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DANIEL:

From Schwartz Media. I’m Daniel James, this is 7am.

Smoking rates in Australia have plummeted. We now have some of the lowest in the developed world. But behind that public health success, something far darker is unfolding.

A violent black market has taken hold - one fueled by extortion, firebombings and murder. And it’s all happening under the banner of Australia’s so-called tobacco wars.

Today, associate editor for The Saturday Paper, Martin McKenzie-Murray, on how a public health victory created the conditions for a deadly turf war - and the innocent victim caught in the middle.

It’s Wednesday, May 7.

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DANIEL:

Marty, you've been looking into the case of Katie Tangey. Can you tell me about who she is and what happened to her?

MARTY:

She was a young Melbourne woman, 27, and she was house-sitting for her brother who was overseas on his honeymoon earlier this year, in January, and she had gone to bed. One evening on the 16th and a little after two o'clock, two men arrived. We know this through CCTV footage.

Audio excerpt – News reporter:

“Investigators say moments before an explosion inside the property, two people got out of this SUV parked nearby, pouring an accelerant on the home.”

MARTY:

And a little off the two o’clock, Katie made a desperate call to triple zero. She was trapped in the house.

Audio excerpt – News reporter:

“Firefighters raced to the Truganina home around 2am and desperately searched inside, but the intensity of this blaze was so extreme they had to retreat. And in the light of day came the confirmation, the 27-year-old woman who was looking after her brother's home while he was on his honeymoon had been killed.”

MARTY:

It's difficult to, I think, overstate the obscenity of her death. And I know for a fact that it's haunted several first responders and the police that are now investigating her death.

DANIEL:

So what’s known about who did this to her?

MARTY:

So police have been deliberately or tactically vague on motivation, but they have been very clear that they believe that this was a part of the tobacco wars and have been equally clear and emphatic that Katie Tangey was an entirely innocent bystander, that she had nothing to do with the illicit tobacco market. And the working theory is that these arsonists and killers got the wrong address.

DANIEL:

So tell me more about the so-called tobacco wars – and how you became interested in reporting on them?

MARTY:

Yeah. So it's something that's become kind of inescapable. From about a year ago, I noticed when I went out to pubs, I saw people smoking Manchester cigarettes or the South Korean brand Esses. And it was really conspicuous because many years ago under the Gillard government, we passed plain packaging laws. And so different types of cigarettes and different types of tobacco products were indistinguishable. But so aggressively have cigarettes been taxed that it's reached a point where they've become prohibitively expensive. And for those who are unlikely, unwilling, incapable of quitting, they are pushed into a black market.

It became kind of very common knowledge amongst smokers where you could go to get these really cheap packs of cigarettes. And it became such that this market for illicit cigarettes became a billion-dollar industry, billions, plural, and excited the rivalries between organised crime families who are jostling for the monopolisation of a really lucrative black market.

The second part is this extensive campaign of extortion of small businesses, often kind of mom and dad businesses, tobacconists. And so what will happen, what has happened extensively across Victoria for the last two years, are that shop owners will receive a visit from gangsters and they will say we want you to stock under the counter goods. That is illicit cigarettes that have been trafficked and if you don't sell them, terrible things will happen.

DANIEL:

So these illegal cigarettes have taken off because cigarettes have become so expensive. So can you just describe to me how we got to this point?

MARTY:

Tobacco has always attracted a special tax forever. But in the decade 2010 to 2019, it was subject to super aggressive and successive taxation.

Audio excerpt – News reporter:

“Smokers are to be whacked with big cigarette price rises for the next four years to help balance the budget and create a healthier nation.”

MARTY:

So in 2010, there was a 25 per cent tax increase applied to cigarettes. And then in the years between 2013 and 2020, there was an annual increase of 12.5 per cent.

Audio excerpt – News reporter:

“A policy released today would see the tobacco excise rise by 12.5 per cent each year until 2020.”

MARTY:

The result of that meant that your average packet of cigarettes went from about $13 to more like $50. This was always justified by the government as a public health measure.

Audio excerpt – Mark Butler:

“To protect people from taking it up, and additional support for current and former smokers to look after their health.”

MARTY:

And Mark Butler, the health minister, has said something a couple of years ago, like an expensive cigarette is an unattractive cigarette.

Audio excerpt – Mark Butler:

“Because we know that a higher priced cigarette is a more unattractive cigarette.”

MARTY:

The idea was very simple. The more expensive cigarettes are, the fewer people will smoke them.

But there was always a problem with that.

DANIEL:

Coming up after the break – the real reason smoking rates are dropping.

