The black market for tobacco has flourished in the shadow of Australia’s aggressive tax policy, creating a lucrative opportunity for organised crime. As legal tobacco prices have soared, criminal networks have profited by undercutting legal products, offering smokers a cheaper alternative that circumvents regulation and taxation. This underground economy has expanded dramatically in recent years, fuelling criminal turf wars and undercutting tax revenues.
The sporadic but aggressive increases in tobacco excise are the primary driver of the illicit trade. Australia’s policy, implemented with the dual aim of reducing smoking rates and boosting government coffers, has created some of the world’s highest cigarette prices. Despite mounting evidence of unintended consequences, and prior knowledge of these risks, government officials remain inflexible, rejecting even temporary pauses in tax hikes.
Proponents of ever-increasing tobacco taxes often dismiss industry opposition through what they call the “scream test” – the notion that the louder tobacco companies protest, the more effective a policy must be. This simplistic reasoning conveniently ignores a troubling reality: while prices have increased due to the excise tax, Big Tobacco’s profit margins have also increased considerably. Before taxes are applied, Australia’s cigarette prices rank among the highest in the world, suggesting that the “big three” cigarette manufacturers have opportunistically used tax increases as cover for their own price gouging.
While public health advocates continue to recite the World Health Organisation’s mantra that taxation represents “the single most effective and cost-effective measure” to reduce smoking in the population, the evidence supporting this claim in Australia is weak in recent years. Despite the policy’s centrality to our tobacco control strategy, no formal evaluation has been published since the major tax increases started in 2010 – an astonishing oversight for such a consequential intervention.
Much has changed over the past two decades. Prices are much higher and smoking rates have fallen, becoming increasingly concentrated in disadvantaged groups in the community. The absence of rigorous assessment should raise serious questions about whether assumptions and ideology, rather than evidence, are driving policy decisions.
Available data paints a picture at odds with tax advocates’ confident assertions. Smoking rates have declined remarkably – but at similar rates during periods with and without significant tax increases. This suggests minimal impact from the tax hikes themselves.
The graphs below display two trends from 2000 to 2022-23: the percentage of adults who smoke daily (according to the National Drug Strategy household survey from 2000 to 2022-23 ) and the price breakdown of a common cigarette brand (showing both tax and pre-tax components).
The relationship between cigarette pricing and consumption appears far more complex than the simplistic elasticity models upon which policy has been based. The fact that smoking rates fell during periods of price stability indicates that shifting social attitudes and cultural norms around tobacco use, as well as policies such as smoke-free areas, are playing significant roles in reducing smoking prevalence. This nuance has been largely ignored in policy discussions fixated on tax as a silver bullet.
Furthermore, the growth of the black market fundamentally undermines the health aims of the tobacco excise. By creating parallel distribution channels offering cigarettes far below retail prices, high taxes have expanded access to cheaper tobacco products. For price-sensitive smokers, the black market provides an alternative to quitting. This diminishes the intended health benefits of tax rises. It also deprives the government of billions in revenue and enriches criminal enterprises.
This is particularly troubling when we consider who bears the heaviest burden of these taxes. Those unable to quit are disproportionately and increasingly concentrated among disadvantaged groups who are least able to absorb these financial imposts. The policy effectively functions as a regressive tax, deepening inequality and penalising the poor. This might be justified to the extent that tax increases are saving lives, but it is not clear that the policy is delivering on its public health promise.
Smoking remains a vitally important public health issue. A comprehensive, evidence-based review of Australia’s tobacco pricing strategy is long overdue. We need an honest accounting of both the benefits and costs of pricing policies, acknowledging the complex interplay between pricing, social factors and illicit markets. Without such analysis, we risk continuing a policy approach that imposes significant economic hardship on disadvantaged smokers and may not deliver proportionate public health gains – and inadvertently strengthening organised crime.
The time has come to look beyond ideological commitments and engage with the uncomfortable reality we find ourselves in.
• Edward Jegasothy PhD is a senior lecturer at the Sydney school of public health at the University of Sydney. Dr Francis Markham is a fellow at POLIS: the centre for social policy research at the Australian National University
