Tobacco tax hike to add billions to Australia’s coffers

CANBERRA, Australia – Smokers in Australia could pay approximately Aus$40 (US$30) for a pack of cigarettes from 2020, under revenue-boosting budget measures announced Tuesday, May 3.

The cost of cigarettes will rise 12.5% every year, starting from 2017, with a packet currently costing around Aus$25, according to a report in the Sydney Morning Herald.

Finance minister Scott Morrison told parliament that an increase in cigarette excise would raise Aus$4.7 billion over the next 4 years.

A further crackdown on firms avoiding tax, another key part of the budget, is forecast to raise Aus$3.9 billion over the next 4 years when combined with a broader tax avoidance package.

But the budget also aimed to shore up economic growth amid a rocky transition from dependence on mining, doling out tax cuts for individuals and businesses.

With an eye on national polls expected in July, which are shaping up as close, Morrison said the new revenue would not be banked by the ruling Liberal-National coalition if it stayed in office, but used to fund the tax cuts.

“This cannot be just another budget because these are extraordinary times,” Morrison told parliament in Canberra in a prepared speech.

“Australians know that our future depends on how well we continue to grow and shape our economy as we transition from the unprecedented mining investment boom to a stronger, more diverse, new economy… This is a very sensitive time.”

While Australia has avoided a recession for 25 years and is one of only a handful of countries in the world with triple A credit ratings, growth in non-mining industries has so far failed to fill the gap left by a massive resources investment boom.

It has been hurt by waning demand from its largest trading partner China and falling commodity prices, with soft wages growth also squeezing government revenue.

Slashing interest

The budget announcement came as the central bank slashed interest rates to a new record low of 1.75% in order to stimulate the economy, following recent unexpectedly weak consumer prices.

The economy grew 3.0% last year, but was forecast in the budget papers to slow to 2.5% expansion in 2016-17.

The government said the 2016-17 deficit was estimated to come in at Aus$37.1 billion, or 2.2% of GDP, with Morrison touting a need for Australia to “live within our means.”

Morrison and Prime Minister Malcolm Turnbull are trying to balance the need to rein in the deficit and debt while driving growth in jobs and the economy.

Meanwhile, projects to protect the World Heritage-listed Great Barrier Reef, suffering from unprecedented coral bleaching, would receive a Aus$171 million boost.

Other spending measures outlined by Canberra included additional defense spending of Aus$29.9 billion over the next 10 years.

The Labor opposition called it a “budget for big business over battlers.”

“The difference between Labor and Liberal could not be more stark tonight – we’ll put people first, while the 2016 budget has shown the Liberal Party will look after high income earners and multinationals,” shadow treasurer Chris Bowen said.

In the run-up to the election, Turnbull and Morrison have attempted to highlight their conservative coalition’s purported fiscal responsibility credentials, in contrast to Labor. – Rappler.com