[Intl-tobacco] Tobacco Industry Could Pull Out Of Australia (fwd)

[Robert Weissman]

Tobacco Industry Could Pull Out Of Australia
Source: The Age, Tuesday, 8/1/00

The illegal tobacco industry and increases in government taxes on
cigarettes could eventually force tobacco manufacturers to pull out of
Australia, the country's largest tobacco group warned today.

 British American Tobacco Australasia Ltd (BAT) said industry volumes had
already dropped by around 10 per cent in the first six months of this
year, even before the impact of the GST and another excise rise today.

 BAT managing director Gary Krelle said four tax rises in the year to July
had increased the price of cigarettes by 25 per cent for some consumers.

 'If taxes continue to climb at this rate, tobacco manufacturing in
Australia will not be a viable option in the long term,' Mr Krelle said.

 The industry was also suffering at the hands of the illegal tobacco trade
with chop-chop, as it is known, estimated to be costing the government as
much as $600 million a year in lost revenue and taxes.

 Mr Krelle warned that in five years' time it would be 'certainly very,
very difficult to justify manufacturing in Australia'.

 'Unless the chop-chop issue is addressed and unless governments have
another look at just how far they think they can continue to ramp up the
prices, I'm sure we'll all be forced to have a re-look at where we
manufacture,' he said.

 That could also badly impact Australian tobacco growers, who are mainly
based in Victoria and Queensland.

 Tobacco giant Philip Morris is already reportedly already considering
laying off 100 workers in its Victorian manufacturing operation due to the
impact of the illegal tobacco trade on sales.

 The Australian Taxation Office (ATO) has employed 40 extra investigators
to target the national trade in illegally manufactured loose-leaf tobacco.

 Mr Krelle welcomed the ATO's move, but described it as 'no silver
bullet'.

 Chop-chop is reportedly sold in more than 75 per cent of independent
tobacco retailers and can be bought for almost a third of the cost of
regular cigarettes.

 BAT estimates that the annual volume of chop-chop sold in Australia has
doubled in the last three years to around 1,500 tonnes.

 Cigarette smokers have just faced a 9.6 per cent hike in the price of
smokes under the 10 per cent GST, plus another two per cent or around 10
cents per packet today under the latest federal government excise
increase.

 The resultant price increases have caused the industry volume to fall
from around 27.5 billion sticks to around 24 billion, BAT said.

 BAT's Holiday value brand cost $10.30 for a pack of 50 in January last
year.

 The same pack now costs more than $14, after three CPI excise increases,
an excise change on November 1 - with the tax now paid on every stick
rather than by the weight of a cigarette - and the 10 per cent GST.

 Bigger excise increases were expected in the next round in February,
2001, when the full impact of the GST flowed through to the inflation
rate.

 Mr Krelle argued that tobacco excises, which currently deliver around $6
billion to the federal government each year, should not be pegged to the
consumer price index, resulting in an automatic price increase every six
months.

 'They need to make up their mind whether they want to be our biggest
investor or put us out of business,' he said.