Bills Digest no. 10, 2016–17
PDF version [520KB]
Paul Davidson
Economics Section
14
September 2016
Contents
Purpose of the Bills
Background
Committee consideration
Selection of Bills Committee
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
parties/independents
Position of major interest groups
Financial implications
Table 1: Excise and excise-equivalent
receipts
Table 2: Goods and services tax
receipts
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Key issues
Key provisions
Customs Tariff Bill
Excise Tariff Bill
Date introduced: 31
August 2016
House: House of
Representatives
Portfolio: Immigration
and Border Protection and Treasury
Commencement: On
Royal Assent
Links: The links to the
Bills, their Explanatory Memoranda and second reading speeches can be found
on the home pages for the Customs
Tariff Amendment (Tobacco) Bill 2016 and the Excise
Tariff Amendment (Tobacco) Bill 2016 or
through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation website.
All hyperlinks in this Bills Digest are correct as
at September 2016.
Purpose of
the Bills
The purpose of the Customs
Tariff Amendment (Tobacco) Bill 2016[1]
(the Customs Tariff Bill) is to amend the Customs Tariff Act
1995 to extend the existing annual 12.5 per cent annual increase in the
excise-equivalent customs duty on tobacco for a further four years until 1
September 2020.
The purpose of the Excise
Tariff Amendment (Tobacco) Bill 2016[2]
(the Excise Tariff Bill) is to amend the Excise Tariff Act
1921to increase the rate of excise by an equivalent amount.
Background[3]
The objective of the Bills ‘is to improve the health of
Australians by reducing their exposure to tobacco products’.[4]
To that end, the Bills impose a series of four annual 12.5 per cent increases
in the excise and excise equivalent customs duty on tobacco. The proposed
increases:
... ensure that average cigarette prices are more closely
aligned with the World Health Organisation recommendation concerning the
proportion that excise and excise-equivalent customs duty should comprise of
the price of a cigarette.[5]
The World Health Organisation (WHO) recommendation is that
excise and excise-equivalent customs duty should comprise 70 per cent of the
price of a cigarette.[6]
Treasury analysis indicated that as at 1 September 2015, excise on cigarettes
in Australia accounted for around 54 per cent of the final consumer price.[7]
The Regulation Impact Statement (RIS) for the Bills is
attached to the Explanatory Memorandum. As noted in the RIS:
In 2008, the Council of Australian Governments (COAG),
committed to reducing the adult daily smoking rate to 10 per cent of the
population, and to halving the daily rate of smoking among Aboriginal and
Torres Strait Islander people by 2018.[8]
The latest data from the Australian Bureau of Statistics
(ABS) indicates that there are approximately 2.6 million Australians
smoking daily, which represents 14.5 per cent of the adult population.[9]
As stated in the RIS:
Australian smoking rates are still too high. As noted
earlier, COAG committed to the following performance benchmark: ‘By 2018,
reduce the national smoking rate to 10 per cent of the population, and halve
the Indigenous smoking rate, over the 2009 baseline’. Progress against this
benchmark is measured by reference to the adult daily smoking rate.[10]
The RIS noted that the target was implemented as a means
of measuring progress on tobacco control, with an overall objective of reducing
smoking rates.[11]
Committee consideration
Selection of Bills Committee
At its meeting on 1 September 2016, the Selection of Bills
Committee determined that the Bills not be referred to Committee for inquiry and
report.[12]
Senate
Standing Committee for the Scrutiny of Bills
At the time of publication, the Senate Standing Committee
for the Scrutiny of Bills had not considered either of the Bills.[13]
Policy
position of non-government parties/independents
The Australian Labor Party stated it would extend the
annual 12.5 per cent excise increase on tobacco if it formed government as a
result of the 2016 Federal election.[14]
The Australian Greens (Greens) have publicly stated that
‘putting up the price of cigarettes to stop people smoking and to fund health
or medical research is fundamentally a good idea’. According to Greens
spokesperson Adam Bandt, any money raised through this measure should be
invested in areas like hospitals and medical
research—rather than being used to fund tax cuts.[15]
A document released by the Financial Planning Association
of Australia in the lead-up to the election found that the Liberal Democratic
Party had a policy to remove tobacco taxation. It noted that there was no
public announced policy for any other party.[16]
Position of
major interest groups
The Cancer Council indicated support for the announced
increase in excise, with CEO Professor Sanchia Aranda having stated:
The increase in tobacco tax alone will translate to tens of
thousands of cancer deaths avoided, with trend data showing that the recurrent
increases will lead to around 320,000 smokers quitting and 40,000 teenagers
deterred from taking smoking up.[17]
The Heart Foundation ‘applauded’ the decision to impose
the 12.5 per cent annual excise increase for another four years, to 2020. It
stated:
Studies conducted throughout the world across all
socio-demographics found that the most effective intervention available to
governments to reduce demand for tobacco were tax increases resulting in higher
tobacco prices.
