Tobacco Tax Revenue Falls Amid Black Market Rise

Tobacco excise revenue in Australia has reached its lowest point in nine years, dropping to $9.7 billion in the last financial year. This marks a 40% decline from the 2019-20 peak of $16.3 billion. While the tax hikes were designed to curb smoking, they appear to have unintentionally driven smokers toward the black market, creating gaps in government revenue.


Australia has steadily increased tobacco taxes since 2013, leading to a 282% rise in excise costs. A 25-pack of cigarettes now costs around $50, with $34 going to taxes. These policy changes, combined with public health campaigns, halved daily smoking rates from 22.4% in 2001 to 10.6% in 2022. However, the rapid growth of the black market undermines both public health and treasury revenue goals.


The black market for illicit tobacco accounted for 18% of all tobacco sales in 2022-23, with the ATO estimating $2.7 billion in lost tax revenue. Treasury’s forecasts have repeatedly overestimated tobacco excise collections since 2019, with updated projections now expecting a further decline to $8.8 billion by 2024-25 . The growing reliance on illegal sales continues to outstrip enforcement efforts.


Beyond revenue impacts, the illicit tobacco market is fuelling crime, including turf wars and arson attacks. Melbourne has seen over 120 firebombings tied to corner stores selling illegal tobacco. In response, the Victorian government created a policing taskforce in 2023, leading to arrests, cash seizures and confiscated tobacco. Nationwide, enforcement efforts are struggling to match the scale of the issue.


Experts argue that the current approach of increasing taxes without stronger enforcement has backfired. While policies like plain packaging initially reduced smoking rates, the ongoing hikes have reached a tipping point where consumers are turning to illegal sources instead of quitting. Economists suggest that better enforcement, rather than further tax rises, is needed to address the issue.


The Coalition recently pledged $250 million to combat the black market through a taskforce involving federal agencies. Meanwhile, the Albanese government remains committed to current excise levels, despite calls for a more balanced approach. As wages lag behind rising tobacco costs, policymakers may need to reconsider strategies to balance public health, revenue generation and illegal trade prevention.


Sources: Tobacco in Australia, Australian Financial Review, Parliamentary Business