Health experts are warning about the dangers of a new push to dramatically cut the tobacco excise in a bid to tackle a growing black market that has boomed over the years as the tax has been steadily ratcheted up.
Increasing the tax has been a seemingly easy revenue raising option for federal governments – but it has run into the reality of what economists call the Laffer curve. Named after US economist Arthur Laffer, it suggests there is a limit you can tax something before it discourages economic activity and actually reduces overall revenue from the tax.
In 2025, an estimated 80 per cent of all tobacco consumed in Australia was illicit, up from just 12 per cent in 2017, according to the ABS. At the same time, revenue from the excise has collapsed in recent years.
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Tobacco excise collection peaked at $16.3 billion in 2019-20, and has since fallen dramatically with an expected take of about $4 billion in the 2025-26 financial year. The latest budget estimates expect it to drop further to about $2.14 billion by the end of the decade.
At the same time police are dealing with an increase in violence and fire bombings related to the illegal trade.
Legal tobacco sales are being turned into black market profits. · ABS/Senate Inquiry report
Pauline Hanson’s One Nation this month said it supports cutting the tobacco excise by 75 per cent, returning it to a similar rate in 2015. And this week, the Coalition is expected to formally announce a policy to cut the excise by 80 per cent.
Laura Hunter CEO of the Australian Council of Smoking and Health says there is “no modelling” that shows such a move will curtail the illegal trade.
“The cost of manufacturing these illicit products are only 28 cents a pack, and you cannot possibly price match that,” she told RN Breakfast on Monday.
One Nation has called for a 75 per cent cut, while the Coalition is expected to go further. · Getty
“We really need expensive cigarettes in Australia. These things are killing 66 Australians every day. And so when we talk about making cigarettes cheaper across the country to drive down the illicit trade, you’re never going to be able to price match that.”
She argued tougher law enforcement and a more uniform approach across states to crackdown on illegal tobacco and close stores found to be selling it was needed, while keeping the excise at punitive levels to discourage smoking.
“I think the problem that’s causing this illicit trade is the fact that there is a mass global manufacturing of these cheap illicit products, and that organised crime groups are seizing an opportunity,” she said.
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“Cutting the tax will not stop these coming in at our border. Cutting the tax is not going to help us shut down these stores doing the wrong thing and selling these illegal products, and it’s not going to help us dismantle organise crime.
“If you were to cut the excise by 75 per cent, you’re essentially trying to price match criminals, you’re handing a tax concession to the tobacco industry that we don’t even know for sure they’ll pass on to consumers.”
Advocates of excise cut urge Australia to face up to ‘fantasy’
Rohan Pike, who founded the Australian Border Force’s tobacco strike team, has been among those to throw their support behind the policy initially pushed by One Nation.
The excise, which adds about $1.50 to the price of every cigarette, was driving the illicit tobacco problem, the former Australian Federal Police officer told AAP.
“We have to do it quickly and we have to go big,” he said.
“We’ve got over 80 per cent of the market in the hands of criminals. It could be 100 within the year.”
A pedestrian walks past signs displayed on the window of a tobacconist and convenience store in central Sydney after it was closed. · Getty
A recent report from a Coalition-led inquiry headed by senator Richard Colbeck and Monash MP Mary Aldred found criminals had taken “almost complete control of Australia’s tobacco market” and an overhaul of policy settings was needed to prevent an entirely black market.
“We absolutely don’t want people to smoke, but this is no longer just smoking issue,” Senator Colbeck said.
“It is about who controls a billion-dollar market in our economy: the Australian government or organised crime? Right now, it should be obvious to everyone that it is organised crime calling the shots about how Australians access and consume tobacco products.”
Senator Colbeck described it as a “fantasy that the price of cigarettes in Australia is $50 to $60 per packet”.
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