Butting out Victoria’s illegal tobacco trade


September 9, 2021

Tania MAXWELL (Northern Victoria) (12:54):

I move that this house:

(1) expresses concern at the proliferation of illicit tobacco in Victoria;

(2) acknowledges the criminal implications arising from the sale of illegal tobacco and the impact on law-abiding tobacco retailers;

(3) recognises opportunities to strengthen state responses to the retail sale of illicit tobacco in Victoria; and

(4) calls on the government to explain what action is being taken to disrupt and halt black market tobacco distribution sales in Victoria.

I rise today to bring this important motion to the house, to recognise the widespread extent of the illicit tobacco trade and to make recommendations that could improve the state’s response to what is a serious organised criminal market.

I have raised issues relating to illegal tobacco numerous times in this Parliament and have been encouraged by the constructive conversations I have had with the government, especially most recently, as we have unpacked some of the practical issues around enforcement and response.

$800 million annual excise loss

The sale of illicit tobacco is extremely lucrative in Australia, including in Victoria. The Herald Sun reported in June 2021 that criminal syndicates make more money from black market chop-chop than cocaine. The Australian Tax Office estimates the tobacco tax gap is more than $800 million a year across Australia. That is just the tax that is lost, so you can understand the phenomenal volume of trade that is occurring illegally in our communities.

Law-enforcement has established strong links between the smuggling and sale of illicit tobacco and organised crime syndicates. Most concerning is how profits are funnelled to other serious criminal offending, including but not limited to child sexual exploitation, terrorism, human trafficking, firearm offences, cybercrime and general violence.

Speaking generally on organised crime, and following the success of ‘Operation Ironside’, federal police commissioner Reece Kershaw said at his National Press Club address on 28 July that:

… these violent, trigger-happy, organised criminals also strike at the heart of our democracy by undermining our national security, our economy, social security system, and our social cohesion, especially in regional communities.

Speaking on 19 February 2020, Commissioner Kershaw spoke about organised crime in relation to child sexual exploitation. The commissioner said, and I quote:

This is organised crime, but the commodity is children.

As recently as July this year intelligence reports highlighted organised crime groups infiltrating Australian freight, logistics and transport firms for the import and distribution of drugs and illegal tobacco. Twenty-nine trusted insiders were arrested following the cracking of the encrypted ANoM app. Mike Phelan, head of the Australian Criminal Intelligence Commission, was reported to say that Australian criminal networks:

… share supply routes, they share logistic supply chains … They share any corrupt networks …

During an operation in March 2021 the Australian Border Force executed search warrants at residential and commercial properties in suburban Melbourne, and it is alleged that the targets belonged to an organised crime syndicate that smuggles and distributes illicit molasses tobacco throughout Victoria.

Victoria Police indicated to the panel undertaking a review of Victorian criminal organisational laws that nearly all levels of crime in Victoria can be linked to organised crime. Organised crime is a constantly evolving challenge for law enforcement and incredibly dangerous and damaging to our communities. It continues to be a significant priority for state and federal law enforcement, and rightly so.

When talking about the increase in domestic growth of illicit tobacco, Illicit Tobacco Taskforce commander Greg Linsdell is quoted in the Sydney Morning Herald on 26 July this year saying that:

… these are people coming in and exploiting regional areas, taking water, damaging soil, using foreign labour and giving nothing back to the community …

Commander Linsdell went on to say that:

Removing illicit tobacco from crop to shop creates a level playing field and also helps to stop organised crime syndicates from funding other activities …

The lost excise—money that pushes up the cost of legal tobacco to start with—is money that would otherwise be delivered to our communities for important services and infrastructure—to our hospitals, emergency services, schools and roads.

With plain packaging and no health warnings, as well as a moral and legal disregard for restricting sales to minors, illicit tobacco sales undermine other tobacco control methods and policies to reduce smoking and disadvantage law-abiding retailers who do the right thing.

It’s not about the rights or wrongs of smoking

This motion is not about the rights or wrongs of smoking, nor is it seeking to deprive smokers of the opportunity to buy legal products. I recognise that some people purchase illicit tobacco simply because it is cheaper and they give little or no regard to the broader criminal implications, but these broader criminal implications are of great regard to me and to Derryn Hinch’s Justice Party.

