Here is Adam Smith talking about smuggling wool:
The prohibition, notwithstanding all the penalties which guard it, does not prevent the exportation of wool. It is exported, it is well known, in great quantities. The great difference between the price in the home and that in the foreign market presents such a temptation to smuggling that all the rigour of the law cannot prevent it. This illegal exportation is advantageous to nobody but the smuggler.
It costs around $2.80 to buy a packet of Marlboro cigarettes in China, the world’s largest producer and market for cigarettes. The retail price in Australia is $20.60, almost 10 times higher.
The bulk of this price chasm is Australian taxes – $14 per pack in excise and almost $2 in GST. So 90 per cent of the difference is taxes. It would be hard to find a clearer price signal to establish a black market. The profit potential is enormous.
What possibly could be the consequences?
NSW Health has told a review of tobacco laws that its inspectors have detected increased sales of illicit tobacco, which is packaged without health warnings and is sometimes blatantly labelled “illegal tobacco”.
Over the past two years, illegal sales were detected 28 times at retailers throughout Sydney, including at Haymarket, Glebe, Marrickville, Earlwood, Ashfield, Harris Park, Auburn, Wakeley, Strathfield, Punchbowl and Canterbury. Of those, 13 have not yet been successfully prosecuted.
So it is nice to know that things haven’t changed much.
So what would a rational response be?
The tobacco industry has threatened to launch super-cheap cigarettes costing just $9 a pack in response to a growing black market in cheap, illegal tobacco, which health officials claim they are powerless to seize.
Given that the legal industry can only compete against illegal tobacco on price and no longer on branding it is unsurprising that they would do so.
The plain packaging legislation was bad policy and was always going to have unintended consequences. Important to note, however, not unforeseen consequences. We have a law on the books that encourages criminality, costs government revenue, and doesn’t actually inhibit smoking (of it it does the anti-smoking lobby are carefully hiding the evidence).
The Gillard government had three major policy reforms: the mining tax (now repealed and seen as a massive failure), the carbon tax (now repealed and deeply unpopular), and plain packaging. This policy too should be repealed.