Economists often act as if they alone discovered the idea of unintended consequences. But in reality, it’s just common sense: when trying to fix one issue, you might accidentally create another.

Take Australia’s decision to dramatically raise the tobacco excise by 500 per cent over a decade. The aim was twofold: reduce smoking and increase government revenue. Legal cigarette prices in Australia are now the highest in the world.

However, the policy came with a fundamental contradiction. To maximise tax revenue, smokers would need to keep buying despite rising prices. But from a health perspective, the goal was to reduce smoking. You can’t have both.

More importantly, this strategy depended entirely on enforcement. If only taxed products were available, the plan could have worked. Instead, illegal tobacco sales flourished. Organised crime groups stepped in, filling the gap left by consumers avoiding costly legal cigarettes.

As a result, expected revenue from the tobacco tax has plunged. Treasury once forecasted $14 billion a year by 2025—now it’s expected to be half that. The black market undercut both the health goals and fiscal benefits.

In essence, the government created a lucrative niche for criminal networks. And since compliance isn’t solely a federal responsibility, controlling the illicit trade is especially difficult.

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