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Tuesday, 20 September 1994
Page: 1005

Senator MARGETTS (5.24 p.m.) —I also wish to speak on the Industry Commission report on the tobacco growing and manufacturing industry. For years now, the government has actively pursued policies in support of a special sector of domestic agriculture and a special sector of manufacturing. Its general policy thrust has been to let domestic industries die rather than support them in any way, even when they are competing with heavily supported imports. So what is this special, most favoured industry? It is not basic food or other basic needs; it is tobacco.

  The government is currently conducting strong health campaigns against tobacco smoking. Given the number of deaths and debilitating illnesses involved, this is understandable. What is not explicable is why there has been this history of great concern to support a domestic tobacco industry while every other industry except the arms trade has been left to sink or swim. But the government is finally moving to abandon the Australian tobacco industry to death by market forces.

  Most imported tobacco products pay a tariff at a rate equivalent to excise payments. This is currently about $67 a kilo. Duties also include a protectionist component. The commission has reported that essentially we have a domestic tobacco industry based on concessional tariffs for tobacco imports, with companies that have over 50 per cent Australian content getting concessional tariff reductions of 47c a kilo instead of $1 to $2 a kilo, and special mechanisms to ensure that tobacco products made here have 57 per cent Australian content.

  The Industry Commission suggests that this should not be sustained and the tobacco industry should be put on a competitive basis. It states that this will probably mean an end to domestic production. Although it notes some of the problems facing Australian growers and seems to support some type of adjustment program for them, it falls short of any actual recommendations to this effect.

  Primary recommendations appear to be the demise of concessional duties. It suggests that all other non-tariff support be eliminated and then, with the demise of the TISP or LLCS, the general tariff rate on all tobacco leaf products goes to 25 per cent on an ad valorem basis rather than a tariff on a weight basis. The 25 per cent will then be phased down to five per cent. All manufactured products will go to five per cent immediately on the demise of TISP or LLCS, that is, on or before 30 September 1995.

  This is the area in which the Greens have a strong objection to the recommendations. The current weight based system works well and the current tariff level is designed to be a disincentive to smoking rather than a tariff barrier. As the report notes on pages 90 and 91, while taxes increased, revenue decreased due to reduced sales. In this case we do not have a big problem with the demise of a concessional rate which acts as an industry support. We object, however, to any change which would effectively reduce the cost of smoking. We believe that the recommendations for a reduction to an ad valorem five per cent tariff constitutes such a reduction and that the fact that state taxes are mainly ad valorem means that the reduction would have a multiplier effect. If a state tax is set at 100 per cent, a reduction of 30c at import level would translate into a reduction of 60c. The indication from the current rates is that the reduction would be at least that.

  We also have objections to the ad valorem method in principle, as do the industry and health groups. Our concern, like that of health groups, is that an ad valorem system at federal level, added to ad valorem taxes at other levels, would simply create a strong differential between cheap and expensive cigarettes. In addition, the commission notes that under the current weight based federal system one effect is that manufacturers seek to lower costs by lowering tobacco content, either by making cigarettes smaller or by using non-tobacco fillers. This is not a bad outcome from a health perspective.

  The final issue is that while the report includes adjustment for tobacco growers as an issue in both its findings and in chapter 8, it does not make any recommendations on this issue. We feel that the issue is an important one and must be addressed.