Change will provide real health benefits and will be enhanced
by the comprehensive set of tobacco control initiatives in place such as tax,
education campaigns and plain packaging.
Changes to behaviour by smokers may be difficult but it will
occur and these measures will not only help existing smokers quit, but deter
people from taking up smoking in the first place.[18]
The Australian Association of Convenience Stores considered
the excise increase a ‘lazy’ measure. CEO Jeff Rogut noted:
The Federal Government has
shelved its innovative aspirations as the Budget followed the lazy yet
predictable path in raising tobacco excise – not even pretending to be
motivated by health – in a move that punishes honest retailers, supports
criminal gangs and hurts low income earners.[19]
British American Tobacco Australasia expected an increase
in illegally imported tobacco. It noted that nearly $1.5 billion annually was
foregone in government revenue as a result of the illegal importation of
tobacco.[20]
Financial
implications
The Explanatory Memorandum outlines the forecast financial
implications of the Bills. It forecast that revenue would increase by just more
than $5 billion over the forward estimates.
Table 1: Excise
and excise-equivalent receipts
Receipts ($m) |
2016-17 |
2017-18 |
2018-19 |
2019-20 |
Department of Immigration and Border Protection |
- |
660 |
1,510 |
2,420 |
Explanatory
Memorandum, Excise Tariff Amendment (Tobacco) Bill [and] Customs Tariff
Amendment (Tobacco) Bill 2016, p. 3.
Table 2:
Goods and services tax receipts
Receipts ($m) |
2016-17 |
2017-18 |
2018-19 |
2019-20 |
Australian Taxation Office |
- |
60 |
140 |
230 |
Explanatory
Memorandum, Excise Tariff Amendment (Tobacco) Bill [and] Customs Tariff
Amendment (Tobacco) Bill 2016, p. 3.
Minor financial costs are expected for the Department of
Immigration and Border Protection as it creates a new communications strategy
to inform industry and travellers of the reduction in the volume of cigarettes
that can be purchased duty-free. Minor administration costs are also expected
to impact on the Australian Taxation Office in terms of monitoring market
behaviours and determining whether quotas should be imposed.[21]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bills’ compatibility with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of that Act. The
Government considers that the Bills are compatible.[22]
Parliamentary
Joint Committee on Human Rights
At the time of publication, the Parliamentary Joint
Committee on Human Rights had not considered either of the Bills.[23]
Key issues
As is standard practice in the economics and health
fields, Treasury has not focused on the adult rate of smoking, but rather on
the level of tobacco consumption.[24]
Treasury estimates that the extension of the excise increases will reduce
tobacco consumption by about 17 per cent by 2020.[25]
The Bills have an objective to ‘minimise the prevalence of smoking’, but no
target is explicitly stated.[26]
In contrast, by 2018 COAG has a stated goal of reducing smoking rates to 10 per
cent of the adult population.[27]
The RIS noted that ‘excise taxation is at the centre of Australia’s tobacco
control policy’, so it seems reasonable to assume that the main way of
achieving the COAG goal is via excise extensions and possibly (further) excise
increases.[28]
As noted above, in 2014-15, the smoking rate for the Australian adult
population was 14.5 per cent.
The RIS considered the option of extending the current
12.5 per cent annual excise increase that has been in place since 1 December
2013.[29]
No other options were considered. As stated in the RIS:
The decision to not examine alternative options was taken
because the previous 12.5 per cent increases had proven to be an effective,
bipartisan policy that was understood and supported by the community.[30]
It is unclear whether such a statement provides a
sufficiently robust basis to not consider alternative policy options. As stated
in the Australian Government Guide to Regulation:
Every good RIS will canvass a range of viable options. The
number of options you include in your analysis should be commensurate with the
magnitude of the policy problem being considered, but three is a good minimum
rule of thumb. ... At least one option must always be non-regulatory. Remember
that a rigorous cost-benefit analysis must always pose the status quo as the
benchmark policy option.[31]
It would appear that, at a minimum, the RIS has failed to
adequately consider a non-regulatory option.