In the 2019–20 financial year the Australian Border Force detected and seized more than 432 million cigarettes and 177 tonnes of loose-leaf tobacco. These statistics demonstrate the extent of the market, because despite these interceptions it is suggested that there are more than 400 shopfronts selling illicit tobacco across Victoria. If that information is correct, there is one just over a kilometre from this place. It is not just a metropolitan situation, and shops are scattered across regional Victoria, including many in my electorate of Northern Victoria.

Since the federal Illicit Tobacco Taskforce was formed in 2018 there has certainly been more happening to disrupt the trade, especially at the point of import and identifying illegal crops. The federal parliamentary Joint Committee on Law Enforcement undertook a review of illicit tobacco, which spanned over three parliaments and made key recommendations around coordinating law enforcement-led responses. I am aware of five operations in Victoria this year, including the seizure of 2500 packets of cigarettes and 28 kilograms of loose tobacco from properties in Shepparton and Euroa in January, almost 12 hectares of crops in Beverford in March, crops raised on properties in Yarrawonga in May and more than 300,000 cigarettes seized in July from businesses and storage sheds in Shepparton and Mooroopna. I know these raids are complex, and I give credit to the multiple agencies involved.

There are some who have urged that this is a federal responsibility, but as I previously noted in this Parliament, Australian Border Force Assistant Commissioner Sharon Huey confirmed at a 2019 Senate inquiry that state and territory health and policing authorities do have responsibility for compliance action regarding the sale of illicit tobacco by retailers. I note the Department of Immigration and Border Protection submission to the inquiry into illicit tobacco in 2016 detailed limitations to their enforcement at the level of retailer or wholesaler. Indeed one of the recommendations out of this review was 5.3, the ‘greater involvement of state and territory governments’. The federal government is due to formally respond to the joint committee’s report and recommendations relating to illicit tobacco in the second half of this year, but separate to this there are gaps that exist at a state level that could be immediately addressed to strengthen the system. The Victorian Tobacco Act 1987 empowers the Secretary of the Department of Health to appoint inspectors for enforcement of the act, and this falls in the lap of environmental health officers currently under local governments.

Municipal Association wants change

In October 2016 the Municipal Association of Victoria state council resolved to advocate to the Victorian state government for a review of the role of council officers in investigating activities associated with the selling of illicit tobacco products. Following this a service agreement was put in place to determine the education and enforcement activities that councils would undertake in this role. Environmental health officers have an important role in public health at the community level in relation to tobacco and in line with the service agreements. Councils see their role as enforcing smoking bans in prohibited places, restricting advertising and providing education. With illicit retailers run by serious criminal syndicates it is little wonder that councils avoid any enforcement activities relating to the sales of illicit tobacco. In consulting with councils across my electorate, overwhelmingly their feedback is that any remit to combat the sale of illicit tobacco is not appropriate for council officers and in effect they would not authorise them to undertake such activity. Councils have been very clear to me that they deem it unsafe for their staff to be conducting surveillance, search or seizures to circumvent illicit tobacco trade, particularly considering the links to organised crime.

Councils also report a restrictive and cumbersome system without a supportive infringement regime to give serious consequences to offenders. Powers of entry and the authority to direct and gather evidence are very restrictive and councils face substantial costs in pursuing illicit traders through the justice system. Exploring a simple structure of regulation and infringements could eliminate some of the complexity that exists. It would also act as a deterrent for any sellers of licit product that may also dabble in illicit sales.

Licensing scheme

Victoria and Queensland are the only two remaining states without a regulated licensing scheme for the sale of tobacco. Other goods are regulated, such as alcohol, gambling and firearms. Initiating a licensing scheme in Victoria could provide a means to combat illegal retailers and the opportunity to link regimes across jurisdictions and align them with commonwealth provisions. Licensing gives an opportunity for authorities to determine the fitness of persons to undertake the activity and provides a framework for managing offending through the process of suspending or revoking a licence. It then provides the capacity for infringement notices, scalable in nature.

