Guest Post: David Leyonhjelm – Plain packaging does more harm than good

David Leyonhjelm’s column in The Financial Review.

For every problem the government tries to solve, it often creates at least one more with no guarantee of fixing the initial problem. That appears to be the case with the former government’s laws mandating the plain packaging of tobacco.

In April 2010 when Kevin Rudd first announced the plan, there was some scepticism as to whether it would work. Then Opposition Leader Tony Abbott said: “Now, the Coalition in principle supports all reasonable measures to get smoking rates down. My anxiety with this is that it might end up being counter-productive in practice.”

Coalition deputy Warren Truss said his “chief criticism is that for all the cost and the inconvenience it will not deliver any result”, concluding that “Australia’s bulldust barometers are well tuned, and they have been red hot on this government for a while”.

Particularly alarming was the absence of any evidence to support the proposition. Then shadow Attorney-General, George Brandis, in a debate with Penny Wong on ABC radio, put it best when he said: “And what Penny is pleased to describe as evidence is not evidence at all. It’s a supposition. It may or may not be right. But it’s not an evidence-based supposition.”

This scepticism appears to have been well founded. After nearly 18 months of operation, plain packaging is not having the effect its advocates intended. Last month, Fairfax newspapers reported official industry data showing that “deliveries of tobacco to retailers in Australia rose slightly last year for the first time in at least five years, even after the introduction of plain packaging aimed at deterring smokers”. The news piece also reported that “in 2013, the first full year of plain packaging, tobacco companies sold the equivalent of 21.074 billion cigarettes in Australia … that marks a 0.3 per cent increase from 2012.”

But while it failed to reduce smoking rates, plain packaging has led Australia into a legal minefield. Major trading partner Indonesia, along with Ukraine, Cuba, Dominican Republic and Honduras have taken action through the World Trade Organisation to challenge Australia’s plain packaging legislation, with a further 35 countries possibly joining the dispute as third parties. They argue it creates an unnecessary barrier to trade in violation of our treaty obligations.

In a second case, Philip Morris Asia is suing the Australian Government under the terms of the Australia – Hong Kong Bilateral Investment Treaty, which provides protections for international investments in Australia including in intellectual property.

These two international cases, which will be decided in the next two to three years, could prove financially disastrous. An adverse result could find Australian taxpayers on the receiving end of a compensation claim worth billions of dollars. Former Fairfax business commentator, Tim Colebatch, said the WTO case “is shaping up to become the biggest trade dispute Australia has ever faced as a defendant.”

There is another issue too. A recent KPMG study found that since the introduction of plain packaging, the black market in illicit tobacco in Australia has boomed, growing by 19% in 2013, and is now costing the government up to $1.1 billion in forgone annual tax revenue. The report also shows a 35% growth in illicit tobacco consumption since the 25% excise increase in April 2010. Australia already has the highest cigarette prices in the region, a whopping 75% higher than Singapore, so it’s not hard to imagine what the forthcoming series of four annual 12.5% excise increases will do to the illicit market.

On 24 October 2013 the Australian Federal Police, Customs, Victoria Police and the Australian Crime Commission announced the arrest of 10 people for alleged illegal tobacco importation with around 71 tonnes and 80 million cigarette sticks seized and an estimated total defrauded taxation revenue of more than $67 million. And just two months ago, Victorian Police announced the second major bust in less than 6 months of crime gangs involved in illegal tobacco operations including the seizure of 35,000 tobacco plants.

For the government, the proliferation of illegal tobacco in the community is a very significant concern. It is not only lost taxation revenue, but a totally unregulated market with no rules or laws about who it sells to, including minors.

The prospect that plain packaging will put further strain on a budget already in the red, whilst fostering a new black market, should be a salutary lesson that governments can’t fix every problem. It is also a reminder that governments that inherit bad policy should have the courage to stick to their original convictions and review legislation that clearly isn’t working.

David Leyonhjelm is the Liberal Democrats’ Senator-elect for NSW.

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74 Responses to Guest Post: David Leyonhjelm – Plain packaging does more harm than good

  1. adrian

    Not certain plain packaging is a timely issue at the moment.

  2. Infidel Tiger

    Not certain plain packaging is a timely issue at the moment.

    Freedom is always timely.

  3. adrian

    Freedom is always timely.

