Will a crackdown on illegal tobacco work? | 7.30

Key Concepts

Illicit tobacco trade, tobacco licensing scheme, environmental health officers (EHOs), excise revenue, black market, "fit and proper person's test," regulatory impact statement, plain packaging, enforcement, penalties, Victoria Police involvement.

The Flourishing Illicit Tobacco Trade in Victoria

Simon Allen, a news agency owner in Reservoir, North Melbourne, is experiencing a significant decline in his cigarette sales due to the rise of the illegal tobacco trade. His business has lost nearly 90% of its tobacco sales. The problem is that illegal cigarettes are sold openly, even advertised, at prices far below what legal retailers can offer. For example, in Bentley, illegal smokes are advertised for $12, a price impossible for legal tobacco products in Australia.

Open Sale and Advertising of Illicit Tobacco

The video highlights the brazen nature of the illegal tobacco trade, with discount smokes openly advertised. A CTC franchise in Bentley was found to be advertising and selling illicit tobacco. CTC responded that they condemn the trade in illicit tobacco products and the matter is in the hands of their solicitors. It is estimated that over 1,000 retailers are trading illicit nicotine products across Victoria.

Underworld War and Increased Insurance Costs

The illicit tobacco trade is linked to a violent underworld war in Victoria. This has led to increased insurance costs for legal tobacco retailers. Simon Allen mentions his insurance for $5,000 worth of cigarettes has risen to $8,000 due to the increased risk of firebombing and other attacks.

Victoria's Licensing Scheme: A Delayed Solution

Victoria is the only state without a tobacco licensing scheme. The state government announced a licensing scheme in November of last year, set to be established in the middle of this year and enforced in 2026. Retailers will need to pass a "fit and proper person's test" to obtain a license. Simon Allen considers the timeline "absurd" and "way too long."

Minister Envir Erdogan states the scheme will include "tough new penalties," including imprisonment of up to 15 years. The government anticipates up to 10,000 retailers applying for a license.

Concerns About Licensing Fees and Retailer Viability

The government initially proposed an annual license fee between $1,100 and almost $1,500, regardless of business size. David Inel, CEO of Master Grocers Australia, argues this is too high, especially compared to Queensland's $450 fee. He fears it could be "the straw that broke the camel's back," potentially forcing some retailers to stop selling tobacco. A grocery store in Windsor has seen tobacco sales plummet from $2,500 a day in 2022 to $1,000 a week.

Enforcement and the Role of Environmental Health Officers (EHOs)

There is frustration among legal retailers regarding the enforcement of tobacco regulations. EHOs, employed by local councils, are primarily focused on education and ensuring compliance with existing regulations, such as signage. David Inel expresses uncertainty about which department will be responsible for enforcing the new regulations, their budget, and the resources allocated to address the problem.

An EHO's duties include educating store owners and ensuring compliance with signage regulations. They also check products to ensure they are legal.

Police Involvement and Open Advertising

The new regulatory scheme is expected to involve close collaboration between the regulator and Victoria Police, including joint operations and inspectors on the ground. Despite being notified by 7:30 more than a month ago, a store openly advertising cheap smokes and vapes for $12 still had the signs up in mid-May. Minister Erdogan believes the regulator could address such clear-cut violations.

Federal Excise and Underlying Causes

David Inel argues that the federal government's high tobacco taxes, which have led to a $7 billion drop in excise revenue, are the underlying cause of the illegal market. He calls it "one of the biggest public policy failings of all time." Minister Erdogan acknowledges that the high price of legal tobacco contributes to the problem.

Conclusion: A Bleak Outlook for Legal Retailers

Simon Allen, disillusioned with the situation, plans to stop selling cigarettes altogether when the licensing scheme comes into effect. He believes the scheme will make it harder and more expensive for honest retailers to operate. The report paints a picture of a legal tobacco industry under siege from a thriving black market, hampered by high taxes, delayed regulation, and uncertain enforcement. The high excise taxes are driving consumers to cheaper, illegal alternatives, creating a booming black market that undermines legal businesses and government revenue.