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Tax the legal cigarette industry to death, watch the illegal industry replace it

Youth smoking has increased six-fold in Australia since 2019 despite the highest cigarette taxes in the world.

That is what is shown by the orange line on the graph in Snowdon’s tweet. The graph is taken from page 8 of the Australian government’s own publication, “Current vaping and current smoking in the Australian population aged 14+ years: February 2018-March 2023”.

If you seek to understand why this has happened, cross out “despite” and replace it with “because”.

In an article called “Introducing the Snowdon Curve”, Tim Worstall explains further:

There is an optimal amount of regulation, taxation, meant to discourage an activity. Going further than this actually increases the amount of the undesired activity, not decreases it.

If, for example, spirits were taxed so highly that it was near impossible to afford them then how much would home distillation rise? It’s possible to think by more than the drinking discouraged. We do not insist on that particular example, it is just an example.

But here with smoking the thing that everyone wants to discourage most is the teen smoking of cigarettes.


Australia, as the news keeps reminding us, does have a large illegal tobacco sector. The taxes, the restrictions, are worth people working in and supplying it – which leads to the real price of smokes and baccy to be considerably lower – thus consumption higher, than the legal status would suggest.

There really is a curve here. Restrictions can be so onerous that the society simply declares “Bugrit, millennium hand an’ shrimp” as with this example of teen smoking and Australian tobacco restrictions.

It’s possible to generalise this further too. Some of us have lived in societies where everything is so tediously regulated that no one bothers to obey any of the laws. This explains the Soviet economy and Italian driving.

There really is this Snowdon Curve, it is possible to have non-optimal levels of tax and regulation which end up increasing the amount of the undesired activity. As with the base Laffer contention, this is unarguable. That we are now beyond this point in many aspects of society, well, let the arguments begin.

23 comments to Tax the legal cigarette industry to death, watch the illegal industry replace it

  • Bruce

    Ayn Rand touched on this caper in “Atlas Shrugged”.

    To wit:

    “Did you really think we want those laws observed?” said Dr. Ferris. “We want them to be broken. You’d better get it straight that it’s not a bunch of boy scouts you’re up against… We’re after power and we mean it… There’s no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren’t enough criminals one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws. Who wants a nation of law-abiding citizens? What’s there in that for anyone? But just pass the kind of laws that can neither be observed nor enforced or objectively interpreted – and you create a nation of law-breakers – and then you cash in on guilt. Now that’s the system, Mr. Reardon, that’s the game, and once you understand it, you’ll be much easier to deal with.”

  • Fraser Orr

    I’m find these results very dubious. I read the methodology and most of the paper and I think the headline is very misleading. The participants were asked if they had smoked or vaped (tobacco) at least once in the last month. I’m not sure if that counts as being a “smoker”. Given how expensive cigarettes are, where would all these fourteen year olds be getting the money to support their two pack a day habit? Moreover the data was all self reported in the telephone, often mobile phones with absolutely no coroberation from other sources.

    However, there is an interesting paragraph in the report:

    Among those aged 14 to 17 years, early in the series the prevalence of current smoking
    was consistently low and relatively stable. The variability of estimates increased in this
    age group from late 2020, although on average the smoking prevalence estimates over
    this more recent period tended to trend upwards, including for the most recent period in
    early 2023.

    So the data that is most alarming, drawn oh so nicely on that chart had large variability just when it was becoming significant. And when was that? Well just when Australia’s draconian lockdowns were kicking in, where homes were full of bored teenagers, presumably happy to prank the serious sounding voice on the phone.

    Me? I find the whole thing unconvincing. And it is a reminder to me that a nice graph hides an awful lot of stuff that easily changes the meaning of the pretty lines on the chart. Lies, damn lies and statistics indeed.

    I presume the purpose is for the appropriate regulatory body to get more funding and more staff to address this looming crisis? Color me skeptical.

  • Paul Marks.

    In New York City there are lots of people selling untaxed cigarettes – because the tax is so high.