A licensing scheme is supported by Quit Victoria and the Police Federation. I have had productive conversations with Quit Victoria, and they note that what we have in place now is essentially a negative scheme for tobacco whereby a retailer may be prohibited from selling tobacco products for a specific period if found guilty of offences under the Tobacco Act 1987. They have a longstanding concern that these provisions have had little impact or enforcement—they do not address illegal shopfronts—and they propose that a positive licensing scheme would provide better enforcement opportunities and support broader public health policies.

While the schemes are a little different in every state, systems that include both retail and wholesale licences appear to give greater accountability and transparency in the supply chain, with the onus on licensees to ensure that they only deal with other licence-holders. Some jurisdictions have a public register for licence-holders and give powers of entry and search to both investigators and police. This is in contrast to the current situation in Victoria, where police have to obtain a warrant to enter and search a premise and investigators can only search areas of a premise that are open to the public without the consent of the occupier or a warrant.

Under a licensing scheme, power could be given to the state administrative tribunal for disciplinary action against a licence-holder with proper cause. This would then give capacity for a licence to be suspended, revoked or disqualified. A range of penalties, including on-the-spot infringement notices and fines, would make enforcement easier and faster than exists under the current system. Tiering the maximum penalties for subsequent offences, for quantity of illicit tobacco involved and making non-compliance an indictable offence for large quantities of illicit tobacco could ensure penalties are focused on repeat and serious offenders. The Australian Association of Convenience Stores estimates legitimate traders lose $1.5 million daily in revenue, so I think the benefits would far outweigh any burden on existing retailers.

I will finish by conveying my gratitude to the Minister for Local Government, the Minister for Health and the Minister for Regulatory Reform for the very collaborative ways in which they have engaged with me in looking at the scale of this issue and the options for reform. It seems very reasonable that any remit to local councils in responding to illegal shopfronts should be removed and that considering a licensing scheme would be a very positive step in strengthening the state’s response to the extensive criminal trade of illicit tobacco across Victoria. On that note, I commend this motion to the house.

Tien KIEU (South Eastern Metropolitan) (13:09):

I rise to contribute to the motion put forward by Ms Maxwell on illicit tobacco; indeed I support her motion. Tobacco consumption is very addictive. I know that because I once quit for 21 years. In fact it is known to be even more addictive than heroin. It is a health issue not just for the person who consumes it but also for passive smokers. That is the reason for the introduction of the excise and the increase of the excise every year in line with CPI.

Despite that, illicit tobacco is still very much available under the counter. It is not only an issue that undermines the effort to encourage smokers to quit and have better health—I should know—but it is also a taxation issue because of the revenue lost. It is also a local government issue because at this stage in Victoria it is up to, mostly, the councils with the support of police to regulate and to find out about illicit tobacco under the counter. It is also a law and order issue, because a lot of the profit has been going to organised crime because it is deemed to be a low-risk and high-profit activity. Ms Maxwell has listed some of the organised activities, like child sexual exploitation, cybercrime, drug dealing and firearm trafficking, but the profit is also being diverted to terrorism, which is very much a big, big issue in our time now. This is a very big issue, and it has many underlying not only taxation problems for the government but also law and order issues. But the reality is that right now enforcement is at a federal level, closely working with local government and with the support of the police.

In the year 2008, I believe, the Illicit Tobacco Taskforce (ITTF) was formed nationally. They have been working together and growing their expertise and the capabilities of many national agencies, including the Australian Border Force, of course the Australian Taxation office and also the Department of Home Affairs, including the Australian Criminal Intelligence Commission and many other law enforcement agencies. We in Victoria remain committed to strengthening the measures that tackle illicit tobacco in our state. In fact we have invested very heavily in Victoria Police to ensure that they are better equipped than ever before to target crime in whatever guise it takes, with nearly $4 billion in new investment not only for more police in our community but also to equip the police with the most up-to-date technology and also legislation to sharpen the police approaches to disrupting organised crime networks and also those who may operate in this space of illicit tobacco.

Apart from the city councils, which are responsible for monitoring, surveillance and searching, the police have also been assisting the councils and will continue to assist with enforcement in relation to illegal tobacco. I can give some examples here. As of November 2019 at the national level the Illicit Tobacco Taskforce had seized more than 262 tonnes of illicit tobacco, which could be cigarettes, cigars or loose-leaf. That could be either grown, manufactured or produced locally or imported from overseas.

