Tobacco excise revenue has dropped to a nine-year low, as more smokers turn to the black market for cheaper cigarettes, prompting calls for increased enforcement from the federal government.

In the last financial year, the government collected just $9.7 billion in tobacco excise, a 40 per cent decrease from $16.3 billion in 2019-20, marking the lowest figure since 2014-15. Successive governments have raised the tobacco excise by 282 per cent since 2013, pushing the price of a 25-pack of cigarettes to around $50. However, economists argue these hikes have driven consumers to illegal markets rather than deterring smoking, leading to a significant loss in tax revenue.

Treasury has consistently overestimated excise collections since 2019, with projections now showing a $10.7 billion shortfall over the next four years. Illicit tobacco is estimated to account for 18 per cent of the market in 2022-23, costing the government $2.7 billion in lost revenue.

While smoking rates have decreased, the growth of the illicit tobacco trade has caused a surge in criminal activity, including arson attacks linked to gangs fighting for control of the market. In Melbourne, more than 120 arson incidents were reported since March 2023.

Economist Chris Richardson highlighted that higher taxes without sufficient enforcement have become ineffective. He called for stronger enforcement rather than further excise increases, warning that the current imbalance is unsustainable and fuels crime.

In response, the Coalition has pledged $250 million for a taskforce to combat illegal tobacco. However, Treasurer Jim Chalmers has ruled out reducing the excise, despite some Coalition MPs advocating for a reduction to curb the black market’s growth. The rising excise rates and the booming illegal market highlight the need for a more balanced approach to taxation and enforcement.

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