New South Wales Premier Chris Minns is urging the federal government to review the country’s tobacco excise, warning that high tax levels may be encouraging the spread of illegal tobacco sales nationwide.
The federal budget recently revealed a significant decline in expected tobacco tax revenue, with nearly $7 billion lost due to a surge in black market cigarette sales. The Treasury now forecasts a $6.9 billion reduction in revenue from tobacco excise between now and 2029, as more Australians seek out cheaper, unregulated tobacco or turn to vaping as an alternative.
Concerns are growing that Australia’s stringent taxation on cigarettes is unintentionally fuelling the underground trade. With the country already facing one of the highest cigarette prices in the world, where taxes account for around 75% of the retail cost, many are questioning whether the current policy is achieving its intended public health goals or simply diverting smokers to the black market.
The tobacco excise was initially increased by 25% in 2010 and has steadily risen since, as part of a broader effort to curb smoking. In 2023, the federal government announced a plan to raise tobacco taxes by 5% annually over three years. However, this approach appears to be backfiring in some respects. The Australian Institute of Health and Welfare reported that by 2024, approximately one in four smokers had used unbranded, illicit tobacco at some point.
The widespread availability of illegal tobacco not only undermines tax revenues but also presents logistical challenges for law enforcement. With police departments across the country already stretched dealing with more pressing criminal matters, such as domestic violence, cybercrime, and terrorism, there is growing concern that the burden of enforcing tobacco-related laws may not be the most efficient use of limited resources.
The federal government has acknowledged the issue and has pledged additional funding to combat the black market. An extra $157 million has been allocated in the most recent budget to bolster tobacco enforcement and compliance efforts. However, some policy experts argue that enforcement alone may not be enough to address the root causes of the problem.
Strict regulations on alternative nicotine products, such as vaping devices, have further limited legal options for smokers seeking to quit or reduce their intake. This has created a market imbalance, where legitimate choices are scarce and costly, while illegal products are cheaper and readily accessible.
Experts warn that the government may have limited flexibility to adjust its current position. Political rhetoric around tobacco policy has been particularly uncompromising, with federal officials portraying any move to delay or pause excise increases as a surrender to the tobacco industry. This hardline stance could make it difficult for policymakers to introduce more nuanced reforms, even if evidence suggests the current strategy is not delivering the intended outcomes.
As it stands, the government must balance competing interests: promoting public health, maintaining budget revenue, and ensuring that law enforcement resources are used efficiently. While the objective of reducing smoking remains central, the rise in illegal tobacco sales indicates that the current taxation strategy may require careful reconsideration.
Unless there is a strategic policy shift, Australia risks continuing down a path where high taxes push consumers underground, revenue goals go unmet, and enforcement costs continue to rise, without significantly reducing smoking rates.
For the latest retailer news and information, check out the ServoPro website or to speak to us about how we can help your business contact us.