobacco products being sold in Australia being imported since 2016—see Section 10.3.

Estimated total revenue from the GST on tobacco products is also set out in Table 13.7.1. 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 and territories 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. It can only  be roughly estimated based on ABS estimates of household expenditure on tobacco which are in turn estimates based on customs clearances, retail survey data and incomplete sales data provided to the ABS by large retail outlets. 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.² 

The data on revenue from excise and customs duty provided in Table 13.7.1 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. In real terms, the total tax revenue from tobacco products increased by 38% from 2000–01 to 2022–23. Total tax revenue from tobacco products peaked at $16,270 in 2020 but note that this was a highly atypical year. In 2019–20 reforms were introduced to reduce illicit tobacco that bought forward the point at which tobacco customs duty had to be paid to the Government. Previously, duties were paid when tobacco left warehouses but since these reforms, duty is now paid when it is imported into the country. This significantly increased volumes subject to duty in 2020, and then these volumes reduced markedly over the following three years. Figure 13.7.1 shows total revenue in current dollars from 2000-01 to 2023-24, depicting the amount of tobacco tax revenue that was estimated in the 2018 federal budget that was attributable to the bringing forward of the payment of customs duty.

As noted above, and evident in Figure 13.7.1, the customs revenue received in 2019–20 was artificially high due to a change in the method of collecting duty instituted in 2019, bringing payments forward from the point at which stock left warehouses to the much earlier point when it was imported from overseas.³ It was estimated in the 2018 Budget that the measures to bring forward payment of customs duty would raise $10m in 2018-19, $3275m in 2019-2020, $190m in 2020-21 and $230m in 2021-22.

From 1st April 2025 wholesalers must only supply retailers with stock that meets new tobacco packaging requirements (new graphic health warnings, health promotion inserts and cigarette with on-stick health messages). Only packs meeting the new requirements may be sold from 1st July 2025. The amount of tobacco imported in 2023–24 and so far in 2024–25 is likely to have been affected by importers and wholesalers running down stock in order to not be left with large quantities of non-compliant packs. See: Public Health (Tobacco and Other Products) (Consequential Amendments and Transitional Provisions) Act 2023 and Public Health (Tobacco and Other Products) (Consequential Amendments and Transitional Provisions) Rules 2024.

13.7.2  Tax 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 13.7.2 shows the proportion of federal and state and territory government revenue that was made up by tobacco taxes. Data are shown for 1998–99, immediately before reforms to the tax system and introduction of the GST,⁶ and in ten year increments, also including the most recent year available.

As can be seen from Table 13.7.2, 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. Tobacco tax revenue as a percentage of total revenue increased significantly for the Australian federal 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. In 2022–23, tobacco tax revenue as a percentage of total revenue was lower than in 2008–09, with tobacco excise making up approximately 2.0% of federal government revenue, and 1.9% of all federal and state and territory government revenue.

13.7.3  Per capita total tax revenue

Revenue from tobacco taxes per capita since 2001, expressed in real dollars, is plotted in Figure 13.7.2. A gradual decline in per capita tax revenue was apparent until 2010. In real terms, tobacco tax revenue per capita increased by 21% between 2014 and 2019, after which a sharp increase was observed in 2020 in line with the move to an earlier point of collection of customs duty. The shaded bars represent the amount of tobacco tax revenue that was estimated in the 2018 federal budget to be attributable to the bringing forward of the payment of customs duty.

13.7.4  Historical data on tobacco tax revenue in Australia

This section provides information on federal and state and territory revenue from tobacco products from the 1970s onwards, where available. As will be demonstrated in this section, this period saw significant changes to the structure of tobacco taxation, resulting in changes to both the value of revenue raised by federally and by states and territory governments, and the distribution of this revenue. Figure 13.7.3 summarises federal and state and territory revenue from tobacco products in 5-year increments from 1965 to 2005.

13.7.4.1  Federal excise revenue from tobacco products to 2005

As described in Section 13.6.3.1 Federal excise duty to 1999, 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. This is evident in Figure 13.7.4 which shows total revenue received by the federal government from excise duty on tobacco products (cigarettes, cigars, smoking tobacco and other tobacco products) for selected years until 1980 and then for every year until 2005 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 and 1999. In real terms, revenue fell between 1980 and 1986 and fluctuated between 1987 and 2000.

This figure also highlights the dramatic increase in federal revenue arising from the introduction of new tax arrangements implemented between November 1999 and February 2001. In real terms, federal excise revenue was 1.6 times higher in 2001 than 2000, after which only minor fluctuations occurred.

13.7.4.2  Federal customs duty revenue from tobacco products, 1999-2000 to 2010-11

Revenue from customs duty increased substantially in 1999, following the 1999–2001 tax reforms and the increasing quantities of cigarettes imported from overseas, particularly following the entry into the market of Imperial Tobacco Group in September 1999, which supplied products to Australia from production facilities in New Zealand (see Section 10.3.2.3).

Table 13.7.3 shows the value of customs duty for tobacco products from 1998–99 to 2010–11 (data are available to 2010–11.)  Revenue from customs duty for all tobacco products increased in real terms in every year other than 2003-04, almost doubling from 2009–10 to 2010–11. Over the 10 years from 2001–02 to 2010–11, the real value of customs duty revenue increased by 120%.

13.7.4.3  State and territory revenue from tobacco products to 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 13.7.4 shows the revenue raised in each jurisdiction from these fees between 1974, when they were first introduced in Victoria, and 1997, when the fees were effectively invalidated by a High Court ruling (see Technical Appendix 13.6 for a full explanation). It also shows revenue from 1997–98 to 2000 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 Relations.¹ This agreement put into place the major reforms to the tax system that came into force in Australia in the year 2000, including the introduction of the GST.⁶

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 in current dollars. 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.

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References

1. Commonwealth of Australia, The States of NSW, Victoria, Queensland, Western Australia, et al. Intergovernmental agreement on the reform of Commonwealth-State financial relations. Commonwealth of Australia, 1999. Available from: http://www.treasury.qld.gov.au/office/clients/commonwealth/intergovernmental/agreement.shtml.

2. Costello P. Budget 2005-06. Final budget outcome. Canberra: Australian Government, 2006. Available from: http://www.budget.gov.au/2005-06/fbo/html/index.htm.

3. Morrison S and Cormann M. Budget 2018-19. Budget Measures, Budget paper no. 2 . Part 1. Revenue measures. Canberra: Treasury, 2018. Available from: https://archive.budget.gov.au/2018-19/bp2/bp2.pdf.

4. Australian Institute of Health and Welfare. National Drug Strategy Household Survey data file, 2022-2023. Canberra: ADA Dataverse, 2024. Last update: Viewed Available from: https://doi.org/10.26193/U6LY7H.

5. Australian Institute of Health and Welfare. Data tables: National Drug Strategy Household Survey 2022–2023 – 2. Tobacco smoking. Canberra: AIHW, 2024. Available from: https://www.aihw.gov.au/reports/illicit-use-of-drugs/national-drug-strategy-household-survey/data.

6. Costello P. Not a New Tax: a New Tax System. Canberra: Australian Government, 1998. Available from: https://catalogue.nla.gov.au/Record/1916627.