    Agreed; however, I would like to see the Senator-elect devote some column space to the impending budget.

  4. Rabz

    Deliveries of tobacco to retailers in Australia rose slightly last year for the first time in at least five years, even after the introduction of plain packaging aimed at deterring smokers

    An adverse result could find Australian taxpayers on the receiving end of a compensation claim worth billions of dollars

    Yet more of that legendary world class ineptitude from that bunch of cretinous braindead squandermonkeys. Simply staggering.

  5. H B Bear

    After the combined intellect of Nanny Roxon and Dilbersek was applied to the problem I would have been surprised by any other outcome.

  6. Pyrmonter

    Glad to see DL describing smoking as a problem.

  7. Fibro

    As a smoker my thanks to Nanny and Plebs for the changes have come true.

    a) It ensured that new suppliers came out with cheaper brands (which they did) hence I pay them less money now than I used to and b) the grey market and imports will be more attractive (which they are)

    I also have another reason to piss off non-smokers when I stand in line trying to explain to the checkout chick at the servo which ones I want.

    Go you good thing.

  8. DaveA

    I would think the argument can’t have it both ways: it makes no difference, and billions in damages are due.

  9. Gab

    Never forget the millions it is costing us in legal fees from countries challenging this absurd plain packaging had bi-partisan support.

  10. tgs

    I would think the argument can’t have it both ways: it makes no difference, and billions in damages are due.

    There’s two issues here:

    1) Plain packaging legislation unfairly infringed on private property rights when it essentially stripped tobacco company IP from them in the form of their trademarks, branding, etc.

    2) In infringing on these property rights the legislation has had no material effect on smoking rates.

    You can’t really conflate the two and call it even. What has happened is the government has exposed itself to being liable for unfairly infringing on company’s intellectual property for no real world benefit.

    It’s a stupid policy and a good article from David.

  11. entropy

    Quite so tgs.
    In fact big tobacco has lost money, while the grey import market and illicit trade is growing. So, both plain packaging hadn’t worked, and there is a risk of damages.

    /never smoked, but I can see a bad policy when there is one.

  12. Grandma

    Thank you David – what a pleasure to read a politician with good sense! I hope your influence in the Senate will prove to be commensurate.

  13. Anne

    Mr Rafe, why hasn’t this article been posted to the Catallaxy Twitter feed?

  14. Not very timely.

    Where is the Great Libertarian Discourse on the budget and the audit?

  15. Ubique

    To the left the disastrous outcomes of the plain packaging policy are of no consequence. To the left it’s only the vibe of the thing that counts.

    Dismantling Howard’s Pacific Solution leading to 50,000 illegal immigrants and thousands of deaths at sea was no different. The vibe of the thing was right and that’s all that counted to my lefty mates.

  16. Carpe Jugulum

    You know what i hate about plain packageing in Oz – the frustration of the supermarket workers trying to find the particular brands i want.

    While i’m at it, how come cigarette papers and assorted paraphrenalia don’t have “plain packaging”.

    Yet another fvkup by the alp bansterbators.

  17. Michel Lasouris

    So, Companies that produce stuff that is proven harmful to health want to SUE us?
    Pray, what happens when we tell them to get stuffed?
    I’m not a smoker, and don’t care if ciggies are sold in fluoro packs, But why are we not SUING the tobacco companies for the cost of caring for their victims?

  18. Carpe Jugulum

    But why are we not SUING the tobacco companies for the cost of caring for their victims?

    1. Tobacco is legal

    2. Individuals can choose to smoke or not.

    3. They are not victims.

  19. MemoryVault

    But why are we not SUING the tobacco companies for the cost of caring for their victims?

    Because alleged “smoking related illnesses” currently cost us around $318 million a year, and tobacco taxes currently raise about $8 BILLION in revenue a year.

    I’ll put that another way: The NET return to the Treasury coffers from smoking is over THREE TIMES what the debt levy is expected to raise ($2.2 billion).

  20. Without offsetting tax increases the legislation will plausibly reduce prices but significant entry into the industry and greater consumption of counterfeit/illegal cigarettes are unlikely.

    Provided that tax increases offset any induced fall in prices that might result, plain packaging will reduce cigarette consumption.

