Australia's federal government is currently reviewing its tobacco excise policy, with the Treasury department actively modeling the impact of cigarette prices on demand. This comes amid a significant surge in the illicit tobacco market, which has been directly linked to substantial government revenue losses and a troubling rise in organized criminal activity and associated violence.
Experts and industry figures are presenting diverse viewpoints on potential policy adjustments, including strong calls for a freeze or even a reduction in the tobacco excise. Conversely, public health advocates voice concerns that such changes could potentially lead to an increase in smoking rates.
Economic Impact and Revenue Losses
The illicit tobacco market has reportedly caused a staggering $17.8 billion budget shortfall for the federal government since the 2020-21 financial year. Excise revenue, which peaked at $16.3 billion in 2019-20, is now projected to generate only $5.5 billion in the current financial year and an even lower $4.8 billion in the next.
British American Tobacco chief corporate officer Kingsley Wheaton stated that revenue has decreased by approximately $10 billion annually, with this considerable amount now flowing directly to criminal networks.
An Oxford Economics analysis projected that without excise reduction, tobacco revenue could further decrease to a mere $1.5 billion.
Black market cigarettes are reportedly priced at $10 to $15 per packet, significantly lower than the $40 to $50 for a legal 20-pack. The tobacco excise has increased by 60% since 2020, representing approximately three-quarters of the legal cost, and is scheduled to rise again next month.
Estimates from the illicit tobacco and e-cigarette commissioner (Itec) suggest illicit tobacco accounts for around half of all tobacco consumed in Australia. Kingsley Wheaton further claimed that, in his view, two in every three cigarettes and 80% of nicotine products sold are illicit, describing Australia as currently the "worst illicit market in the world." The Oxford Economics analysis projected that 90% of cigarettes could be sourced from the black market if excise rates are not adjusted.
Policy Discussions and Government Response
The Treasury department is conducting modeling on the price elasticity of cigarettes, consulting with the departments of Home Affairs and Health to inform potential reforms to the tobacco excise. While Treasurer Jim Chalmers and Health Minister Mark Butler have previously dismissed suggestions that reducing cigarette costs could curb the black market, Finance Minister Katy Gallagher indicated that the government keeps such matters under review.
The government recently hosted a symposium in Canberra with stakeholders to discuss the issue. Assistant Minister for Customs Julian Hill acknowledged that high tobacco taxes have contributed to the expansion of the black market. Hill also proposed restricting cigarette sales to specific outlets such as supermarkets. He asserted that government advice indicated no practical excise reduction would significantly alter established illicit supply chains. The government has allocated an additional $350 million over the past two years to assist state authorities in combating the illicit trade.
Expert and Industry Perspectives on Excise
Several experts and industry figures have advocated for policy changes regarding the tobacco excise:
- Lachlan Vass, a research manager at the e61 Institute, stated that the current excise policy appears to be ineffective and argued for considering at least a freeze on the excise to allow the real cost of cigarettes to decrease over time.
- Professor Becky Freeman, a public health expert at the University of Sydney, supports freezing the excise at current levels. She stated that tax increases are only supported if they are effective at reducing smoking and that a freeze is sensible given the illicit market's size and low product costs. Freeman added that public health advocates are not currently calling for tax increases on tobacco products and do not consider a price war with organized crime viable.
- Economists, including Chris Richardson and Dr. James Martin, have advocated for a freeze or reduction in the tobacco excise, asserting that the current taxing approach has inadvertently supported the growth of organized crime revenue.
- Kingsley Wheaton of British American Tobacco advocated for a "significant reset" of the excise rate, specifically a halving to 2019 levels, to encourage consumers back into the legal market. He warned that without such intervention, the legal cigarette market in Australia could "effectively disappear within years." An Oxford Economics analysis suggested that reverting excise rates to 2019 levels could stabilize the legal cigarette market.
A recent poll by Spectre Strategy indicated that 47% of Australians believe the federal government should reduce tobacco excise to curb the illicit trade, while 21% opposed and 32% were unsure. Support for tax cuts was higher (60%) in communities where respondents reported noticing illicit tobacco.
Public Health Concerns and Smoking Rates
The expansion of the black market trade is feared to be causing an increase in smoking rates, potentially reversing previous decades of decline.
- Cheneal Puljevic, a University of Queensland researcher, stated that a recent survey indicated individuals who had ceased smoking due to cost were resuming the habit. She also noted that some vapers have transitioned to tobacco due to increased vape difficulty and expense.
- National Drug Strategy Household survey figures on smoking prevalence are pending release. Tobacco control advocates and researchers anticipate these figures may indicate an increase in smoker numbers.
- Australian National University data attributes 66 preventable deaths daily to smoking.
- Anecdotal reports and Roy Morgan data suggest a rise in illicit tobacco use among young adults (18-24) since 2020, with this demographic also showing increased smoking and vaping since September 2024.
- Wastewater testing indicates an increase in overall nicotine consumption, encompassing vaping and nicotine replacement products. Specific products, such as Korean Esse cigarettes, are noted for popularity among young people.
- More than half of smokers and nicotine users admitted to purchasing illegal tobacco, according to Spectre polling.
Impact on Organized Crime and Violence
The illicit tobacco market is fundamentally linked to organized crime, reportedly funneling billions of dollars to criminal organizations.
Dr. James Martin, an associate professor in criminology at Deakin University, stated that research suggests the black market nicotine economy accounts for approximately 40% of Australia's illicit drug market, exceeding the combined value of cannabis, cocaine, heroin, and ecstasy.
The market has been associated with over 200 incidents of firebombing, extortion, and murder, prompting renewed violence in Victoria. Sky News host Caleb Bond attributed over 200 firebombings and at least three fatal attacks across the country to this illegal trade.
Queensland's three-month closures of retailers selling illicit products have shown initial effectiveness in limiting supply. However, organized crime groups are reportedly adapting, seeking ways to circumvent regulations, such as advertising home delivery services.
Evolving Tactics of Organized Crime
Australian criminal networks are increasingly utilizing digital and financial technology to conduct large-scale money laundering operations, generating funds for an expanding range of criminal activities.
Digital and Financial Sophistication
Chris Davey, National Manager of the Australian Criminal Intelligence Commission, noted that contemporary underworld operators are exhibiting increased sophistication, speed, and technological proficiency. This evolution is reducing the timeframe available for law enforcement agencies to identify and disrupt illicit financial flows. Criminals are converting real cash into digital assets, accelerating wealth transfer and making interception more difficult. An 18-month multi-agency investigation in Queensland dismantled a syndicate allegedly using an armored transport unit to convert millions in cash into cryptocurrency, with over $190 million in suspicious cryptocurrency transactions currently under investigation.
Overseas Operations and Youth Recruitment
Many gangland leaders operate from overseas locations, utilizing advanced communication and transport infrastructure with limited governance to coordinate operations remotely. Approximately 70% of Australia's criminal "adversaries" are based abroad, allowing them to plan multiple plots and outsource violent acts domestically. Children are increasingly targeted for recruitment, particularly in Victoria, where syndicates exploit youth crime issues to "hire" young men for high-risk tasks, often through encrypted applications.
Future Challenges
The shift towards internet-based criminal enterprises means less reliance on physical infrastructure, making detection by law enforcement more challenging. Authorities anticipate future illicit drugs will become more potent and varied, alongside increased online fraud, theft, and extortion, involving more volatile individuals.