Up in Smoke: How Australia’s Tobacco Tax Windfall Was Undone by the Black Market

Up in Smoke: How Australia’s Tobacco Tax Windfall Was Undone by the Black Market

Australia’s war on tobacco has no doubt achieved successes over the past few decades, with daily smoking rates falling from 24% in 1991 to just 8.3% today. But that’s not the full story. Tobacco excise revenue has collapsed to its lowest level in nearly 15 years. Treasury has slashed its revenue forecasts by $6.9 billion over the next four years as sales of legal cigarettes plummet, driven not only by fewer smokers—but by the booming black market.

Illegal tobacco is now so widespread that former federal police officer Rohan Pike estimates there are thousands of stores across Victoria and New South Wales selling untaxed cigarettes under the counter. Priced at less than half the cost of legal cigarettes, black market tobacco has become the go-to for many smokers priced out by Australia’s world-leading excise, which now pushes the cost of a pack of cigarettes beyond $50.

The Government has responded with a $157 million Illicit Tobacco Compliance and Enforcement Package in last week’s Federal Budget, aimed at cracking down on the problem. The new investment will expand the capacity of the Australian Federal Police and the Office of the Illicit Tobacco and E-Cigarettes Commissioner, strengthen border security, and boost local and state enforcement. There will also be new efforts to target the demand side, with a public campaign addressing the motivations and behaviours driving the purchase of illicit tobacco.

While few would argue against action on organised crime, experts warn that enforcement alone will not solve the issue. The steep increases in tobacco taxes, designed to reduce smoking and generate revenue, have also made black market alternatives far more attractive. At the same time, adult smoking rates have largely flatlined, with minimal additional decline in recent years despite rising prices. According to public health experts, $157 million Illicit Tobacco Compliance and Enforcement Package in last week’s Federal Budget poverty and disadvantage remain key drivers of smoking, yet tax policy continues to be the primary lever used.

Complicating the picture further is the rise of vaping. Despite the Government’s introduction of tough restrictions on e-cigarettes, the black market for vapes is flourishing, adding another layer to enforcement challenges and undercutting both tobacco tax revenue and public health objectives.

Some experts, like Professor Becky Freeman from the University of Sydney, argue that the issue is not the tax itself, but a lack of enforcement: “We don’t have a tobacco tax problem. We have an enforcement problem,” she told ABC News. Yet others, like Sydney School of Public Health lecturer Edward Jegasothy, suggest that focusing purely on excise ignores deeper social determinants of smoking, such as poverty and cost of living pressures.

With a significant investment now flowing into enforcement, questions remain about whether this alone will be enough to counter organised crime, reduce smoking, and restore revenue. Without a broader rethink that includes social supports, preventive health measures, and equitable tobacco control strategies, the illicit market may continue to thrive—at the expense of both public health and the federal budget.