    Will Plain Packaging Reduce Cigarette Consumption? by Harry Clarke and David Prentice , April 18 2012

  21. hoppers

    At around the same time, the ALP legislated a vicious annual 15% tax rise on cigs, which has no doubt had just as much influence on the increase in Black Market cigs as plain packaging.

    I well remember being poor and addicted to the damn things some years back, and if I had to make a choice between smoking and eating decent nourishing food, the cigs won every time, and I ate cheap crap. I was by no means alone in this.

    More people from lower income groups tend to smoke than those from higher income groups.

    I have little doubt that these tax rises will have exactly the opposite effect on public health than the one intended.

  22. James B

    Ehh, this wasn’t very good. He didn’t even really put forward the case for liberty. He should have been radical and said government doesn’t have a right to tell us what to consume or how to consume it.

    Plus it’s irrelevant now. Focus on the budget.

  23. Louis Hissink

    I always associate stupidity with ‘s’ words but can’t readily find an obvious synonym for do-gooders, wowsers, etc., so the Gumpian paraphrase, stupid is as stupid does, would tend to fall on deaf ears.

  24. john constantine

    the plain packaging disaster perfectly encapsulates the lefty mindset.
    disregard the law [including international law] if it makes you feel good.

    tax like hell. confidently and loudly screech what you feel to be true, then claim that true feelings are as true as facts, and go batshit crazy if anybody doesn’t fall in line with full obedience, immediately.

    good to see the senator elect pick this up—important because fighting a losing battle on the stealing property front is bad. poor smokers getting slugged heftily is bad, organised crime rotting society is bad.

    –how about using some of the smoking tax to look for ways of scanning for people liable towards early onset smoking related illness?. plenty of people smoke like chimneys, never suffer. what is the genetic predisposition? can we warn the high risk individuals?. [japanese smoking paradox, remember]

  25. Louis Hissink

    My deceased, medical doctor, father always maintained that cigarette smoking was a symptom; in his opinion people with tendencies to get lung cancer, from whatever cause, also tended to smoke in order to reduce nervous tension. This view always manages to elicit mouth-foaming reactions from the usual suspects.

    The real stupidity lies in the foregone excise.

  26. sdfc

    The LDP should concern itself with things the electorate gives a shit about if they want to be taken seriously as a political party.

  27. Dan

    Hasn’t this article already been posted?

  28. Johno

    Plus it’s irrelevant now. Focus on the budget.

    I think David should hold fire on his views on the budget until he does been sworn in as a
    Senator and is required to vote on an actual Bill before the Senate. At this stage it is pure speculation on what will be in the budget and a lot of other players are jostling for positions.

  29. JC

    17% of the public are smokers. You rackon they don’t give a shit about having to fork out 20 bucks plus a pack and see their brands destroyed?

    And if your Liars Party gives a shit about it, why should the LDP? Double standards much? Your Liars Party told us plain packaging and upping the excise tax would work a treat in lowering consumption. It hasn’t and another example of Liars Party policy failure.

  30. Louis Hissink

    The working man gives a lot of shit about the price of his smokes, but if he can get them cheaper on the black market, then from the usual, government authorised, sources, too bad for guvmint. A growing cash economy is simply a symptom of impending societal collapse.

  31. Louis Hissink

    I remember when I paid 20c for a pack of B&H, actually. Full strength too, when only the best would do, as well. :-)

  32. Louis Hissink

    Whoops, make that $2 per pack – equivalent to 1 pound UK in 1972. $20 got you a carton which sort of lasted all week until Friday night when we got on the turps at the Kambalda hotel and afterwards at Termite Hall.

  33. sdfc

    A fair whack of that 17% wouldn’t give a shit about plain packaging and nor would anything other than all but a small minority of the remaining 83%.

  34. Diogenes

    Its made it difficult to find the Cubans I like – its not worth them making a special pack for Australia, and smoking the Amandas, Shorts & Half Coronas that I can get is like smoking old rope in comparison. I’ve even had difficulty getting the pipe tobaccos I will use instead & really stock up when the tobacconist can get stock. Iam actually smoking more now than before PP was introduced.

  35. JC

    How the fuck would you know a fair whack wouldn’t give a shit? I do. In fact it fucking annoys me to no end that Fatty Von Roxon did what she did all because her dad died of lung cancer. As though the rest of us should somehow not be immune to her fathers death. Fuck her the the air she breathes.