    A black untaxed cigarette seller died of a heart attack resisting arrest – and I had a lot of sympathy for him as he was just trying to sell some untaxed cigarettes (he was just trying to make a living), he was not like Mr Floyd (who died of the fentanyl he had consumed – not because of a “racist cop”, although a man is in prison because a jury were scared of being burned alive by Marxist BLM) who got money by such means as holding a knife to a pregnant woman’s throat during a robbery of her home.

    The tax on cigarettes in some parts of the Western world is much too high – so high that it actually reduces revenue, as people do indeed turn to so called “Black Market” cigarettes.

    As for health concerns – the same left establishment people who push for absurdly high taxes on tobacco also push for the legalisation of much more dangerous drugs, so the “we are doing this because we care about your health” is an obvious lie.

    So why are they doing it? Why the war on tobacco by the same people who are pushing for the legalisation of much more dangerous drugs.

    Is it because tobacco does not make people mentally confused (if anything it clears the mind)- and the left establishment want people to use drugs that make them mentally confused.

  • bobby b

    “And when was that? Well just when Australia’s draconian lockdowns were kicking in, where homes were full of bored teenagers, presumably happy to prank the serious sounding voice on the phone.”

    And, just to be argumentative, when all of those 14-17 year olds were locked down and out of school and bored and unsupervised and thus smoking lots more. I’d believe their graphs just on that basis alone.

  • Nicholas (Unlicensed Joker) Gray

    You’ve got it all wrong!
    We Australians love paying taxes! Since we have just elected a Labor government (a year ago), we can expect the Budget to contain more spending. How is the government to finance all this? It can probably only happen if we all buy more cigarettes! So we are just helping the Government! Nothing compels us to actually smoke them. I use the packets as insulation, and if I ever get arrested (For committing hate crime by not endorsing Green beliefs?), then I’ll have lots of cigarettes to trade.

  • Patrick Crozier

    Letter to the Times from a Captain Koe published on 26 March 1923:

    The patent increase of drug addiction has coincided with the increase of restrictive legislation in all directions. It is at least possible that its growth is a symptom of a peculiar “neurosis,” known, I believe, to experts as the “nervousness of suppression.” In short, it is in all probability part and parcel of a cumulative succession of attempts on the part of the Legislature, extending over half a generation, to enforce “morality” by Acts of Parliament.

  • Nicholas (Unlicensed Joker) Gray

    New Zealand had some legislation just like this. Can anyone tell us how that is going?

  • william

    If we can discuss ‘belief’ in what the data shows, there is also room for skepticism. And better data.
    I’d LOVE some anecdotal data (anyone from the area w/personal experience) to help clarify and context the results, but, when in doubt, either find better data, find corroborating data, or discard the study.
    We already know Mr. Clemmons’ perspective, noted above (H/t). What would Occam or Socrates say?
    As for the point of control of The Masses; that’s been pretty well established as a repeating pattern throughout human history. Why would now be any different? Oh! Wait!!! This time will be “different”!!! (Or so TPTB say). Yep. Just like all the others…
    On a side note, I’m going to go make some more popcorn and keep watching it all play out. 😉

    William sends.

  • Fraser Orr

    @bobby b
    And, just to be argumentative, when all of those 14-17 year olds were locked down and out of school and bored and unsupervised and thus smoking lots more. I’d believe their graphs just on that basis alone.

    That may be so, though TBH it is a bit speculative. But even if it is, I think it undermines the premise of the OP, namely that higher taxes are causing the higher rates of smoking. I think insofar as there is a rise in smoking it is far more likely to be caused entirely independently of the taxes, and your suggestion does seem an excellent candidate to consider. Another possibility is the rise of a new technology, namely vaping, which may be more attractive to kids since they are often flavored. But I don’t know what the scene is with that in Oz.

    Nonetheless, as I mentioned above based on the methodology, I think the SNR is pretty low.

  • bobby b

    “That may be so, though TBH it is a bit speculative. But even if it is, I think it undermines the premise of the OP, namely that higher taxes are causing the higher rates of smoking.”

    It certainly does undermine the premise of the OP. And, it’s less speculative than it might appear, being based upon my own, and my friends’, lives.

