Government in the slow learners class

You have to wonder if government is capable of learning from the mistakes of the past. If it was a school student, it’d be in the special class, sitting opposite the kid with his lunch order pinned to his jumper and next to the other boy who started all those fires.

Take the example of the tobacco excise hike introduced by then Treasurer, Wayne Swan, that pushed up the cost of a packet of smokes by 25% in 2010 and 12.5% each year since and every year to at least 2020.

A pack of lung busters was $12 in 2009. That same pack will set you back $34 now.

The policy had bipartisan support and along with plain packaging was hailed as a masterstroke in prevention by the public health industry.

But there’s a problem and it’s a big one.

There have been shortfalls in budget revenue as revealed in the 2017/18 Budget and MYEFO of $250 million and the 18/19 Budget to MYEFO of $340 million. This must mean smokers are becoming ex-smokers either by the grim business of smoking related death and disease or by hordes of smokers giving the durries away due to their sheer cost, right?

Well, not really. There is option c, a rather obvious flaw in the policy that one presumes policy makers considered at the time but their brows furrowed only briefly before moving on to the ugly grab for the punters’ hard earned. Option c involves the rise of a dedicated, lucrative black market that anecdotally at least has dragged transnational crime syndicates into the fray.

The Australian Criminal Intelligence Commission (ACIC) tests levels of compounds in wastewater for population-wide levels of drug use as well as alcohol and tobacco. Testing in 2016 and 2017 revealed nicotine consumption had increased in all capital cities and regions tested. Nicotine can come from vaping and the use of patches, gum and the plethora of product designed to ease a smoker off the dreaded coffin nails but still, this data flies in the face of the accepted wisdom that high rates of taxation, not to mention plain packaging of cigarettes, have reduced nicotine consumption.

There is a deep, dark black hole in the data and that is the consumption of illicit tobacco, almost all of it imported into the country illegally and more and more by organised crime groups.

Consumption of illicit tobacco has risen four per cent since the introduction of the scheduled excise increases in 2009, according to a report by KPMG commissioned by British American Tobacco and Philip Morris. Illicit tobacco now accounts for 14 per cent of total consumption according to the report or 2300 tonnes per annum. Ok, big tobacco might have a significant interest in this topic but no one in government or the public health lobby has produced any data that might bring the report into question.

It’s not just that projected revenue from tobacco excise hikes is looking at sharper shortfalls going forward. More and more taxpayer money will need to be invested in law enforcement.

Similarly, having supported the excise hikes and plain packaging, the Turnbull government feels obliged to create new laws and penalties, having realised too late what the so called unintended consequences of these policies were — relatively low-risk smuggling operations of illicit tobacco by organised crime groups.

I say so called because anyone with a functioning brain beyond the simian could have seen these problems arising from the outset.

Last month, the Minister for Revenue and Financial Services, Kelly O’Dwyer announced the law as it stood was inadequate and that new laws with harsher penalties were required.

Obviously, tobacco theft and smuggling has always been a problem but as the excise hikes have kicked in, in what might be called prohibition by stealth, a relatively small law enforcement problem has become a lot bigger and uglier in Australia.

Anyone who has even a passing interest in 20th century history understands the folly of the Volstead Act in the US which prohibited the consumption of alcohol in the US for 14 years. We know that the worst of the consequences came in establishing a rock solid foundation for organised crime. Al Capone, Charles ‘Lucky’ Luciano, Meyer Lansky, the creation of New York’s five families and the infestation of a powerful group, the Sicilian Mafia otherwise known as La Cosa Nostra, in the US can be traced back to prohibition.

Globally, we are dealing with something a whole lot bigger and nastier. The global prohibition of narcotics for the last sixty years or more has installed organised crime syndicates to a level of power and influence that is simply unstoppable now.

The most active organised crime group in Australia, the Calabrian mafia, ‘Ndrangheta, supplies 80 percent of Europe’s cocaine. It has an estimated annual turnover of $70 billion. That makes it bigger than BHP-Billiton. It’s bigger than the GDP of Slovenia or Croatia by way of example.

So we can see the difficulties for law enforcement and the problems that arise in relation to the potential for corruption of public officials. Virtually everyone has their price and those that don’t are swept aside or murdered.

The biggest problem organised crime has today is what to do with all its loot. But that problem is overcome easily enough.

In 2016, the Hong Kong Shanghai Bank (HSBC) was found to have laundered at least $1 billion in cash deposits from the Mexican drug cartels, most of it from the Sinaloa cartel. Some of the bank’s executives were sent off to pasture and the bank agreed to pay a US $1.9 billion fine in a civil settlement with the US Government but importantly, the US Government decided not to launch a criminal prosecution.

HSBC was too big to prosecute because it was too big to fail. A prosecution may have led the bank to be excluded from the US, and there were serious concerns on the impact of a criminal prosecution on the global economy. Thus the world’s sixth largest public company, having confessed to laundering funds from the Mexican cartels, including Sinaloa who played a significant role in the violent deaths of 100,000 Mexicans in the narco wars of the last 15 years, walked away with little more than a parking ticket.  

Australian governments, past and present have learned nothing and remain obsessed with prohibitions either by statute or by stealth. In the case of the rampant hikes in excise on tobacco, the policy of Wayne Swan, wholly endorsed by three federal governments since, has provided yet another funding source for syndicated organised crime.