    Not only that, those reckless slimeballs have opened up an entirely new industry… sly cigs. Good fucking work, Liars Party, you fucking morons.

    And how much are these court cases costing us, Doofus? More money down the drain because of those arseholes. I hope we fucking lose.

  36. JC

    Diogenes

    Buy them on line, send them to a re-shipper and ask them to designate the box as “personal items returned” on the front. They do anything.

  37. sdfc

    How the fuck would you know a fair whack wouldn’t give a shit? I do.

    I don’t and I don’t know anyone who does, it’s a non-issue. Who gives a shit what colour their ciggy pack is?

  38. boy on a bike

    Not certain plain packaging is a timely issue at the moment.

    As David points out, the Treasury is missing out on a cool billion thanks to this mess. A billion here, a billion there – suddenly you are talking about real money. By winding back this stupidity and dropping the excise, Hockey could rake in heaps of cash – enough to put this idiotic debt levy to sleep forever.

  39. Dave Wane

    Surely Tony Abbott must repeal this crazy plain packaging legislation as soon as the new Senate is established? Why risk losing billions of dollars, when Phillip Morris eventually win, as they most likely will (as they should) We cannot afford to lose millions, given the state of the finances left to us by Rudd-Gillard-Rudd, let alone billions that could be payable to Phillip Morris if we lose. This nonsense legislation was yet another of the many unnecessary, expensive, jobs-destroying and ultimately useless ideas from Australia’s worst government in living memory. Will Labor ever learn to leave us alone and stop trying to “help” us by taking even more of our money and deciding what is best for us?

  40. Anne

    As David points out, the Treasury is missing out on a cool billion thanks to this mess. A billion here, a billion there – suddenly you are talking about real money.

    Not to mention the billions we’ll have to pay to settle the law suits brought by foreign traders.

  41. Rafe

    Nice idea Anne, someone tell me how to put stuff on the Catallaxy twitter feed.

  42. after nearly 18 months of operation, plain packaging is not having the effect its advocates intended.

    Wrong. You’re assuming the intention was to reduce rates of smoking. When were you born, yesterday? It was to give the impression of reducing smoking, at least until the subsequent election. Apparently David, you have a lot to learn about politics, particularly leftist politics.

  43. Rabz

    Will Labor ever learn to leave us alone and stop trying to “help” us by taking even more of our money and deciding what is best for us?

    No.

  44. Anne

    They’ve appeared Rafe.

    You didn’t do it???

    Can someone tell me how to replace the stock avatar with a picture from my iPad please?

  45. Carpe Jugulum

    Its made it difficult to find the Cubans I like – its not worth them making a special pack for Australia, and smoking the Amandas, Shorts & Half Coronas that I can get is like smoking old rope in comparison

    Hold on there champ, i love smoking Amandas & long Panatellas (for the uninformed they are not spanish hookers). But i agree cigars in Oz are not that great, too dry.

  46. Carpe Jugulum

    Forgot too add, smoking a cigar should give the same pleasure as drinking a good red wine.

  47. Hoppers

    Anne,

    You have to go to gravatar.com and create yourself a profile

  48. Carpe Jugulum

    Can someone tell me how to replace the stock avatar with a picture from my iPad please?

    Go to Gravatar & upload a photo.

  49. Anne

    Thank you gentlemen. xx

  50. Anne

    Ooh, that looks terrible. I’ll do another one.

  51. hoppers

    Au contraire Anne, I think it looks great

  52. Anne

    Thanks Hop. You didn’t like the vomiting cat?

    That was at the IPA 70th at the NGV last year.

  53. Carpe Jugulum

    Ooh, that looks terrible. I’ll do another one.

    Nah, it’s fine. Just live the dream :)

  54. Anne

    I’ve learnt a new trick today Carpe, thanks to you. ;-)

  55. C.L.

    For the government, the proliferation of illegal tobacco in the community is a very significant concern. It is not only lost taxation revenue, but a totally unregulated market with no rules or laws about who it sells to, including minors.

    So what?

  56. Anne

    OMG, CL, some transaction between human beings that is “total unregulated”.

    It’s the end of civilization as we know it.

  57. Anne

    Wouldn’t it be nice if we could go back and fix our typos? No annoying, looking at them, powerless to change…

    Taunting me!