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DANIEL:

Marty - you’ve been investigating how the cost of cigarettes has sparked a turf war in Australian cities. We’ve been told that taxing the hell out of cigarettes means less people will smoke them… and that’s why we’ve seen such a decline in smoking here. So, is that true?

MARTY:

So, sure enough I spoke to a criminologist from Deakin University, James Martin, who specialises in black markets. And he says that we have an abundance of, or a wealth of public data about smoking rates in Australia over recent decades. And he says it's an interesting comparison to make between the first decade of this century, 2000 to 2010, and the second decade, 2011 to about 2020. Which, as I just described, was one marked by really significant taxation increases on cigarettes. And he says there's no statistically meaningful difference between those two decades, one marked by light taxation, the other marked by a really severe taxation. There's no statistically meaningful difference in declining smoking rents. What is significant now is that in the last few years, since 2019, we have, in Australia, experienced the sharpest decline in public smoking rates in decades. It's gone from 11.6% of daily smokers to 8.8%, which is an internationally very low number. But in those years, 2019 to 2023, little changed and certainly little in the taxation environment. What did change was the emergence of vaping. And James Martin is of the belief that it's beyond a coincidence that what we can attribute to that decline in smoking rates is not taxation, which has now encouraged a black market because prices have become prohibitive. What is significant is the emergence and introduction of vaping.

DANIEL:

So what you're saying is that vaping has more to do with lowering smoking rates than the taxes?

MARTY:

Correct.

DANIEL:

But there is a line between the rising prices and rising crime. Is that a fair comparison to make?

MARTY:

Absolutely. Economists has been warning about this for a long, long, long time and it's not an arcane or difficult concept to grasp that if you increase the price of something you may change behaviour but you will also never eradicate demand for that product and you will encourage a flourishing black market for it and And that's precisely what we've seen. You can't tax things infinitely. There becomes a point where you get perverse outcomes. And in this case, the revenue that tobacco indexation created was enormous. So until kind of recently, the taxation on cigarettes was the fourth largest source of revenue for the federal government. It's now slipped to about seventh. That's a loss of billions of dollars. And that loss isn't mostly attributable to those declining smoking rates that I just spoke of. It's attributable to the fact that people are buying their cigarettes illegally. And so the government's not receiving any tax from those packs of cigarettes or cartons of cigarettes that are bought on the black market.

DANIEL:

So what does this tell you Marty about how the tobacco wars should be addressed and what will happen if they aren't handled properly?

MARTY:

I think one thing that's very distinctive about Australia is our formal or official treatment of vaping. There is a conspicuous hostility to vaping relative to say New Zealand or the United Kingdom or Sweden would be another example. Our formal attitude to vaping is really suspicious and really hostile and it makes us quite different. It makes us an outlier compared to kind of comparable countries. Another point that Stephen Hamilton, who's an Australian economist at George Washington University in the States made to me is that if you want to combat the black market that is so obviously flourishing and flourishing violently, then you need to immediately reduce the taxation on cigarettes to levels that they were 10 or 15 years ago.

DANIEL:

Has the government intimated that they will go down that path at all?

MARTY:

Oh, absolutely not, no. And people would be outraged by it.

I think given the public indifference to kind of punitive taxation of cigarettes, it is completely unthinkable to me that the government would entertain such a change. And instead they will talk about this as a police matter.

And whilst policing has a role in this, really it is our public health policy and taxation policy that has encouraged this black market.

But I think for as long as... Cigarettes remain for many, prohibitively expensive. The size and the lucrativeness, the attraction of illicit tobacco will remain and we'll have a large and violently enforced black market.

DANIEL:

Marty, thank you so much for your time.

MARTY:

Thanks, Daniel.

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DANIEL:

Also in the news today…

The government says it will stand up for the Australian screen industry, after US president Donald Trump promised a 100% tariff on films made outside the United States.

He called out other countries offering incentives, saying it was a "concerted effort" to attract American film production to their shores, and describing it as a "National Security threat ... messaging and propaganda".

Arts Minister Tony Burke says he’s spoken with Screen Australia about the statement, and foreign minister Penny Wong says Trump has expressed a willingness to engage with film studios on the issue.

And

Israel’s security cabinet has approved a plan to escalate its military campaign in Gaza, including the full capture of the territory and an indefinite presence there.

The plan also involves the displacement of hundreds of thousands of Palestinians to southern Gaza and is to be implemented gradually.

The UN says the plan will lead to countless more civilians killed and the further destruction of Gaza.

I’m Daniel James, 7am will be back tomorrow

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