Victoria Police have worked closely with the ITTF. In March 2020 VicPol assisted in shutting down two active illicit tobacco operations with a combined street value of more than $27 million. Not only that, VicPol has also been working side by side with the Department of Health and of course the local governments in identifying and disrupting any illicit activity related to illegal tobacco. In Victoria the offences relating to illegal tobacco sit within an act named the Tobacco Act 1987, which includes not only the sale of tobacco but also restrictions on the advertising, display and use of tobacco and its sale to under-age children.

Victoria Police is continuing to work with the community, and I would urge anyone in the community who has any information to contact us now. So our government welcomes the opportunity to be open about the important work being done to tackle illicit tobacco in our state, and to that end we support Ms Maxwell’s motion.

Edward O’DONOHUE (Eastern Victoria) (13:17):

I am pleased on behalf of the opposition to join this debate and thank Ms Maxwell for bringing it to the chamber. It is a very important issue. The issue of illegal tobacco is of growing importance, not just because of the health consequences for Victorians who buy illicit, illegal tobacco but because of the links to organised crime, links to international crime syndicates—particularly illegal tobacco from China and other places—and obviously the lost revenue to the taxation system, which impacts on the ability to fund the services that we as a community need now more than ever. And of course there are clear health implications. There has been so much regulation—which I think has been a great thing—of the retail, lawful sale of tobacco, but now we have this growing parallel proliferation of illegal chop-chop, illicit tobacco, that is causing a huge amount of harm in the community.

This issue is one that seems to sit in the too-hard basket. Dr Kieu said it is a matter for the federal government and local government, and frankly this model is not working. Local government inspectors closing down illegal tobacco shops in retail strips shut them down one day and they reopen the next in a different location in the same town, same community. It is simply not working. And of course the federal government have an important role managing the borders, ensuring that illegal tobacco is picked up at the border, but I think there is an important role for the government and for Victoria Police to also play an increased role.

So with those words, I support the motion. This is a very serious issue that is affecting so many Victorians, and it is one that needs to be tackled afresh with new eyes, new perspective and a new vigour to tackle what is an ever-worsening problem.

Fiona PATTEN (Northern Metropolitan) (13:19):

I am really pleased to speak on this motion, and I thank Ms Maxwell for bringing it here. I will commit to speaking very briefly on this motion because I know it is Dr Kieu’s smoko time very soon.

Australia was a leader in tobacco harm reduction, tobacco reduction. We were a leader in reducing people smoking. We are no longer. We have stalled, and as a result of that we are also losing control of the market. As Ms Maxwell stated in her contribution, we are seeing that the illicit tobacco market is growing and organised crime is taking hold. In fact just last night there was a major bust up in my region—Reservoir, Campbellfield and all of those areas—where three gang members were arrested. There was a huge haul of heroin along with a huge haul of illicit tobacco. So that is what we are seeing.

It is very hard to value the illicit market. I know that Ms Maxwell has put a value going by the AMA’s submission to the federal government, but I actually looked at this as well. We spend about $14 billion a year on tobacco, and there is an estimate that the illicit market is about 17 per cent of the market, so that is actually $830 million. So you can see what a great incentive that is for organised crime, when some of our poorest people are our biggest smokers. We know when we look at the statistics it is not Kew and Toorak where we are seeing smoking, it is actually my electorate. It is Campbellfield. It is the lowest five SES areas where we see the highest level of smoking. The highest level of smoking is in our Indigenous population and in people who are unemployed, so the people who can least afford $48 for a packet of cigarettes are being charged that—I looked it up, Dr Kieu. It is the leading cause of preventable death, but what are we doing? We are pushing people into the illicit market.

Now, I support Ms Maxwell’s proposition for licensing for greater control of that market; I get that. But we have got to find the sweet spot in demand reduction, supply reduction and harm reduction, the way we treat all other drugs, and we are not doing that. So for a very brief moment what I do want to talk about is that harm reduction, is that supply reduction. In the Australian health survey one in four smokers said that price would have an effect, four in 10 said that health impacts would have an effect and one in three smokers said they did not want to give up. So if we want to reduce the illicit market, we need to reduce the demand for this product. It is harm reduction; it is drug policy 101. So how do we do that supply reduction?