There are forecast to be just above 19.5 million people
aged 18 and over in Australia in 2018.[32]
In order to achieve COAG’s stated aim of achieving smoking rates equal to 10
per cent of the adult population, smoking rates will have to fall further. As
noted above, ABS data indicates that as of 2014-15, some 2.6 million adult
Australians smoke. In order to reach the goal, smoking rates will need to
reduce 24 per cent from their 2014-15 levels. Smoking rates fell 1.6 percentage
points from 2011-12 to 2014-15 (an average of 0.53 percentage points per year),
which coincided with the first of the annual 12.5 per cent increases in
excise on tobacco on 1 December 2013 and 1 September 2014.[33]
It is unlikely that smoking rates will fall by 4.5
percentage points (from the 2014-15 numbers) to 2018 because it would require
an annual reduction in smoking rates of around 1.1 percentage points. As
Treasury recently noted, the remaining smokers in Australia are likely to be
progressively less responsive to changes in cigarette prices. In 2013, Treasury
estimated the elasticity of demand for cigarettes (that is, the degree of
people’s responsiveness from a change in price) to be -0.58.[34]
That is, for a 10 per cent increase in the price of cigarettes, quantity
demanded falls by 5.8 per cent. For the 2016-17 Budget, Treasury provided an
updated estimate of the elasticity of demand which was -0.5. That is, for a 10
per cent increase in the price of cigarettes, quantity demanded falls by five
per cent.[35]
Although it is acknowledged in the RIS that the demand for
cigarettes is not the same as the adult daily smoking rate,[36]
the two are likely to be closely related. The Treasury analysis estimates that
the demand for cigarettes will fall by 17 per cent by 2020 after the four
annual 12.5 per cent increases in excise.[37]
Given that proportionately most of the effect of the excise increase will be realised
in 2019 and 2020, a figure lower than 17 per cent is likely to be smokers’
response by 2018.
By way of comparison, in 2010 a range of measures
including a 25 per cent one-off increase in the excise on tobacco was
announced. Other measures included the introduction of plain packaging,
extending advertising restrictions, and increased spending on anti-smoking
campaigns. The estimated reduction in consumption was 11 per cent.[38]
It would be expected that the first two years of 12.5 per cent annual excise
extension would result in an increase in excise of 26.5 per cent above current
levels by 2018. Given the past relationship between excise increases and
smoking consumption, it may be that the increase in excise on tobacco is
insufficient to meet the stated COAG goal of reducing smoking rates to 10 per
cent of the adult population. However, it should also be acknowledged that
potential new smokers may be dissuaded from commencing as a result of the
non-price measures announced in the 2010 package.
Key
provisions
Customs
Tariff Bill
Existing section 19AB of the Customs Tariff Act
contains the formula for calculating the indexation of tobacco duty rates. Tobacco
rates are indexed twice a year, on 1 March and 1 September (subsection
19AB(12)). Subsection 19AB(3) provides the method for calculating the
indexation factor. The indexation factor is calculated as
the average weekly ordinary time earnings (AWOTE) amount for the most recent
reference quarter before the indexation day, divided by the AWOTE amount for
the base quarter. If the indexation factor for an indexation day (1 March and 1
September each year) is greater than one, the tobacco duty rate is replaced by
a new rate of duty as set out in subsection 19AB(1). This is equal to:
Subsection 19AB(6)(a) of the Customs Tariff Act
provides that the additional factor is 1.125 for the indexation
days that occur on 1 September 2014, 1 September 2015 and 1 September 2016. Item
2 of the Customs Tariff Bill amends paragraph 19AB(6)(a) of the Customs
Tariff Act to extend the application of the additional factor
of 12.5 per cent on each 1 September indexation day until 1 September 2020.
Theoretically, there is a possibility that the indexation
factor worked out under subsection 19AB(3) could fall below one, in which event
the indexation factor could lower the applicable tobacco duty rate. However, as
set out above, under subsection 19AB(1) the tobacco duty rate is only replaced
if the indexation factor is at least one. If it is less than one, the tobacco
duty rate is not adjusted. However, if this occurred on a 1 September
indexation day, it would mean that the duty rate would not be increased by the
scheduled 12.5 per cent. To ensure that this does not occur, subsection 19AB(5)
of the Customs Tariff Act provides that the indexation factor as
calculated in accordance with subsection 19AB(3) should be treated as one for
the 1 September indexation days in 2014, 2015 and 2016. Item 1 of the
Customs Tariff Bill amends subsection 19AB(5) of the Customs Tariff Act,
by ensuring that the indexation factor will also be treated as equal to one on
each 1 September indexation day up to and including 1 September 2020.
Excise
Tariff Bill
Section 6AA of the Excise Tariff Act contains the
formula for calculating the indexation of tobacco excise rates. Items 1 and
2 of the Excise Tariff Bill amend section 6AA to ensure that the additional
12.5 per cent indexation of the excise on tobacco continues on each 1 September
indexation day to 1 September 2020.
[1]. Parliament
of Australia, ‘Customs
Tariff Amendment (Tobacco) Bill 2016 homepage’, Australian
Parliament website.
[2]. Parliament
of Australia, ‘Excise
Tariff Amendment (Tobacco) Bill 2016 homepage’,
Australian Parliament website.
