Are we going to see the emergence of black-market booze in Australia?

Each year alcohol excise taxes are adjusted biannually, typically on 1 February and 1 August each year. These adjustments are linked to the Consumer Price Index (CPI), causing excise rates to increase in line with inflation. When we have high inflation like we have had these past 3 years not only do we see cost of good and retail selling cost rise the excise grows in line with the CPI causing what I see as a double dip.? Energy, housing and insurance cost not only add to product input costs but also magnify the tax on the category.? As of 5 August 2024, the excise duty for spirits with an alcohol by volume (ABV) exceeding 10% rose to AU$103.89 per litre of pure alcohol. For beer, the excise duty varies based on factors such as alcohol content and packaging. For instance, the tax on a standard keg of full-strength beer increased to AU$43.22 per litre of alcohol.

The hospitality industry is being hammered in this cost of everything crisis and looking at these numbers and facing a rise come next month why would anyone invest in this sector.? Diageo via their marque Australian brand, Bundaberg Rum have highlighted that taxes constitute a significant portion of their product's retail price. Specifically, for a 1-litre bottle priced at $61.50, $38.40 is attributed to taxes, equating to a 63% tax rate. This high taxation level has prompted Bundaberg Rum to campaign against Australia's spirits tax, advocating for a freeze on the biannual excise increases. The company argues that such a substantial tax burden makes enjoying their products increasingly unaffordable for consumers.

I would argue that this level of taxation will not just make booze unaffordable but if we look to tobacco as the example it will no doubt lead to that other unintended of consequences, organised crime. High excise taxes on products like tobacco and alcohol are intended to discourage consumption and address associated health issues. However, these taxes have inadvertently created a demand for alternative, illegal sources—a void that organized crime is eager to fill. This not only undermines the intended public health benefits but also fosters a black market with significant social and economic consequences.

The Illicit Tobacco Trade in Australia

Australia's stringent tobacco taxation policy has led to one of the highest cigarette prices globally. While this approach aims to reduce smoking rates, it has also made the illegal tobacco market increasingly lucrative. Estimates suggest that illicit tobacco comprises approximately 18% of the total market, resulting in a $2.7 billion loss in duty for the 2022–23 fiscal year. ato.gov.au

The profitability of this black market has attracted organized crime groups, leading to a surge in related criminal activities. In Victoria alone, more than 125 tobacconists and related businesses have been targeted in arson attacks, causing over $70 million in damages. These incidents not only endanger lives but also strain law enforcement resources and disrupt local economies. heraldsun.com.au

Trends in Smoking Rates and Tax Revenue

Over the past decade, Australia's smoking rates have declined, a trend often attributed to public health campaigns and high excise taxes. However, this decrease in legal tobacco consumption has coincided with a rise in illicit trade. Consequently, while the total tax revenue from tobacco products peaked in 2020, there has been a decline in subsequent years, partly due to the growing black market. tobaccoinaustralia.org.au

Retailers have also reported a downturn in tobacco sales. For instance, some grocery chains have disclosed falling tobacco revenues, which can be linked to consumers turning to cheaper, illicit alternatives. This shift not only affects legitimate businesses but also reduces the effectiveness of taxation as a deterrent.

Potential for Illicit Alcohol Trade

The pattern observed in the tobacco market raises concerns about the potential emergence of a black market for alcohol. Australia already imposes significant taxes on alcoholic beverages, with approximately 50% of the cost of a case of beer and 63% of a bottle of spirits attributed to tax. Industry leaders warn that continuous tax increases could drive consumers toward illicit alcohol sources, mirroring the tobacco scenario. dailytelegraph.com.au

Instances of illicit alcohol production and distribution have been reported globally, often resulting in products that pose serious health risks due to unregulated manufacturing processes. Should a black market for alcohol develop in Australia, it could lead to similar public health and safety concerns. 9news.com.au

Methanol poisoning is a significant global health concern, particularly in regions where illicit alcohol production is prevalent. According to Médecins Sans Frontières (MSF), thousands of people suffer from methanol poisoning annually, with fatality rates often reported between 20% to 40% if not treated promptly. methanolpoisoning.msf.org

The World Health Organization (WHO) has documented numerous outbreaks of methanol poisoning worldwide, highlighting the severity of this issue. methanol.org It's important to note that these figures may be underestimations, as many cases go unreported due to challenges in diagnosis and limited public awareness. The actual global death toll from methanol poisoning could be significantly higher. Recent incidents underscore the ongoing risk. Sadly, in November 2024, six tourists including 2 young Melbournians died in Laos after consuming methanol-contaminated alcohol.

At the current level of excise, it can be argued that the opportunity for illicit profit is becoming irresistible in Australia.? How long before organised criminals devise a way to supply it with giving the tax man their cut?? Personally, I have seen no evidence of it taking place but knowing human nature and the tobacco example are we far off?

Rethinking "Sin" Taxes

While the intent behind high excise taxes on products like tobacco and alcohol is to mitigate health and social issues, the unintended consequence has been the stimulation of a black market that fuels organized crime. I’m thinking that instead of imposing prohibitive taxes, alternative strategies should be considered. Public education campaigns have long been on the wane as prohibitive taxes are seen to be the silver bullet. My libertarian instincts say that if you inform about the risks associated with these products, coupled with support programs for those seeking to reduce consumption consumer should be able to make an informed choice while maintaining a reasonable tax regime that will fund health and related services. By focusing on personal responsibility and informed choice, it may be possible to address health concerns without creating the economic incentives that drive illicit trade and kill industry in Australia.

High excise “sin” taxes, while well-intentioned, have inadvertently destroyed hospitality and drinks businesses while in the case of tobacco fostered a black market that undermines public health objectives and empowered organized crime. To effectively address the associated health and social issues, it is crucial to explore alternative approaches that do not theatenl local jobs and incentivize illegal activity. A balanced strategy that combines education, support, and reasonable taxation may prove more effective in achieving the desired outcomes without the collateral consequences of a thriving black market. At present in the current climate things can only worsen.

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