How taxes have fuelled Australia's illicit tobacco trade

Finance Minister Enoch Godongwana is very likely to announce sin tax increases when he delivers his budget speech tomorrow. The steady increase in tobacco products' prices over the years has led to a thriving black market.

But as CapeTalk's John Maytham points out (scroll down to listen), this is not unique to South Africa. Australia, which has the most expensive cigarettes in the world, nearly R600 for a pack of 20, also has a booming illicit trade, with shootouts over market control in major cities.

"Australia has been a frontrunner in tobacco control for years," says Professor Corne van Walbeek of UCT's School of Economics, and the Director of the Research Unit on the Economics of Excisable Products.

The country introduced plain packaging in 2012 and levied significant taxes.

"Cigarettes in Australia are unimaginably expensive. There has been a lot of success in reducing smoking prevalence in Australia. Between 10% and12% of people in Australia smoke cigarettes, which is relatively low in comparison to most countries. In South Africa, for example, it's 24% at the moment."

Van Walbeek says where South Africa's illicit tobacco trade started about 15-years ago, Australia's started being a problem during Covid, so it's relatively new. "It started more or less five years ago, and it's very much driven by the organised crime syndicates that have taken over that market. And they've really caused havoc in the Australian situation.

"Essentially, the same things went wrong in Australia [as in South Africa]. It is a lack of enforcement and a lack of oversight."

Van Walbeek believes it's most likely there will be a modest increase in the excise tax.