Australia: Tobacco Tax Expected to Raise More than $5bn

Source from:  The Guardian 08/02/2013

A substantial hike in tobacco excise is expected to deliver more than $5bn to the federal budget between now and 2016, the Rudd government has confirmed.

The tobacco excise will be increased by 12.5% over the next four years. The government has been attempting to frame the revenue grab as a health measure, pointing to preventive health issues it is also undertaking.

After telegraphing its intentions for several days, the government has now confirmed the increases will commence on 1 December 2013.

Further increases will occur on 1 September 2014, 1 September 2015, and 1 September 2016. The tax hike is in addition to increases that would have occurred through indexation.

Treasurer Chris Bowen said the increase in excise would bring Australia closer to the taxation standard recommended by the World Health Organisation.

"This I know, won't be universally popular at all. It's a difficult decision. But it's a decision which is taken in the best interests of the nation taking account all the impacts it has, both on the government's budget, and also on the health outcomes for Australia," he said.

Bowen told reporters in Sydney on Thursday morning the $5.3bn tobacco tax hike was a "substantial" measure; one of the biggest revenue measures in the government's economic statement due for release later this week.

Bowen also sent a broad hint that the banks could be another source of revenue once the economic statement was released. A report in the Australian Financial Review speculates that the economic statement will contain a deposit insurance levy as recommended by the Council of Financial Regulators - a measure raising billions.

The funds raised would underwrite any Australian bank should it need assistance in the future. Bowen told reporters Labor had no plans to tax the banks, but remained "in discussions" with banks concerning reform recommendations from the financial regulators. Bowen said those consultations would continue.

Finance minister Penny Wong said the levy had been raised by the International Monetary Fund and the Reserve Bank of Australia. But she declined to confirm or deny whether any decision had been made. She said there was always speculation during budget processes "and a lot of it is inaccurate."

Bowen also confirmed on Thursday that the economic statement would outline the full costs of the regional resettlement agreement with Papua New Guinea. The government has thus far declined to quantify the costs of that agreement.

The government has faced a substantial task to meet its commitment to return the budget to surplus in 2016-17. Tax revenues have been weak, and the government must offset spending associated with policy adjustments made by Kevin Rudd since he returned to the Labor leadership.

Bowen and the prime minister began to soften the ground for the tobacco tax hike on Wednesday in separate events in Sydney and Brisbane.

"As the prime minister said today, we need to be continually looking at what we can do to reduce smoking," Bowen said on Wednesday afternoon.

"There is not a family in Australia that hasn't been touched by cancer caused by smoking.

"I think the Australian people would agree with us, that we need to consider all sorts of measures to reduce smoking."

The Labor government has been active throughout its two terms in government to reduce smoking rates, including pursuing and winning a landmark high court case that has imposed plain packaging on the tobacco industry.

The Cancer Council has endorsed tax hike. The council's chief executive, Prof Ian Olver, said price control through excise was by far the most effective public health measure to bring down smoking rates, particularly among young people and people on lower incomes.

"Evidence shows that the increase in excise in 2010 has driven down tobacco consumption by around 11%," Olver said.

There is continuing speculation the government will use the release of the economic statement - either Friday, or over the coming weekend - as a springboard for calling the federal election for 7 September.

The Coalition has been critical of the tobacco measure. It says the government should seek to control spending rather than raise taxes, particularly those impacting disproportionately on low income earners. "This is just another tax. Let's not listen to this palaver about health, it's all about revenue," the opposition leader, Tony Abbott, told reporters in Melbourne on Thursday morning.

Abbott said the opposition would respond to the statement once it was in the public domain. He said he would not be drawn on specific measures in this interim period before the statement was released.

"This is a government that can't control its spending. Whenever it gets into trouble, it hits you, the Australian people with new taxes. If they do this to you before the election, think how much worse it will be after the election," Abbott said. Enditem