Tobacco Excise

Page last updated: 19 October 2018

Tobacco use is estimated to kill almost 19,000 Australians every year and remains the leading cause of preventable death and disability in Australia.1 The Australian Government, together with the state and territory governments, is committed to reducing the prevalence of smoking and its associated health, social and economic costs, and the inequalities it causes.

Under Article 6 of the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC), to which Australia is a Party, the Government is obligated to implement tax and price measures to reduce the demand for tobacco. The Government’s position on tobacco taxes is consistent with recommendations by the WHO regarding the taxation of tobacco products.

Tax and price measures are only one component of Australia’s comprehensive suite of evidence-based initiatives to prevent and reduce smoking. At the national level, the Government’s tobacco control measures also include education programs and campaigns; plain packaging of tobacco products; labelling tobacco products with larger graphic health warnings; prohibiting tobacco advertising and promotion; measures to prevent and minimise the illicit tobacco trade; and providing support for smokers to quit.

The Government influences the price of tobacco through increases in tobacco excise and excise-equivalent customs duty. The differential taxation of tobacco products is justified by its highly addictive qualities and serious health impacts. It is also justified given the costs borne by the community as a result of tobacco consumption (including the costs attributable to second-hand smoking) and the increased costs of health care for smokers which are borne by all taxpayers. Importantly, tobacco excise increases which result in higher cigarette prices are one of the most effective ways to reduce smoking prevalence, especially among young people and those on lower incomes who are particularly sensitive to price.

Tobacco excise increases, apart from discouraging smoking, also help to pay for essential services such as the delivery of health services and other areas of spending that benefit the whole Australian community.

Findings from the 2016 National Drug Strategy Household Survey, administered by the Australian Institute of Health and Welfare, show that the daily smoking rate for people aged 14 years or older over the past two decades has nearly halved, from 24.3 per cent in 1991 to 12.2 per cent in 2016. This shows that the broad range of tobacco control measures of successive governments at the federal and state level are having the desired effect.

The Government began implementing staged annual 12.5 per cent increases in tobacco excise and excise-equivalent customs duty on tobacco and tobacco-related products on 1 December 2013, followed by additional 12.5 per cent increases on 1 September 2014, 2015, 2016, 2017 and 2018. These annual excise increases will continue in 2019 and 2020.

The WHO recommends that tobacco excise taxes (excluding other taxes) should account for at least 70 per cent of the retail prices of tobacco products. In Australia, as of 1 September 2018, the tobacco excise applied to five leading brands of manufactured cigarettes was estimated to range from 55 to 61 per cent of the total recommended retail price of these products, with total taxes (tobacco excise plus GST) ranging from 65 to 71 per cent of the recommended total retail price.2

Australia is the only country in the world to index tobacco excise to wage inflation (average weekly ordinary time earnings) to ensure that tobacco products do not become relatively more affordable over time.

The Government also announced in the 2017-18 Budget that ‘roll-your-own’ and other tobacco products such as cigars will be subject to comparable tax treatment to manufactured cigarettes. This ensures fairness and efficiency in tobacco taxes by aligning the taxation of 'roll-your-own' tobacco products with manufactured cigarettes.

1 Australian Institute of Health and Welfare 2016. Australian Burden of Disease Study: Impact and causes of illness and death in Australia 2011. Australian Burden of Disease Study series no. 3. BOD 4. Canberra: AIHW.
2 Estimates based on recommended retail price list of Winfield 25s, Longbeach 30s, Horizon 30s JPS 26s and Peter Jackson 25s, available on the Patterson Road website.