I would suggest: let us look at harm minimisation. Let us look at something like vaping. That is something this government could do. This government has actually repeatedly prohibited vaping in Victoria. It is absolutely crazy. We have got countries like the UK putting vapes on their PBS. They are actually paying for people to use vaporisers, because they know that it reduces the tobacco market and saves lives. I want to yet again repeat that vaping saves lives. If this government was brave, if this government was serious about addressing the tobacco market, if it was serious about addressing the illicit tobacco market—by all means license tobacconists, license people who are selling tobacco, try and reduce that. But when you have got a product that is so expensive and is so addictive, you have to deal with demand reduction and harm reduction. So I yet again implore the government, in looking at addressing this really important issue that Ms Maxwell has raised, to reconsider their position on nicotine replacement therapies such as vaping.

David LIMBRICK (South Eastern Metropolitan) (13:24):

Thank you to Ms Maxwell for bringing this important motion to the chamber for debate. This is an important motion, as the proliferation of illicit tobacco products in the community demonstrates a perfect storm of policy failure. It demonstrates something that Victorians will be well aware of from the last two years: that public health bureaucrats frequently fail to understand the negative consequences of their policies. I am sure these public health officials would think it is a simple thing: ‘We just need to catch the criminals and stop them importing illicit tobacco products’. As anyone with expertise and knowledge in the drug policy world will point out, it is not that simple. You have to actually understand the drivers behind this outcome if you want to adequately address it.

Excessively high taxes are the greatest incentive here. We have one of the highest tobacco excise rates in the world. In 2010 Australia introduced a 25 per cent increase and has had an annual 12.5 per cent increase every year since. A packet of cigarettes that cost just a few dollars in 1990 costs almost $50 now.

A Current Affair recently ran a special on the illicit tobacco trade which highlighted the drivers behind the market. One of the most shocking statistics reported was that illicit tobacco is 10 times more profitable than smuggling cocaine. A commonwealth joint committee on law enforcement published a report on illicit tobacco late last year. Pretty much everyone agreed that high taxes and high prices incentivise the illicit market—including law enforcement—and I quote from the report:

Submitters with a law enforcement perspective, for example the Police Federation of Australia, also agreed that that the high rates of tax on tobacco products creates incentives for people to engage in the illicit tobacco market due to the high profits to be made. It was further recognised that excise increases may drive more demand for cheaper alternatives, and this in turn may increase potential profit margins for criminal actors involved in the illicit tobacco market.

The A Current Affair piece quoted commander Greg Linsdell from the Australian Border Force Illicit Tobacco Taskforce, and he said, and I quote:

These are the big-end players in the Australian underworld.

It seems pretty clear that high taxes and outright prohibition have a very similar effect in incentivising organised crime. People are rightly concerned about the impacts of criminal activity. These high taxes do not just impact organised crime, however. They impact ordinary people.

Cancer Council Victoria are very supportive of these taxation measures. Research funded by them and published in the Lancet noted that there was about a 4 per cent reduction in the smoking rate in the nine years after the annual tax hikes were introduced. It is hard to know how much of this was driven by the price or simply people quitting because smoking is bad for you. They count this as a success, but what about the people that are unable or unwilling to quit? They experience increased poverty. I have heard some awful stories from people about the kinds of sacrifices that people make to be able to afford this addictive habit. We know that smoking rates are higher in regional areas, within Australia’s Indigenous population and in people with mental health conditions. The impact of this tax, sometimes referred to as a ‘sin tax’, is significant. What opportunities might they be sacrificing to allow this—health care, education, new clothes for their kids? We are increasing poverty and calling it public health. This is a familiar theme in 2021.

This is all really bad, but in Australia we have a bipartisan approach to nicotine harm reduction which makes it even worse. I have raised the matter of vaping and e-cigarettes in this chamber multiple times. In 2019 when an amendment was introduced that would have allowed the government to regulate e-cigarette retailers as e-cigarette retailers under the regulations that this government created, only the Liberal Democrats, the Reason Party and Dr Cumming supported it. I could probably speak all day covering the strength of the evidence that vaping is significantly less harmful than smoking and an effective tool for quitting. I will not go into all that, but I do urge members to spend a few minutes or ask your staff to have a look at the Public Health England evidence update on vaping.

