Illicit tobacco now dominates Australia’s market, with illegal products valued at nearly US$6.5 billion. Photo credit: ABF.
Illicit tobacco sales in Australia have soared to unprecedented levels, with recent estimates suggesting that illegal products now dominate the market and cost the government billions in lost revenue. Industry data claim that illicit tobacco accounts for as much as 64% of all tobacco consumed and an extraordinary 82% of total nicotine use, making Australia one of the world’s most lucrative black markets for cigarettes and loose tobacco. The market’s estimated value has climbed to nearly AU$10 billion, even as the federal government continues to raise excise taxes on legal products.
Official data confirm that tobacco tax receipts have collapsed. According to several analyses, excise revenue has fallen from more than AU$16 billion in 2019–20 to roughly AU$7.4 billion in 2025, reflecting both a steady decline in legal cigarette sales and the migration of smokers to untaxed, unregulated sources. The Australian Taxation Office (ATO) now reports a “tobacco tax gap” of about 33%, while consulting firm FTI estimates that almost 40% of all tobacco consumed last year was illicit. More recent, higher figures cited in the media stem from internal tobacco industry data that have not been independently verified, but they nonetheless underline the severity of the problem.
The surge in the black market coincides with some of the highest cigarette prices in the world. A pack of legal cigarettes now costs more than AU$40 in many outlets, a result of years of biannual indexation and an additional 5% annual surcharge on tobacco excise. Despite mounting evidence that tax hikes are driving consumers toward illegal supply, the government raised the excise by another 5% in September 2025, maintaining its long-standing commitment to using price as a deterrent to smoking.
Economist Arthur Laffer, known for his “Laffer curve” theory on taxation, has described Australia’s tobacco policy as a textbook case of diminishing returns. By pushing legal prices beyond what consumers are willing or able to pay, he argues, the government has reached the point where each new increase reduces rather than raises revenue. Similar warnings have been echoed by retailers and state enforcement agencies, who report an explosion in the sale of cheap, untaxed tobacco—often imported illegally or sold as unbranded “chop-chop” in corner stores and market stalls.
Australian Border Force data support the scale of the trade. Between July 2024 and June 2025, officers intercepted more than 2.5 billion illegal cigarette sticks and 435 tons of loose tobacco, preventing an estimated AU$4.4 billion in duty evasion. Yet these seizures are thought to represent only a fraction of the total illicit flow, as organized crime groups increasingly use small shipments and domestic cultivation to evade detection. Authorities in several states, including Queensland, have responded with tougher laws, including penalties for landlords who allow illegal tobacco sales on their premises.
While industry groups have seized on the latest figures to argue for a rethink of Australia’s tax policy, public health advocates warn against any rollback of excise increases. They contend that high tobacco prices remain one of the most effective tools for reducing smoking rates and that the solution lies in stronger enforcement rather than cheaper cigarettes. The federal government, for its part, has signaled no change in approach. Treasury officials maintain that excise policy is driven primarily by health objectives, not revenue considerations, and point to new funding for border and compliance operations targeting the illicit trade.
Still, the situation poses a growing fiscal and policy dilemma. As the legal market continues to shrink and smokers turn to underground suppliers, Canberra faces the dual challenge of declining tax income and a flourishing unregulated industry that undermines public health goals. With the illicit tobacco trade now worth billions and showing no sign of slowing, the question for policymakers is whether Australia’s tobacco control model—once hailed as the world’s toughest—has reached a breaking point.