David Leyonhjelm (NSW, Liberal Democratic Party) Share this | Link to this | Hansard source

My question is to the Minister representing the Treasurer, Senator Cormann. The government expects a $3.7 billion boost to revenue from tobacco excise and customs duty over the next four years under its measure to combat illicit tobacco. Much of this revenue boost occurs in 2019-20, when the government will start taxing tobacco as it enters warehouses rather than when it leaves. This will bring forward revenue. Roughly what proportion of the $3.7 billion boost over four years is attributable to this change in the point at which tobacco is taxed? Can you please explain how this change in the taxing point can have a significant effect over the next four years, given that the average time that tobacco remains in warehouses is only a matter of weeks?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

I thank Senator Leyonhjelm for that question. The government is indeed introducing a package of measures, including additional enforcement resources, to combat the illicit tobacco trade and protect the integrity of Australia's tobacco excise system. The package of measures will address this tax gap, promote the health of Australians by supporting the existing tobacco control policies and remove a key source of funding for organised crime. These measures will protect the sustainability and integrity of the tax base and will ensure that everyone pays their fair share, which will enable the government to keep taxes as low as possible, reducing the burden on the legitimate law-abiding economy.

The package is estimated to have a net gain to the budget of $3.6 billion over the current forward estimates periods, and a large proportion of the revenue impact is due to moving the taxing point for tobacco to the border to eliminate leakage from licensed warehouses. That is the integrity measure. Rather than collect the tax at a later stage, we'll collect the tax at the border. Changing the taxing point does result in tobacco duty being collected earlier than it otherwise would have been, bringing additional revenue into the current forward estimates period. This includes a one-off boost to revenue in the first year of the measure, as all stock held in warehouses as at 1 July 2019 becomes liable for duty and revenue is received from new tobacco imports due to the earlier taxing point.

Scott Ryan (President) Share this | Link to this | Hansard source

Senator Leyonhjelm, a supplementary question.

David Leyonhjelm (NSW, Liberal Democratic Party) Share this | Link to this | Hansard source

Can the minister assure taxpayers that at least $136 million of the $3.7 billion revenue boost is not attributable to the change in the taxing point but instead attributable to consumers switching back to legal tobacco? I say this because the budget boosts spending on tobacco law enforcement by $136 million, and this would be unjustified if it didn't generate as least as much revenue.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

The package of measures that the government has announced is designed to combat the illicit tobacco trade and protect the integrity of Australia's tobacco excise system. In addition to requiring importers to pay excise when tobacco enters the country rather than when it enters the domestic market, eliminating leakage from warehouses to the black market, the measures the government has announced include the creation of a new multi-agency Illicit Tobacco Taskforce led by the Australian Border Force to bolster the capability of enforcement agencies to ensure future revenue and remove a key source of funding for organised crime.

The package will target the three main sources of illicit tobacco: smuggling, warehouse leakage and domestic production. The ATO and Home Affairs analysis suggests that illicit tobacco results in almost $600 million of forgone tobacco duty each year. According to the same analysis, leakage from licensed warehouses is responsible for an estimated 250 tonnes of tobacco that is unaccounted for each year—an estimated $172 million of forgone revenue. The package as a whole— (Time expired)

Scott Ryan (President) Share this | Link to this | Hansard source

Senator Leyonhjelm, a final supplementary question.

David Leyonhjelm (NSW, Liberal Democratic Party) Share this | Link to this | Hansard source

I'm not sure that amounted to an assurance. But, anyway, bringing forward tax is essentially a tax hike. It will hurt the cash flow of tobacco suppliers and cause an increase in prices for legal tobacco. Can the minister advise how much the bringing forward of tax will increase prices for legal tobacco? And won't this make illicit tobacco even more attractive to smokers?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

The government recognises that the black economy is unfair and that it imposes significant costs on the community as a whole and on the economy. It creates an uneven playing field for business, fosters a culture of tax evasion and welfare fraud and undermines the integrity of Australia's regulatory procurement and migration systems and facilitates criminal activity, including organised crime, money laundering, illicit tobacco and illegal gambling. The package of measures the government has announced to combat the illicit tobacco trade and protect the integrity of Australia's tobacco excise system targets those who are doing the wrong thing. The government recognises that most people in businesses in our community are doing the right thing. The package of measures the government has announced to combat the illicit tobacco trade and protect the integrity of Australia's tobacco excise system therefore seeks to reduce regulation for honest Australians by better targeting those doing the wrong thing.