Pulse ·

The tobacco tax cut proposal — what the health evidence says

By Dr HB Lo, FACRRM 4 min read
Verdict Maybe — watch this

The Coalition proposes cutting tobacco excise by 80% — dropping a standard pack from ~$45 to ~$16-26 — and legalising adult access to vapes and nicotine pouches. The stated aim is to undercut the illicit market, which now accounts for more than half of tobacco consumed in Australia.

Health bodies including Cancer Council and Quit oppose it, citing robust evidence that taxation reduces smoking. Daily smoking fell to a record 5.6% in 2025 (AIHW). Whether a major price cut increases overall tobacco harm is genuinely contested; the evidence on black market dynamics is less settled than the headline numbers suggest.

What just happened

Opposition Leader Angus Taylor announced that a Coalition government would cut tobacco excise by 80%, reducing the tax on a standard 20-pack from approximately $30 to $6. At current retail prices of $40-50 per pack, the full excise reduction would bring legal cigarettes to around $16-26 — competitive with the current illicit market.

The policy package includes legalising adult access to vapes and nicotine pouches through regulated channels with their own excise rates (50 cents per millilitre of e-liquid; 2.5 cents per milligram of nicotine), $200 million for law enforcement targeting illicit tobacco supply chains, and $60 million for a public education campaign linking illicit tobacco to organised crime.

The stated rationale: more than half of tobacco consumed in Australia now comes from the illicit market — and 80% when including vapes and nicotine pouches. The argument is that high legal prices created the conditions for organised crime to establish a parallel supply chain, and that lowering legal prices would undercut it.

Health organisations — Cancer Council Australia, Quit, and public health academics — strongly oppose the plan, warning it would reverse decades of progress in reducing smoking rates and create a new generation of nicotine addiction.

The both-and

The case for the black market argument

The illicit tobacco problem in Australia is real, large, and growing. This is not a contested premise. The ABS estimated nicotine consumption rose approximately 30% over four years to 2025. More than 200 firebombings linked to organised criminal involvement in tobacco supply have occurred since 2023. A person who smokes can currently access illicit cigarettes at $15-20 per pack, significantly below the legal retail price.

The Coalition’s argument is essentially economic: if legal cigarettes are priced at $45 and illegal cigarettes are priced at $15, the price signal for the existing smoker is entirely in favour of the black market — and no amount of enforcement will close a gap that large. Lowering the legal price to $16-26 does not eliminate the illicit market, but it removes the cost differential that sustains demand.

Parliamentary Budget Office modelling cited by the Coalition suggests the policy would increase tax revenue by approximately $8 billion over four years, because the volume of legal sales would rise dramatically as consumers shift from the untaxed black market back to the legal channel.

The case for the health evidence

Daily smoking in Australia fell from 8.3% in 2022-23 to a record low of 5.6% in 2025, according to the National Drug Strategy Household Survey. That is a significant reduction by any measure — not a sign that the current policy framework has failed across the board.

University of Sydney professor Becky Freeman described the proposal as aligned with the “tired drumbeat of the tobacco industry” — a reference to the decades-long tobacco industry argument that excise increases fuel black markets. The concern is that a large legal price reduction does not simply bring current black-market smokers back into the legal channel; it also makes tobacco more accessible and affordable for people who might otherwise have quit, or for young people who find the current price prohibitive.

Cancer Council’s tobacco committee chair Alecia Brooks noted that people who vape are five times more likely to subsequently smoke tobacco — a finding that raises specific concern about the simultaneous legalisation of vapes. Quit’s medical lead Liam Egan warned the proposals “go against hard-fought public health wins.”

What neither side has a clean answer to: whether the black market price would simply fall to match any new legal price, removing the assumed competitive advantage the policy relies on.

What the evidence does not resolve

Both arguments contain real uncertainty. The tobacco excise literature demonstrates clearly that price reduces consumption at a population level — but it was developed in an era when illicit alternatives were less accessible. Whether that relationship holds when a large, entrenched illicit market exists is a genuinely different empirical question.

The Coalition’s two-year review period is, from a public health perspective, a reasonable design feature — not because the policy is likely to work, but because the counterfactual (continued rapid black market growth) also has health costs that a purely anti-excise-cut position does not fully account for.

My two cents

This is one of the genuinely contested public health arguments of the current decade in Australia. That is not a reason to treat both positions as equally supported by evidence — the mainstream health position, that tobacco taxation reduces smoking and lower prices would reverse that, rests on decades of global evidence. But it is a reason to resist the framing that the black market argument is simply industry rhetoric with no basis.

For people who currently smoke: this policy does not exist yet and may not. The immediate practical reality is that cessation support — including Quitline (13 7848), nicotine replacement therapy, and varenicline (Champix) where clinically appropriate — is available now through your GP, regardless of the political weather around tobacco policy.

The broader question of whether legalising vapes reduces or increases population nicotine harm is one the evidence has not resolved, and probably will not resolve cleanly. The most likely outcome is that it does both, for different groups, which is not a satisfying answer but is probably the honest one.

Verdict: maybe — watch the policy debate closely, but do not change clinical advice based on a proposal that has not yet been law for two days.

Sources cited

  1. Coalition unveils plan to slash tobacco tax — ABC News, 3 September 2026. https://www.abc.net.au/news/2026-09-03/coalition-unveils-plan-to-slash-tobacco-excise/107109642
  2. National Drug Strategy Household Survey 2025 — AIHW. https://www.aihw.gov.au/reports/illicit-use-of-drugs/national-drug-strategy-household-survey
  3. Cancer Council Australia — tobacco policy. https://www.cancer.org.au/our-work/policy-and-advocacy/tobacco

Frequently asked questions

  • Does tobacco taxation actually reduce smoking rates?

    The evidence that price increases reduce tobacco consumption is among the most robust in public health research. Australia's decades-long tobacco excise escalator has coincided with falling smoking rates — daily smoking dropped from 8.3% in 2022-23 to a record low of 5.6% in 2025. However, attribution is complex: the rise of vaping, changing social norms, and smoke-free legislation all contribute. The specific question of whether the illicit trade has begun to blunt the effectiveness of further price increases is less settled.

  • Is the black market in tobacco really significant in Australia?

    Yes, and significantly larger than a decade ago. Coalition modelling cited more than half of tobacco consumed in Australia coming from illicit sources in 2025, reaching 80% when including vapes and nicotine pouches. This is contested territory — different measurement methodologies produce different estimates — but the direction is not disputed. Criminal involvement in tobacco supply has grown substantially, with over 200 firebombings linked to illicit tobacco trade since 2023.