    Back in high school, we all smoked far more during summer vacations, and on weekends, than on school days. Had we simply not had school days (like kids during the Covid scam), we would have been smoking heavily seven days per week.

    (P.S. Looking through the data, I think they differentiated “smoking” from “vaping”. Had they not, I think the numbers would be even more heavily skewed upwards.)

  • Kirk

    Any time you get these bastards using statistics, you have to remember that while figures don’t lie, liars figure. You’re often a lot better off examining the agenda of the people relating the statistic in question than you are trying to make sense of the validity and truth of the cited stats.

    As well, how hard is it to find the background information? Do they describe methodologies, tell you what questions they asked? Who they asked? How the data was gathered, and from where?

    Nine times out of ten, when you find that they merely tell you the statistic, without telling you all the rest? When (and, if…) you find the actual background data, you’re going to find a very poorly constructed survey or experiment.

    Honest people tell you the background up front. They don’t tell you the background? There’s an agenda; I honestly don’t bother even looking into it, once I get past the initial press release. If the harbingers are there, it’s not even worth the effort to check up on the bastards.

  • Chester Draws

    New Zealand had some legislation just like this. Can anyone tell us how that is going?

    It’s going very well indeed. But then NZ does NOT have legislation like Australia. We do for tobacco, sure, but vapes are legal, cheap and easy to get.

    The result is that young people today in NZ overwhelming vape. As I teach them, I know this for a fact, not off some Government statistic too. I can’t remember the last time any student at my school was caught with cigarettes. Vaping is a daily issue.

    The worry-warts are now getting their knickers in a twist about the possible long term health effects of vaping, rather than celebrate the massive increase in health from not smoking. But then, they always have to have something to worry about.

  • Kirk

    I have to question the entire premise of “legislating morality”. I don’t think there’s a single time anyone can point to where law and regulation has served to reduce or eliminate human vice of any kind. That being the case, it’s rather like King Canute telling the tide to stay put… People are going to do what people are going to do, and stopping them is a fool’s game.

    I think the whole effort to stop people from smoking via higher taxes and onerous regulation is a non-starter, and the recent decision to demonize alternative nicotine delivery systems here in the US is delusionally misguided. End of the day, the people who need these things will do whatever it takes to get them, and there’s not a damn thing you can do to stop them. I think it’s criminal that the do-gooders have created these insane markets for “loosies” in places like New York, and then used deadly force to enforce the tax-collection behind it all. Give it up; the smokers are going to smoke whatever you try and do, and your idiotic crusade won’t help a damn thing besides lessen the authority of the police force you’re making the bad guy for enforcing all this inane crap.

    End of the day, there’s only so much “obey” in the average citizen. You can either have them obey you when you really need them to, in a societal sense, or you can expend all your “obedience account” on stupid crap that’s entirely pointless. Right now, the idiots in charge are making entirely the wrong decisions about what to enforce and what to make illegal.

  • Nicholas (Unlicensed Joker) Gray

    I saw recently some article about vaping causing sterility- so less kiwis in the future! Win/win.

  • Y. Knott

    despite the highest cigarette taxes in the world

    Heh – for the first time in my life, I find myself wishing Australia was more like Canada. We tried this too, several years ago – with such indifferent results that the guvmints, federal and provincial, were forced to back down; and our cig’s are still bl00dy expensive ( – a poor tax if ever there was one – ), but they’re half as bad as they were at the height of it.

    It started with the same cant guvmints always use to camouflage a tax-grab; “We’ll make cigarettes so expensive that people will be FORCED to quit smoking, and then everybody will just be so much healthier…” If my failing memory can kick-in a few numbers, I recall the tax pushed a pack to $7; and I’ve known lots of 2-pack-a-day poor who’d starve themselves and their loved ones sooner than give up their smokes, and a lot of them were – addiction does that to you.

    But Canada has a li’l “prolly” that poked some big holes in the cant. We have Indigenous reservations running down the international border between our most populous Provinces, Ontario and Quebec, and the United States; and some of them actually cross that border, and the flow of low-buck cigarettes from the States through these reservations became a torrent. Nothing the guvmints could do about it, it’s all legal under ancient treaties, and all the little kiosks lining the roads that pass these reservations instantly started doing a land-office business in cheap cig’s. It got so blatant that Macdonald’s Tobacco, one of Canada’s biggest manufacturers, was exporting truckloads of cigarettes to receivers in the States who put them right back on trucks and shipped them right back north through the reservations. And oh, how we laughed!

