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Australia's tobacco black market hits 80%: what the excise debate gets wrong

By Dr HB Lo, FACRRM 4 min read
Verdict Yes — worth knowing about

More than 80% of tobacco products consumed in Australia are now purchased illegally, up from around 10% a decade ago. Federal excise revenue has fallen from $16.3 billion in 2019–20 to an estimated $2.1 billion by decade's end.

The debate: cut excise to undercut the black market, or maintain taxes to protect two decades of smoking decline. Health experts warn any cut risks reversing hard-won gains — Australia's daily smoking rate fell from 1 in 7 (2010) to 1 in 18 (2025). Canada's 1994 excise cut showed that black market suppression was temporary; the public health gains proved hard to recover.

What just happened

New reporting from ABC News has put a number that is hard to ignore on Australia’s illegal tobacco market: more than 80% of tobacco products consumed in this country — cigarettes, vapes, and pouches combined — are now purchased illegally. That is up from approximately 10% a decade ago.

The legal packet of cigarettes currently costs $40–50. The illegal equivalent: $15–20. That price gap is the direct result of one of the world’s most aggressive tobacco excise escalation schedules, which has pushed Australia’s legal tobacco price to among the highest on earth.

The question being asked loudly in federal politics is whether the public health cure has become the black market’s competitive advantage — and whether cutting excise is the right response.

The both-and

The case the excise-cut advocates are making

The argument from the Coalition (proposing cuts of up to 80%) and One Nation (proposing 75%) is straightforward: if legal cigarettes cost the same as illegal ones, the black market loses its price advantage. Criminal networks would be undercut. Tobacco would return to regulated supply chains. Revenue from a legal market — even at lower rates — would be more reliable than trying to collect excise from a criminal ecosystem.

The Prohibition parallel has been made explicitly. When legal supply becomes unaffordably expensive, demand doesn’t disappear — it moves to unregulated supply. That dynamic is real and worth taking seriously.

The revenue collapse illustrates the scale: Federal excise collections fell from $16.3 billion in 2019–20 to an estimated $2.14 billion by decade’s end. That is not a rounding error — it reflects a legal market contracting rapidly as a criminal one grows.

The case the health experts are making

The problem with the excise-cut argument is that it treats the health outcome and the black market as separable problems with a shared solution. They are not entirely separable.

Australia’s daily smoking rate fell from about 1 in 7 Australians in 2010 to approximately 1 in 18 by 2025. That decline coincided with rising prices. Price is not the only driver — social norming, plain packaging, smoke-free spaces, and cessation support all contributed — but the correlation is well-documented. Every tobacco policy researcher who has engaged with this debate notes that lowering prices carries real risk of reversing the gains.

Canada’s 1994 excise cut is the most cited evidence. Cutting taxes did reduce black market sales — temporarily. It also drove renewed uptake of smoking. The public health gains were hard to recover. The long-term outcome was worse than had the high-tax policy been maintained alongside better enforcement.

The pointed counterargument from health experts: what price point would actually be competitive with a black market that has no regulatory overhead, no quality controls, and no supply chain costs beyond criminal logistics? Any chosen cut point risks being either insufficient to kill the black market or sufficient to drive smoking rates back up. The Canada data suggests you may not be able to hit both targets simultaneously.

My two cents

This story matters whether or not you smoke. Illegal cigarettes are not quality-controlled. Testing has documented higher levels of heavy metals, pesticide residues, and synthetic additives in black market tobacco compared to the already harmful legal product. The harm profile is genuinely different, and the people buying these products — often because they cannot afford the legal alternative — are not choosing a safer option.

If you are trying to quit smoking, the most evidence-supported tools are combination nicotine replacement (patch plus gum or lozenge), varenicline, and a structured quit plan developed with your GP. Quitline (13 7848) is free, evidence-based, and available across Australia by phone. The conversation about excise policy is not yours to solve; but knowing that cheaper tobacco access — legal or otherwise — makes quitting harder is worth holding onto as context.

The policy question — whether enforcement or excise adjustment is the right lever — is worth watching through this parliamentary term. What is clear is that the current approach has not kept the black market in check. What is also clear from international evidence is that excise cuts require very careful calibration. Both sides of this debate hold real evidence. The honest answer is that no one has yet found a policy that kills the black market without risking the public health gains — and that is worth saying plainly rather than treating the debate as already won by either side.

Verdict: yes — worth knowing about.

Sources cited

  1. “Australia’s tobacco tax crushed smoking. Has it gone too far?” — ABC News, 29 August 2026. https://www.abc.net.au/news/2026-08-29/expensive-cigarettes-excise-black-market-tobacco/107076242
  2. Tobacco — Australian Institute of Health and Welfare. https://www.aihw.gov.au/reports-data/behaviours-risk-factors/tobacco/overview
  3. Quitline — 13 7848. https://www.quit.org.au

Frequently asked questions

  • Does cutting tobacco excise actually reduce black market activity?

    Evidence is mixed. Canada cut tobacco excise in 1994, which temporarily reduced black market sales, but gains were short-lived and public health outcomes suffered. Australia's black market is structurally different — run by organised criminal networks with deep infrastructure. The price gap needed to make legal cigarettes competitive (legal packs $40–50 vs illegal $15–20) would require cuts so large they would almost certainly reverse hard-won smoking rate reductions.

  • If I'm trying to quit smoking, does this debate affect me?

    Cheaper tobacco access — legal or black market — reduces the financial pressure that motivates some cessation attempts. If you are trying to quit, the most evidence-supported options are combination nicotine replacement therapy (patch plus lozenge or gum), varenicline, and a conversation with your GP about a structured quit plan. Quitline (13 7848) is free, evidence-based, and available Australia-wide.