The $11 Billion Black Market: Inside Australia’s Fierce Political Divide Over Illegal Tobacco

Recent data from the Australian Bureau of Statistics has revealed a staggering shift in how Australians consume nicotine, showing that 80 per cent of the nicotine consumed across the country is now sourced from the black market. The figure has highlighted a deep problem, sparking intense debate among public health officials, law enforcement agencies, and policymakers over how to address the growing crisis.

A Dramatic Shift in Nicotine Consumption

For years, the volume of legal tobacco consumed in Australia remained relatively stable. Statistics indicate that around 2016, legitimate cigarettes and tobacco accounted for approximately 4,500 kilograms of nicotine per quarter. This stability persisted despite annual tax increases that eventually rendered Australian cigarettes the most expensive in the world.

However, by mid-2019, legal tobacco consumption began a steady downward slide. That decline quickly turned into a sharp plunge as tax hikes continued, with the latest figures showing legal sales have fallen to about a third of the levels recorded a decade ago.

While this drop might initially look like a significant achievement for public health, wastewater testing tells a completely different story. The total volume of nicotine detected in Australia's wastewater has surged, revealing a massive gap between legal sales and actual consumption. This rise is driven heavily by illicit cigarettes, alongside a smaller but growing volume of illegal vapes and other products like nicotine pouches, gum, and prescription nicotine.

The Reality Behind the Wastewater Data

The high volume of illegal nicotine does not necessarily mean smoking rates are rising overall. Becky Freeman, a professor of public health at the University of Sydney, suggests the 80 per cent figure reflects heavier usage among those buying illicit products, which also vary in strength.

"What this suggests is that the people who are smoking illicit tobacco, are probably smoking more because there's no price barrier there," Professor Freeman said.

Having spent more than two decades working in tobacco control, she noted that these trends align. "I'll just say none of these research findings are surprising to me," she said, adding, "They all marry up and paint a full picture."

Importantly, Professor Freeman emphasized that overall smoking rates continue to decline. A survey from the Australian Institute of Health and Welfare recently reported that daily smoking rates fell to 5.6 per cent in 2025, down from 8.3 per cent in the 2022–2023 period.

However, some experts have questioned these figures. Australia's former deputy chief medical officer, Nick Coatsworth, who supports lowering the tobacco excise, pointed out that the national downward trend contradicts state-level data, such as in Western Australia, where rates have shown an upward turn.

An Economic and Criminal Threat

Beyond public health concerns, the soaring black market is causing a massive drain on public finances. The office of Australia's Illicit Tobacco and E-cigarette Commissioner estimates that tax and duty evasion cost the country up to $11.8 billion in the 2024–25 financial year alone. Consequently, the federal government has wiped $8 billion off its tobacco excise revenue estimates for the next five years.

Meanwhile, smoking continues to be the leading cause of preventable death and disability in Australia, costing the economy an estimated $136 billion annually in disease treatment—including heart disease, lung cancer, and oesophageal cancer—and lost productivity.

At the same time, the illicit trade has become a highly lucrative venture for organized crime groups, offering low risks and high rewards. It now stands as the nation's second-fastest-growing criminal market, surpassed only by illegal drugs. To control the market, criminal syndicates have increasingly resorted to extortion and arson attacks.

The Debate Over Tax Cuts

The clear correlation between rising prices and black-market growth has sparked a heated debate on whether Australia should lower its tobacco excise. However, stakeholders are deeply split on the solution.

Dr James Martin, a criminologist at Deakin University, described the current situation as a "mass consumer revolt" against cigarette pricing. A pack-a-day smoker currently faces an annual cost exceeding $15,000.

"I'm surprised that the government has continued to double down on the policies that have gotten us here rather than looking for alternative approaches," Dr Martin said. "So you take an addictive commodity, you price it out of a range of affordability, there's very little difference between banning something outright … or just pricing it out of availability."

He added: "The net effect is the same, and that is that it displaces demand to illicit operators."

Despite these arguments, the federal government remains firmly opposed to lowering tobacco taxes. In June, Assistant Minister for Customs Julian Hill stated that reducing the excise "doesn't stand up to scrutiny."

"What magic level of excise reduction would make any material difference to transnational and serious organise crime profitability?" Mr Hill said. "The option is not to surrender our nation's health policy to organised crime or condemn the next generation to the scourge of smoking-related disease and early death."

In contrast, Liberal MP Mary Aldred argued that the current excise is "too high" and suggested a reduction should be evaluated as part of a "Swiss army knife of solutions."

"The price point legal cigarettes are now at means the government is driving honest, decent Australians into the arms of organised crime," she said during a National Press Club address last month.

Ms Aldred highlighted the local impact of the crisis, noting that a suspected illegal tobacco shop was firebombed just 80 meters from her electorate office in Warragul, causing fear among local businesses.

"There's thousands of small business owners right across Australia who have nothing to do with this and are losing trading hours, they're losing staff, because they are scared about coming to work and no-one's standing up for them," she told the Press Club, warning, "I believe this will come to be seen as the greatest public policy failing in a generation."

Her concerns are shared by NSW Premier Chris Minns, who has urged the federal government to review the tobacco excise, questioning if deploying NSW Police resources to combat illegal tobacco sales is the most effective use of their time.

Furthermore, Professor Richard Holden, an economist from the UNSW Business School, characterized the refusal to reconsider the excise as a "huge mistake." He has proposed temporarily eliminating the excise entirely to allow authorities to dismantle the illicit market.

"It's a disaster … because if you make the excise high enough, you create an incentive for illicit tobacco to come into the country," Professor Holden said.