    So eventually Ontario and Quebec caved to the pressure from outraged voters (and of course, the ruination of the guvmints’ grand plans for all the extra revenues they were going to have; gee, sounds like wealth taxes), and they lowered the price of cigs to $4 a pack. And then one of the most brilliant money-making schemes I’ve ever heard of, blossomed overnight; I wish I was this clever! I only heard of one guy doing this, but I bet there were a lot more; you see, Ontario and Quebec lowered the cost, but the Prairie Provinces DID NOT – still $7 a pack just over the border. So the guy I heard of, would fill a cube van with cartons of legally purchased cig’s in Ontario, drive to Winnipeg and park in a busy mall parking lot with a big sign on the truck – “CIGARETTES $5”. He’d sell-out within the hour and head back to Ontario for another load – and the police did everything they could think-of to shut him down:

    “Here you – you’re smuggling illegal cigarettes!”

    “What ‘smuggling’, and what ‘illegal’? See this, here on every pack? That’s a federal excise stamp – it means these are fully legal and all tax revenues paid – and I’ve got a lawyer on the horn in case you choose not to recognise that!”

    “Yeah but you’re bringing them in across Provincial borders – that’s illegal!”

    “See this? – this is Canada’s Constitution. See the section here, where it says “There shall be no impediment to inter-Provincial trade”? My lawyer will explain that section to you as well, if you need him to!”

    Sadly, this won’t work anymore. Our Supreme Court passed a blatantly political judgment on a celebrated case where a New Brunswicker drove north into Quebec where there was a beer sale on, filled his trunk with cases of beer and drove back across the border into New Brunswick, whereupon the police stopped him and confiscated it all. He was rich enough to fight it all the way to our Supreme Court, whose judgment says “Yeah we know the Constitution says “no impediment to interprovincial trade”, but the Provinces make a lot of money from beer sales so we’re letting it stand – and Constitution be damned.”

  • Kirk

    On top of it, there’s a minor problem with the thought process, here:

    Proposition One: We’re going to discourage smoking so as to reduce health-care costs.

    Unintended second- and third-order effects: Higher pension and medical costs because people are living longer, not dying off from tobacco-related health issues earlier on. Are you saving money when the subject dies later in life not from emphysema, but from some other age-related disease or process that’s even more expensive to treat…?

    Proposition Two: Social costs for tobacco use are higher and produce higher mortality rates than non-tobacco use.

    Unintended second- and third-order consequences: People who used tobacco were likely self-medicating with the nicotine, which served to make them more productive and happier, increasing costs and raising mental-health treatment costs.

    Where all of this is going wrong? The simplistic “Tobacco bad” assumptions made by all the bright lights of society. Tobacco may well be a health risk, but what are the answers to the unasked questions about tobacco’s benefits?

    Having been around several people who were absolute arseholes to live with when they weren’t smoking, I found that they actually became quite tolerable when they had their nicotine back. I’m also fairly sure, in many of the cases I’m thinking about, that their “asshole factor” wasn’t due to them struggling with quitting smoking, either; it had been long enough since they quit that their “true selves” minus the nicotine had manifested. They started smoking again, and became a lot easier to deal with. There are absolutely some quality-of-life benefits to smoking, in that your co-workers and family might not murder you in your sleep for being an intolerable asshole.

    I don’t think the analysis goes far enough, with this stuff. They usually stop at the easily-discerned first-order stuff, and never bother to go deeper down the rabbit-hole. How many suicides have been delayed because of alcohol, versus how many have drunk themselves to death? Is it that we’re framing the problem inadequately?

    I kinda think we are.

  • Paul Marks.

    Lycophron argued that the role of force (the state or private force) was to deter people from robbing or attacking each other – and to punish them if they did.

    Aristotle replied to Lycophron that the rule of the state also included making people “just and good”.

