Smugglers are gonna smuggle

A Malaysian woman was recently sentenced to two years in an Australian jail for orchestrating a sophisticated money laundering and tobacco smuggling operation on behalf of a large-scale global criminal syndicate.

AFP telephone intercepts overheard her telling one of her underlings that the cigarette imports were "only about the dodging of tax, so Customs should not be interested".

Across the Tasman, the New Zealand Customs Service is increasingly concerned at the record volume of illegal cigarettes entering the country through Malaysian criminal syndicates, with around seven million cigarettes intercepted in Auckland over the past six weeks alone.

Covid, it seems, has provided an enormous boon for smugglers and criminal syndicates as authorities focus on enforcing closed national borders.

But the uncomfortable truth is, if smuggling isn't the world's oldest profession, it's likely a smuggler was one of its first customers. As soon as a tax or regulation was imposed on trade, smuggling will have occurred.

Smuggling is not only ubiquitous but has also influenced world affairs. For example, Britain's heavy-handed attempts to prevent its US colonies from trading with the Spanish empire, which was circumvented by smuggling, stirred the desire for independence.

The Chinese government's efforts to stop opium smuggling in the 1840s led to the opium wars, two outcomes of which were Britain's acquisition of Hong Kong and China's distaste for foreigners. And of course, smuggling of alcohol into America during the prohibition years gave a huge boost to organised crime and led to the creation of the FBI.

In the twentieth century, the prohibition of recreational drugs led to smuggling becoming a highly successful multi-billion-dollar transnational industry. Laws passed to suppress it, in many cases fundamentally at odds with a free society, achieved very little.

Given all that you might expect the Australian government to be wary of creating another opportunity for smugglers. As the saying goes, those who fail to learn from history are doomed to repeat it. Yet Australia now faces a large and growing smuggling industry as a consequence of its massive increases in tobacco excise.

Most countries impose taxes on tobacco, for which two justifications are offered. One, not heard very often, is that it can raise a lot of revenue. The other, mentioned frequently, is that it discourages smoking. The first is the truth; the second may once have been true in Australia, but it is not now. Rates of smoking are not falling.

Australia's big increases in tobacco excise began in 1992. However, it really took off in 2010 with a 25% increase followed by increases of 12.5% every year from 2013, with the latest in September this year. By 2019 the excise rate was about 270% higher than in 2012.

As a consequence, cigarettes in Australia are the most expensive in the world at about $1.20 per stick (depending on brand) at retail level. Tobacco excise contributes almost $18 billion dollars a year to government revenue.