Beating back the illicit tobacco trade

Some experts are blaming excessive excise tax for making legal cigarettes so expensive that it has opened the door for illicit tobacco.

Making cigarettes cheaper so people go back to buying the legal brands and stop seeking under the counter alternatives sounds like a suggestion straight out of Big Tobacco's playbook.

But that's the solution to halting our burgeoning illicit tobacco imports, according to a former top cop who created and led the Australian Border Force's Tobacco Strike Team.

Rohan Pike is now a consultant and does his best to warn other countries away from the path Australia has gone down, which has seen extortion, firebombings and murder between illegal tobacco gangs.

He says it is out of control in Australia, but so far New Zealand has made the right moves and has staved off the problem until now. Those moves include making vapes a viable alternative to smoking, whereas Australia has made them prescription-only.

Tobacco companies have paid for Pike to fly to New Zealand in the past, but he says he will never advocate for smoking, and he's speaking to The Detail in the context of trying to combat this problem.

In Australia, government statisticians estimate that 80 percent of the tobacco market is illegal. It also has the highest excise tax in the world, and the worst tobacco-related violence.

In just six years the country's excise tax take has gone down from $16.3 billion to $4.1b and that downward trajectory is set to continue, even though the smoking rates have not decreased. Pike predicts the entire legal market will be extinct in perhaps two or three years.

"All of the regulations that Australia has brought in - the many regulations over the last few decades - are null and void, because there is virtually no one buying the legal product anymore."

He admits reducing the excise is a difficult concept to swallow, but says Australia needs to stop just fixing the symptoms - the violence - but look at the policy, which is the excise rate. A senate inquiry on the issue is due to report back in a month's time and he expects a recommendation to reduce the rate, perhaps by as much as 50 percent.

The retail sector has been hit severely, he says, with the mum and dad dairies shutting down, unable to compete with illegal products. Shops near a tobacconist can't get insurance because of the firebombings.

"I don't think the New Zealand authorities have fully understood the consequence of our situation, and what's caused it," he says.

Health Coalition Aotearoa says tinkering with excise tax is foolhardy and would jeopardise public health, as well as play into the hands of the tobacco industry.

The group, including Auckland University researchers, is concerned by Associate Health Minister Casey Costello's move to review the levy.

"Research tells us that, for people quitting smoking, price remains a key reason why they want to become smokefree," says Professor Chris Bullen.

Pike says that works, up to a point - and that point is when cigarettes get so expensive that a third option, apart from paying up or quitting, becomes attractive - and that's buying them for a fraction of the price under the counter.

Pike backs Costello's move, but the coalition says the situation in Australia is completely different.

Police say that while they believe bad actors from Australia are eyeing up New Zealand as their next step, we are not yet at the level seen across the Tasman.

Last week we saw the first official bust by a new group, an intelligence-sharing task force formed in May with customs, health officials and police to target black market cigarettes.

Five people were arrested, eight stores shut down and 1.3 million cigarettes and $170,000 cash seized. It estimated the network involved in this bust alone saw $2 million in government taxes avoided.

"That's the first real big action that we've seen from that group," says RNZ reporter Finn Blackwell, who's been investigating the increasing numbers of illegal cigarettes and shops selling them - as well as what's in the tobacco being sold.

It's not clear what New Zealand's proportion of illegal tobacco is, with officials saying most of the studies done have suspect methodology. Retail NZ estimates one in three cigarettes smoked here are illegal, costing the government 817m dollars in lost excise tax and GST last year.

On The Detail today, Blackwell explains how much cheaper these illicit brands are, how easy they are to get hold of, and the horrors of the heavy metals they contain.

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