  58. Zaphod

    Wondering if this thread will be as lively as David’s last one -
    “David Leyonhjelm guest post. Marijuana’s time has come “

  59. JC

    Anne

    Your fringe is a tiny but too short for my liking. Let it grow a little.

    ———

    You have to laugh. The Liars Party started a new business- the cig trade between people.

  60. Anne

    Hairdressing tips from JC.

    Hmmm…that’s a turn up for the books. Haha..

    I told you JC…instruction…Alpha…blah…blah

  61. sdfc

    You have to laugh. The Liars Party started a new business- the cig trade between people.

    Yet the link between plain packaging and the black market in cigarettes is yet to be made.

  62. JC

    Yet the link between plain packaging and the black market in cigarettes is yet to be made.

    And it won’t be made because it’s unlikely to be one, you idiot. The reason the black market is expanding at the rate of knots is because cigs cost 20 bucks now and the differential between that price and the black market cost of making and selling cigs is really fucking attractive.

    As I said, Liars have created a new and interesting industry.

  63. Infidel Tiger

    This is how freedom disappears; in increments.

    “Stick to the big issues” they cry. And before you know it everything else has been taken while you were looking elsewhere.

    If you Liberal Party rent boys are such fucking goldfish brained deadshits that you can’t focus on more than one issue at once, then don’t read the article.

  64. .

    sdfc
    #1289547, posted on May 2, 2014 at 11:27 pm
    You have to laugh. The Liars Party started a new business- the cig trade between people.

    Yet the link between plain packaging and the black market in cigarettes is yet to be made.

    No. You don’t know what you’re talking about. Just as dumb as the goons who tried to buy chop chop as an academic exercise.

  65. MemoryVault

    The reason the black market is expanding at the rate of knots is because cigs cost 20 bucks now

    Cost of pack of quality cigs in many nearby Asian countries = $1.00 a packet (wholesale).
    Legal retail price in Australia = $20.00 + a packet.
    Cost of seatainer with one million packs of cigs = $1 million.
    Cost of bribes, shipping etc = $1 million.
    Total investment =$2 million.
    Gross return on one million packs of cigs @ $10.00 a packet on black market = $10 million.
    Profit = $8 million.
    Time from outlay to return on investment = around three months.
    Annual return on recurring $2 million investment = $32 million.

    QED

  66. Anne

    This is how freedom disappears; in increments.

    I can’t cut a tree down on my own property without written permission from the government!

    I had to have a brick mail box dissembled and replaced with a less formidable structure because, according to the council man in charge of ‘crossovers’ a motorist accidentally driving into it might be more severely injured.

    I’m not joking. The insidious creep into every aspect of our lives and the peaceful use of our land by these petty bureaucrats is really starting to fray the edges of my patience.

    I’m fighting back. I’ve refused to pay dog registration!

  67. Anne

    JC
    #1289538, posted on May 2, 2014 at 11:09 pm
    Anne

    Your fringe is a tiny but too short for my liking. Let it grow a little.

    Sorry JC. I was rude to you. What I meant to say was…

    Thank you for that critical assessment. You’re quite right, the fringe is beastly! I will attend to it first thing tomorrow. ;-)

  68. Puff Of Smoke

    Hang the plain packaging, who cares? $318million in care of “smoking related illnesses” into $8billion income in taxes, perhaps they don’t need to be so expensive? It’s becoming a rich man’s hobby, why is this a good thing? If it’s really a bad thing then make it illegal – but the government won’t because it’s making them billions per year in taxes. And as to the under the counter tobacco, well, you know that people won’t pay if they don’t have to and prohibition doesn’t work. Just admit it for what it is, a huge money making exercise.

  69. sdfc

    JC

    And it won’t be made because it’s unlikely to be one, you idiot. The reason the black market is expanding at the rate of knots is because cigs cost 20 bucks

    Then why were you arguing earlier that plain packaging drove smokers into the black market?

  70. .

    Plain packaging puts costs up, you ignorant bloody fool.

  71. Puff Of Smoke

    That’s why cigarettes were increasing hugely in cost long before the plain packaging was introduced in 2012?

    http://www.tobaccoinaustralia.org.au/13-2-tobacco-taxes-in-australia

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