[3]. These
measures were originally announced as part of the 2016-17 Budget. For further
background information on the Bills see: M Thomas, Tobacco
excise increase, Budget review 2016-17, Parliamentary Library,
Canberra, 2016.
[4]. Explanatory
Memorandum, Excise Tariff Amendment (Tobacco) Bill [and] Customs Tariff
Amendment (Tobacco) Bill 2016 [and] Customs Tariff Amendment (Tobacco) Bill
2016, p. 5.
[5]. Ibid.
[6]. Ibid.,
p. 6.
[7]. Ibid.,
p. 14.
[8]. Ibid.,
p. 12.
[9]. Australian
Bureau of Statistics (ABS), National
Health Survey: First Results, 2014-15, cat. no. 4364.0.55.001, ABS,
Canberra, 2015.
[10]. Explanatory
Memorandum, Excise Tariff Amendment (Tobacco) Bill [and] Customs Tariff
Amendment (Tobacco) Bill 2016, op. cit., p. 24.
[11]. Ibid.,
p. 26.
[12]. Senate
Standing Committee for Selection of Bills, Report,
5, 2016, The Senate, Canberra, 1 September 2016.
[13]. Senate
Standing Committee for the Scrutiny of Bills, Index
of bills considered by the committee, 2016, The Senate, Canberra, 2016.
[14]. Australian
Labor Party (ALP), A
healthier Australia through best practice tobacco policy, ALP policy document,
24 November 2015.
[15]. A
Bandt (Greens Treasury spokesperson), Tobacco
tax rise should not fund tax cuts: Bandt, media release, 17 April 2016.
[16]. Financial
Planning Association of Australia, 2016
federal election — comparison of tax-based policies of key parties,
media release, June 2016.
[17]. S
Aranda (CEO Cancer Council Australia), Budget
lays platform for longer term improvements in cancer policy says Cancer Council
Australia, media release, 3 May 2016.
[18]. M
Swanson (Heart Foundation spokesperson), Tobacco
tax helps take the puff out of smoking, media release, 3 May 2016.
[19]. J
Rogut (CEO Australasian Association of Convenience Stores), AACS:
Budget targets smokers in a predictably lazy move, media release,
9 May 2016.
[20]. S
McIntyre (British American Tobacco Australasia spokesperson), Tobacco
black market set to boom, media release, 4 May 2016.
[21]. Explanatory
Memorandum, Excise Tariff Amendment (Tobacco) Bill [and] Customs Tariff
Amendment (Tobacco) Bill 2016, op. cit., pp. 34, 39‑40.
[22]. The
Statement of Compatibility with Human Rights can be found at pages 8–9 of the Explanatory
Memorandum to the Bill.
[23]. Parliamentary
Joint Committee on Human Rights, Index
of bills and legislative instruments considered by the committee, 2016.
[24]. Explanatory
Memorandum, Excise Tariff Amendment (Tobacco) Bill [and] Customs Tariff
Amendment (Tobacco) Bill 2016, op. cit., p. 30.
[25]. Ibid.,
p. 29.
[26]. Ibid.,
p. 26.
[27]. Ibid.
See also Council of Australian Governments (COAG), National
healthcare agreement 2012, Intergovernmental Agreement on Federal
Financial Relations, COAG, 2012, p. A-5.
[28]. Explanatory
Memorandum, Excise Tariff Amendment (Tobacco) Bill [and] Customs Tariff
Amendment (Tobacco) Bill 2016, op. cit., p. 26.
[29]. Ibid.,
pp. 12, 26.
[30]. Ibid.,
p. 27.
[31]. Department
of the Prime Minister and Cabinet (PM&C), Australian
Government guide to regulation, PM&C, Canberra, 2014, p. 26.
[32]. Australian
Bureau of Statistics (ABS), Population
projections, Australia, 2012 (base) to 2101, cat. no. 3222.0, ABS,
Canberra, 2013.
[33]. Explanatory
Memorandum, Excise Tariff Amendment (Tobacco) Bill [and] Customs Tariff
Amendment (Tobacco) Bill 2016, op. cit., pp. 12, 14.
[34]. Demand
functions are taken to be downward sloping (as price and quantity are inversely
related) and as such demand elasticities are negative values.
[35]. Senate
Economics Legislation Committee, Official
Committee Hansard, 6 May 2016, pp. 60–61.
[36]. Explanatory
Memorandum, Excise Tariff Amendment (Tobacco) Bill [and] Customs Tariff
Amendment (Tobacco) Bill 2016, op. cit., pp. 30.
[37]. Ibid.,
p. 29.
[38]. Ibid.,
p. 30. See also The Treasury, Post-implementation
review: 25 per cent tobacco excise increase, The Treasury, Canberra,
February 2013, pp. 2, 15.
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