We are all living through the most disruptive global event in our lifetimes with the pandemic. Reporting around the Doherty modelling suggests that ending all restrictions after 80 per cent of the adult population is vaccinated could result in 25 000 deaths. I expect this may be an overestimate, but we have about that many Australians dying every year from smoking-related illnesses. We are willing to completely shut down society, restrict liberties and freedoms to the greatest extent in our history and turn our country from a wealthy nation into a poor one to address one public health risk, but we are not even willing to make the most popular and effective quitting aid legal to address another. And these are the same public health officials and the same governments. It just does not make any sense.

The federal government’s approach is to create a completely dysfunctional regulatory system to sort of legalise vaping. From October this year you will require a prescription to import nicotine e-liquids. I am sure this makes sense to governments and public health bureaucrats that think they can control everything, but in the real world it is almost certain to fail. I could go on, but I have realised we are going to run out of time, so I will have to leave it there.

Catherine CUMMING (Western Metropolitan) (13:30):

In rising to speak briefly on this motion, I do support the merit of this motion, being that I understand where your intentions come from, but I represent an area that has a lot of chop-chop in it and there are a lot of people in my community also who support vaping as an alternative. I feel that both of these are not being addressed properly, one being that there is a keen push for decriminalisation of many drugs out there so that we can actually deal with them properly, not just this, but they would love to see them taxed so that money could actually go into our healthcare system rather than just being heavily reliant on the legal substances, which are smoking and alcohol, to prop up our healthcare system. So for me I believe that there needs to be a proper look at this.

It would seem that there are opportunities that we could possibly have in that when it comes to tobacco farming here in Australia, seeing that we are very supportive of brewers and making sure that there is funding available to make alcoholic substances—both substances are quite legal, both have health implications. But I do come from a position that we have to look at it holistically, understanding that the community does take these substances. They are adults and they know fairly well what the health implications are to them. We also have to make sure that they have access to supports, and there has to be fair taxing of all of the substances that are out there that may be not good for your health.

I am supportive of Ms Maxwell’s motion and the intent, but I also see the other side of the argument. I feel that there are other opportunities to regulate, and I hope that we go down a path of actually looking at this issue holistically—as well as at vaping.

Tania MAXWELL (Northern Victoria) (13:33):

I would sincerely like to thank everyone in the house for their contributions today in recognising the scale of the illicit tobacco trade, the profits that flow on to other organised crime and the opportunities to strengthen the specific responses within Victoria. I appreciate the productive discussions I have had to date with the government—and in fact I am having more of those discussions this afternoon, so I look forward to that. These issues cover a number of portfolios—health, police and local government—and it is great to have had them all on board in being willing to hear my motion and to have ongoing discussions in relation to it.

I would welcome a consideration by the government to remove the remit for search and seizure of illicit tobacco from local councils and ensure that responses to illicit trading are sufficiently organised and resourced. It is the position of Derryn Hinch’s Justice Party that Victoria would benefit from a licensing scheme to regulate licit trade and support efforts to combat illegal tobacco sales across metropolitan and regional communities. This will also ensure the safety of council workers, ensure that the responsibility for enforcement is in the right hands and that the system is simple, the responses are swift and that the consequences are of a sufficient scale to bring those operating outside the law to account.

I would also like to take this opportunity to thank the many, many retailers who trusted me to put this motion forward and to advocate on their behalf. I hope that I have done them proud in working with the government to implement some changes.

I believe that from a health perspective we need to invest in enabling people who smoke to access ways to help them quit. I used to be a smoker, and I could not give up. Going to hospital and having a knee reconstruction was what got me there. That is a very drastic measure, but I do understand how difficult it can be to give up.

Whilst I also know this motion is not the panacea to fix all the issues relating to illicit tobacco, I hope that it opens discussions to find ways in which we can stop this illegal trade and the crimes that it funds. I was going to address some of the issues raised by Dr Cumming, but I think I will leave that for another day and another discussion. I would encourage Dr Cumming to put forward a motion of her own to address those issues that she raised. I thank the house, I thank the government and I commend this motion.

Motion agreed.