Australia now faces an unusual dilemma. Despite some of the highest tobacco taxes in the world and strict advertising bans, more than half of all tobacco consumed appears to be illegal. Over the past decade, tax hikes and tighter rules have pushed smokers toward cheaper, unregulated products and created fertile ground for organised crime. What was once seen as a fringe problem has rapidly become a central economic and public health issue.
Latest figures indicate illicit tobacco may account for roughly 55% of the entire market, almost triple earlier official estimates. Enforcement agencies seized about $3 billion worth of illegal product in the past year alone, including around 2.7 billion cigarettes and more than 2200 tonnes of tobacco, similar in weight to hundreds of large vehicles or several hundred elephants. Authorities now carry out thousands of compliance checks on retailers each year and issue thousands of infringement notices, dozens of criminal proceedings and tens of millions of dollars in fines. Policy researchers and border officials argue that while seizures keep rising, enforcement on its own cannot reverse demand for cheaper, untaxed tobacco.
If every user of illicit tobacco suddenly shifted to legal products at current prices, the federal budget could be better off by up to $11.8 billion a year through higher excise revenue. Yet that scenario looks optimistic. Consumer behaviour is highly sensitive to price and many smokers are already switching to vapes, buying underground products or quitting altogether. Some economists and policy institutes suggest that returning tobacco excise to around 2019 levels could shrink the black market, though their modelling shows outcomes ranging from a multibillion dollar annual revenue loss to a multibillion dollar gain, depending on how smokers actually respond.
The broader picture seems to be one of unintended consequences. As taxes rise and legal access tightens, criminal networks appear to be stepping in to meet demand, with illicit tobacco and vapes now linked to serious organised crime and potentially dangerous products, including devices laced with powerful synthetic opioids. Government agencies are revising their methods to better estimate hidden consumption and are even turning to wastewater analysis to understand the true scale of the problem. With nearly all non pharmacy vape sales likely illegal and the illicit tobacco trade dwarfing earlier projections, it appears Australia is edging towards a policy crossroads where tax settings, harm reduction options and enforcement strategy will need to be rebalanced to curb the black market without undermining public health goals.
