Legal cigarette sales across Australia have seen a sharp decline as more smokers turn to the black market, reducing government tax income and raising concerns about organised crime.
In the past year, legal sales fell by 22%, marking one of the steepest declines in recent times. This shift occurred even though authorities have intensified efforts to tackle the illegal tobacco market, which is tied to organised crime, smuggling networks and a rise in violent events such as retail outlet firebombings.
A 25-pack of cigarettes now costs around $50, with about $34 going to the government through excise. Since 2013, the excise has risen more than 280%, with a further 5% increase applied in September. While the intention was to cut smoking rates, tobacco companies and some economists argue that these hikes have made legal products uncompetitive. Illegal packs can sell for as little as $12.
The result has been a major hit to public revenue. Tobacco tax income is forecast to fall to $7.1 billion this financial year, down from $16.3 billion in 2019–20. This $17.6 billion drop marks the biggest decline in excise revenue in 14 years. There are also signs that the drop in smoking has slowed, despite the tax strategy aiming for continued reduction.
To combat the growing black market, the federal government has committed $350 million over the past two years to help state and territory law enforcement agencies. The Australian Border Force reported more than 51,600 detections of illegal tobacco last financial year. These included over 1.8 billion cigarettes and 436 tonnes of loose tobacco, avoiding nearly $3 billion in excise.
Much of this illegal tobacco is smuggled in by crime syndicates based in Asia and the Middle East. Local distribution is often managed by bikie gangs and other organised criminal groups. Turf wars over sales areas have led to over 120 firebombings in Victoria since March 2023. Industry sources estimate that close to 200 such attacks have occurred nationwide in the past three years.
While the government remains focused on tackling illegal tobacco through enforcement and tax increases, the long-term success of this strategy is uncertain. Some in the industry believe freezing excise hikes might help stabilise the legal market and reduce black market appeal, but it is not clear whether policymakers will take this approach.
