Australian model failed and had major anti-business implications

Jeff Rogut, CEO of the Australasian Association of Convenience Stores (AACS)
Three years ago legal tobacco products in Australia were unfairly targeted by nanny state plain packaging legislation. Research by leading organisations including KPMG have now concluded that it did nothing to reduce smoking rates but impacted retailers and small businesses heavily.
In fact, the issue of what constitutes fair and reasonable tobacco regulation has been skewed as a result of plain packaging and excessive tax increases, the Australian Government no longer even bothers with the pretence that these measures improve healthcare outcomes.
It’s an unbelievable position we find ourselves in and other countries should avoid it at all costs.
Firstly, it should be noted that the regulatory environment for tobacco in Australia makes it impossible to accurately judge the impact of plain packaging solely on its merits.
The exorbitant rate of tax – the Government in its latest budget committed to four more staged 12.5% excise increases – has made Australia one of the most expensive countries in the world to buy legal tobacco. This obviously affects the stability of the legal tobacco market and consequently makes Australia one of the world’s most lucrative markets for illicit, or illegal, tobacco.
The explosive growth of the illicit market for tobacco in Australia coincides directly with the introduction of plain packaging. Even the Government didn’t realise how much it would lose in revenue with approximately 14.3% of the total tobacco market in Australia being illegal, costing an estimated $1.49 billion in unpaid taxes to Government.
The report found that more branded illegal cigarette packs are being smuggled into Australia than ever before. Contraband cigarettes are now the largest component of the black market and contraband cigarette consumption.
The amount of convenience store robberies in Australia targeting tobacco products has spiked as plain packaging and price rises have taken effect. Many lower socio-economic tobacco consumers who choose to smoke are hit hardest by price impacts of our regulatory approach to tobacco.
Tobacco continues to play a key role in driving the performance of the convenience industry. Despite slowing growth – as the illicit market grows and the incidence of smoking naturally declines – tobacco still accounts for approximately 37% of typical Australian store sales.
Those who championed plain packaging have become increasingly silent in claiming the policy has had any positive impacts on health. From the Government’s perspective it’s much simpler: tobacco regulation is about filling the budget black hole; health isn’t even a consideration any longer.
However, despite the strong performance of tobacco as a product category, the imposts of plain packaging on retailers and suppliers demand attention.
Extra costs for retailers as a direct result of plain packaging include additional staff training, labour, product handling errors, increased inventory management procedures and increased customer frustration. These costs have been absorbed entirely at retailers’ expense.
The share of super-value tobacco products like cheaper brands and roll your own products is growing rapidly as price conscious consumers down-trade. Sales in the premium segment have declined considerably. With all packs looking the same, price has clearly emerged as the key driver.
As the only country to directly experience plain packaging over an extended period – knowing what it means for small businesses – it is unsettling to witness other countries debate its merits.
Governments around the world have an opportunity to learn from the policy missteps of the Australian Government and support its small businesses in the process.
Jeff Rogut is the CEO of the Australasian Association of Convenience Stores (AACS)