The Albanese government is under mounting pressure to revise its strategy against the illicit tobacco trade, as fresh data reveals a dramatic decline in excise revenue and a surge in illegal product uptake.
New figures from the Australian Bureau of Statistics show nicotine consumption rose by nearly 40 percent between 2017 and 2025, while population growth was only 14 percent. The ABS attributes this spike largely to the rapid expansion of illicit cigarettes, e-cigarettes, and other nicotine products.
In 2017, illegal products represented just 12 percent of total tobacco consumption, but by 2025 that share had skyrocketed to 80 percent.
Excise revenue collapse
Labor's own budget forecasts tobacco excise revenue will plummet from $7.767 billion in 2024-25 to just $4.13 billion this financial year, falling well below the estimated $6.8 billion annual healthcare cost of smoking.
Victorian Liberal MP Mary Aldred warned that current tobacco policy has reached a "breaking point," with excise revenue no longer covering healthcare costs for the first time. "This should be setting off alarm bells right across government because it shows the current model is breaking down," she said.
Organised crime takes over
A British American Tobacco Australia spokesperson said Health Minister Mark Butler claimed to be fighting organised crime and Big Tobacco simultaneously, but Australians now face serious consequences. "The uncomfortable reality for the Minister is that organised crime is the new Big Tobacco," BATA stated.
The spokesperson noted that legal tobacco businesses operate under some of the world's strictest regulations, while organised crime now dominates Australia's nicotine market, avoiding taxes, reporting profits, and employing Australians. "Unlike legal businesses, they appear entirely unconcerned about firebombing shopping strips, intimidating retailers or recruiting young people into organised crime," BATA added.
"It is an exercise in deluded irony for the Minister to keep attacking 'Big Tobacco' while presiding over the largest expansion of black market tobacco in Australian history. If the government genuinely believes organised crime is the enemy, it may eventually need to confront the uncomfortable fact current policy settings have made organised crime extraordinarily rich."
Government response
Assistant Minister for Customs Julian Hill downplayed the illicit tobacco scourge, saying the ABS report simply reflects last year's inaugural report by the ITEC Commissioner. The government's own illicit tobacco and e-cigarette commissioner acknowledged the black market cost the country $11.8 billion in lost excise in 2024-25, estimating half of cigarettes purchased in Australia are illegal.
"Available evidence suggests enforcement measures pre-, at- and post- border are having an effect on the illicit trade," Mr Hill told SkyNews.com.au. "While the government has always acknowledged that the illicit trade might grow before it declines, there is very early evidence suggesting that nicotine users return to the legal market when the sleazy illegal shops have been forced shut. The Government will not surrender our nation's health policy to organised criminals or Big Tobacco who just want to see a new generation of Australians hooked on nicotine."
Mr Hill accused the Liberals of hypocrisy, noting they raised excise by 121 percent during their tenure but now call for cuts. "It is not the Labor Party that takes donations from Big Tobacco, but the same cannot be said about the Coalition," he said.
Liberal criticism
Ms Aldred said the government's tobacco policy has become a "gift" for organised crime, "wrapped in plain packaging." She stated, "When illegal tobacco explodes, nearly 300 firebombings follow and smoking rates go up, the government can no longer hide behind ideology. There is nothing moral about protecting policy settings that are helping organised crime dominate the market while vulnerable communities carry the consequences."
In March, the excise rate increased to $1.53 per cigarette, as it does each March and September.
Oxford Economics report
A report by Oxford Economics Australia, commissioned earlier this year, found that Commonwealth revenue forecasts have "consistently underestimated the rapid rise of the illicit market." The report estimated the illicit market at 19 percent of total consumption in 2020-21, 50-60 percent in 2024-25, and forecast it to reach almost 90 percent by 2028-29.
"The gap between expected excise receipts back in 2018-19 and forecasted receipts by 2028-29 (reached) $67 billion. Forecasted excise revenue by 2028-29 is $1.5 billion," the report found. "The illicit market is a highly lucrative revenue stream for organised crime, estimated at $4b to $7b per year. Violent turf wars vying for market control are harming the community and legal retailers."
Oxford recommended Treasurer Jim Chalmers slash the excise to 2019 levels until the market stabilises, cutting the price of legal packs by about a third of the current price.
