Tobacco tax queried as high prices drive black market

Alex Mitchell and Jack Gramenz | June 3, 2025

A “deep-seated and unhinged” desire to bring down big tobacco via sky-high taxes has created a thriving black market, an expert says, amid calls for excises to be cut.

After massive seizures of more than 20 million untaxed cigarettes thrust the underground tobacco trade back into headlines, NSW Premier Chris Minns said criminals were cashing in on the fallout of rocketing taxes.

Australia’s world-leading tobacco prices have been driven by a federal excise topping $1.40 per cigarette in March, excluding shop mark-ups, with the average pack of 20 costing about $40.

Former Australian Federal Police officer Rohan Pike, who founded the Australian Border Force’s tobacco strike team, said organised criminals would be “delighted” with the continual tax increases.

“It’s the incorrect policy that’s been driven by the health department based on ideological zealotry, a deep-seated and unhinged desire to defeat big tobacco,” he told AAP.

“That’s combined with general incompetence and a lack of foresight of what the consequences of their policies would be … and when being confronted with those consequences, just doubling down and continuing on.”

Rising concern about the side effects of the excise has led NSW to try to put it on the agenda of an upcoming meeting of state and federal health ministers.

Mr Minns said the excise had increased from $16 to $28 per pack in six years but total revenue was going backward as consumers fled to the black market.

“It’s just not working,” he told reporters on Tuesday.

Tobacconists are cropping up on high streets and pushing out other small businesses.

Police had better things to do than tobacco enforcement, Mr Minns said, and the “common-sense option” would be for the federal government to acknowledge the excise was not working.

But Treasurer Jim Chalmers defended the excise as “an important public health measure”, adding the government would work with states to curb the rise of illegal tobacco.

“More people giving up smoking is part of the reason tobacco excise is down,” he said.

“The other, which we’ve acknowledged, is the significant problem of illegal tobacco.”

Deakin University senior criminology lecturer James Martin said trying to price smokers out of the market for health reasons had “serious unintended consequences”, including the massive expansion of organised crime.

“We have the most expensive tobacco in the world, and it’s gone from a small nudging of consumer behaviour to actually trying to make it so smokers can’t afford to smoke anymore,” he told AAP.

Dr Martin said New Zealand taxed cigarettes at a similar rate but legalised and regulated vapes, so it did not fuel a black market.

“We’ve made cigarettes unaffordable, and we’ve banned the number-one quitting agent in vapes,” he said.

“That really leaves people with nowhere to go apart from the black market.”

The 2025/26 federal budget wiped $6.9 billion off the government’s tobacco excise projections out to 2029, with about one in five smokers shifting to illicit cigarettes or vapes.

Under an existing scheme, more than 5600 retailers have notified their intention to sell tobacco since 2021 – roughly three stores per day – according to NSW Health data.

The data includes an unspecified number of traders who might have taken over a shop previously occupied by a tobacco retailer or ceased trading without notifying authorities.

Increased scrutiny on illicit tobacco came as police on Tuesday announced the arrest of seven people over 20 million untaxed cigarettes and other drug imports.