    Lycophron was correct and Aristotle was mistaken – on this matter.

    Prime Minister Gladstone said – of one thing I am certain, it is not by the state that the morality of the people will be improved. Gladstone was correct – on this matter.

  • Y. Knott

    “Unintended second- and third-order consequences: People who used tobacco were likely self-medicating with the nicotine…”

    – YEP! – The old “unintended consequences” shlock, that brings so many of our clever schemes to an inglorious end. I can’t remember where I read it, that the straw that broke the Soviet camel’s back and kicked-off the unrest that brought the Soviet Union down, was a bit of clean-up-the-masses cleverness by Gorbachev. Productivity in the USSR sucked, and the huddled masses were spending most of their days drunk out of their minds; which contributed to many health breakdowns and a truly appalling accident rate. So Gorbie cranked-up the price of vodka to cut-down on rampant drunkenness – and the huddled masses were deprived of their safety net, sobered-up, saw the dreary $hithole they were living in, and took their anger to the streets.

    Somewhere in my voluminous Quotes Page I have a tale of how to quickly make solid friends in Gorbachev’s Soviet Union – bring them a bottle of Gorbatschoff Vodka; a long-running and proud German brand, it was considered the perfect riposte to Gorbie’s social re-engineering efforts.

  • Fred Z

    Y. Knott: Excellent comment on the cigs.

    All I can add is that right now, today, I spoke with a long time acquaintance who makes a very nice living buying then re-selling cigarettes from a local Indian Reservation, Tsuu T’ina, just west of Calgary.

    I’m not sure of the details of the smuggling and / or tax free status on the Res, but he’s doing very well thank you and his customers love him. Local retailers – not so much, government, even less.

  • Y. Knott

    – And not just cigarettes; several of them sell fuels at a hefty discount to “official” prices. I’m thinking of retiring in a reservation-supplied part of Ontario – I don’t smoke, but the reservations in the area are making-out like bandits selling gasoline for considerably less than the non-reservation stations are forced to. And I betcha’ little-or-none of that goes to pay “carbon tax” – win-win!

    I currently live somewhat east of Ontario. We had a case I remember, at the height of the cigarette craze; many roads cross the U.S. border into the Canadian Province of New Brunswick, several of which aren’t patrolled because of insufficient manpower. A truck driver was busted on one of these roads, entering New Brunswick with a smuggled semi-load of U.S. cigarettes. They confiscated them and wallopped him with a BIG fine, to which he just shrugged: “Two days’ profit…” And how crazy was the cigarette craze down here? – late-night convenience store break-ins weren’t after money, they were looking to steal cigarettes.

  • Paul Marks.

    Y. Knott – there is “form” on this in Russian history.

    Nicholas II de facto banned vodka during the First World War – partly because an old friend went to him, distraught over his son (the son of the friend), who had drank himself to death.

    This was one of the things that really irritated many ordinary people, including soldiers. When you are covered in lice and waiting to see if you are going to be shot by the Germans or blown up by a shell, the last thing you want is to be told you can not have any vodka.

  • Kirk

    RE: The Russian vodka issue.

    The other problem for the Russians both Imperial and Communist is that the Russian state financed itself largely through a monopoly on vodka… Both the Communists and the Imperial versions.

    Banning vodka and trying to reduce use had a two-fold effect: It pissed off the populace, and it cut state revenue severely. The Russians never were all that smart; financing the state through what amounts to crippling the working public is not a smart move, and when you wind up resting a lot of your revenue production on that addiction? Stupid.

    Which is why I think government should stay the hell out of these things. About all I’d do is tax the substances people use just enough to finance programs for harm reduction and social costs, and leave it at that. Diversion of those monies anywhere else ought to be a capital offense for both politicians and bureaucrats.

    There are a lot of things to learn from any country. Russia has uniquely managed to provide rather more in the way of “bad examples” than any other nation in world history.

  • Fred Z

    Y. Knot: Here too. The most recently built Costco in this area was built on the reservation essentially within city limits and sells a lot of gas.

    The local natives who used to have a lock on the cheap gas business are also unhappy.