Introduction by Croakey: The Australian Bureau of Statistics (ABS) this week released experimental estimates of illicit tobacco consumption; because of the obvious difficulties in measuring illicit use, these are based upon nicotine metabolite concentrations detected in wastewater samples.
The ABS reports that:
- The quantity of nicotine consumed in Australia increased by almost 40 percent from 2017 to 2025, with most of the increase occurring since 2021. Population growth over the period 2017-25 was 14 percent.
- The increase was underpinned by a large rise in illicit cigarettes as well as increases in e-cigarettes and other nicotine products. Consumption from illicit sources as a share of total tobacco consumed rose from 12 percent in 2017 to 80 percent in 2025.
- Prices for legal tobacco products have almost tripled since December 2016 driven by annual tobacco excise increases, while estimated prices of illicit tobacco products have remained relatively constant.
Responding to the findings, Cancer Council Australia today released a statement calling for stronger enforcement to combat illicit tobacco alongside greater investment in demand reduction measures.
Cancer Council Australia CEO Jacinta Reddan said the ABS findings show governments need to act urgently to clamp down on the illicit market, and also called for an immediate scale up of demand reduction measures – in particular hard-hitting national tobacco campaigns with broad reach across the whole population and cessation support.
“We’ve had concerns for some time that illicit tobacco risks driving up smoking, undoing decades of progress in Australia,” she said. “Urgent action is needed to address this – but cutting tobacco tax is not the solution… [and] would simply make legal tobacco more affordable, increase consumption, and boost tobacco industry profits, while the illicit market continues to operate.”
She noted that the wastewater data used in this ABS report captures total nicotine consumption, but cannot distinguish between product types, including cigarettes, vapes, nicotine pouches or nicotine replacement therapies such as gum and patches.
Reddan warned that Australia is in a critical window, with a real risk the data estimates will be misrepresented and used by big tobacco and industry front groups to justify weakening effective tobacco control policies.
“The tobacco industry is already trying to frame this as a tax problem,” she said. “We cannot let that narrative take hold. The solution is stronger enforcement and sustained public health action – not undoing decades of hard-won progress to reduce the impact of smoking and nicotine addiction on our nation.”
Meanwhile, public health expert Associate Professor Ben Harris-Roxas has been digging into arguments that high taxes on tobacco are inequitable, and that calls for legal cigarettes to be made cheaper would help limit black market tobacco sales.
“The cheap cigarette fix is a mirage. Head towards it, and it retreats into the distance, and you’ve given up a lot of ground and gone nowhere,” he writes below. This article was first published at his website, before the new ABS data was released.
Ben Harris-Roxas writes:
I’m seeing more and more calls for legal cigarettes to be made cheaper in order to limit black market tobacco sales. The argument put forward seems to make sense – if we cut taxes on legal smokes it will undercut illegal ones – as long as you don’t think too hard about it.
I’m not a tobacco control expert, but neither are those making the claims that cutting taxes will reduce illicit tobacco. So a few months ago I started keeping a list of what I thought was wrong with the arguments being put about, which I’ve attempted to pull together here.
The black market in tobacco in Australia is real. Tobacco excise revenue has fallen from a peak of about $16 billion in 2019-20 to around $7 billion in 2024-25 (Vass & Clyne, 2025, noting e61 are an economics group who’ve advocated for decreasing the price of tobacco).
The Australian Taxation Office’s estimates puts illicit tobacco at roughly 25 percent of the market in 2023-24, up from about eight percent in 2018-19 (ATO, 2025), though University of Queensland wastewater data analysis and the Commonwealth Illicit Tobacco and E-cigarette Commissioner suggests the real market is likely over 50 percent (Wang et al., 2026, though this analysis is complicated by nicotine from vaping and other sources, ITEC, 2025).
Wherever the true figure currently is, the illicit trade has clearly grown rapidly since the COVID era. This is of particular concern in relation to young people who use tobacco because they’re price sensitive and are potentially setting themselves up for long-term nicotine dependence (Watts et al., 2026).
It’s also turned violent, with a string of arson attacks on tobacco retailers across Victoria and at least one death (Oakes, 2025). This can’t be waved away – it’s a real and dramatic shift.
But the proposed solution, cheaper legal cigarettes, doesn’t work in terms of the numbers, the international evidence, or what we know about who smokes and why.
The maths doesn’t work
There’s some value in starting with the numbers. Excise is about $1.40 per cigarette, which puts roughly $30 of tax on a pack of twenty (ATO, 2026). A legal pack retails for around $40, more for premium brands. Illegal packs sells for about $15 (Vass & Clyne, 2025, though this varies by location and can be quite volatile month-to-month).
To make legal cigarettes price-competitive, the Government would need to give up almost all excise and trust that manufacturers and retailers pass every cent of that cut on, rather than increasing their own margins.
Professor Simon Chapman (2025) wrote a good summary of what’s been proposed in terms of excise reduction by economists and industry, which are basically what they used to be in 2015-2019.
Even if tax levels were rolled back to what they were ten years ago they’d still be well above $15. Legal cigarettes would be cheaper, but still nowhere near as cheap as black market pack prices. The gap between legal and illegal prices would narrow, but not enough to act as an incentive, and black market sellers could drop their own prices as well.
The tax cuts would forgo billions to achieve very little.
The tobacco industry has a documented habit of using excise rises as cover to increase its own margins (known as overshifting, Gilmore et al., 2013; Hiscock et al., 2018; Schalkwyk et al., 2019).
If this is how Big Tobacco behaves when taxes go up, why would we assume it would pass on tax cuts to smokers?
The black market isn’t simply caused by price
There’s a deeper, rarely articulated assumption underneath all of this – that high prices create black markets, so lower prices will disperse them. Comparative evidence suggests that’s unlikely.
The World Bank undertook a review of more than 30 countries and found that illicit cigarette markets tend to be bigger in countries with low taxes and prices, and that the real drivers are weak governance, poor enforcement, and established distribution networks rather than the tax rate itself (Dutta, 2019).
Vietnam and the Philippines have cheap cigarettes and thriving black markets. In New York a pack costs about AUD $23 (new minimum retail price for a pack of 20 cigarettes is $15.44 in NYC), which is still markedly cheaper than Australia and still has a smuggling problem (Ma & Golden, 2024).
People will always try to undercut legal prices, and they can afford to go lower than governments can.
Tobacco control isn’t failing
Henry Mintzberg, a Canadian management academic, argues in his article Managing the Myths of Health Care that the health systems aren’t failing, in reality they’re succeeding, just expensively (Mintzberg, 2012). The same thing applies to tobacco control.
Daily smoking among Australians aged 14 and over fell from 24 percent in 1991 to 8.3 percent in 2022-23, a two-thirds drop (AIHW, 2024). Australia now has the fifth-lowest daily smoking rate in the OECD (AIHW, 2026). In the most disadvantaged areas daily smoking rates fell from 18.1 percent to 13.4 percent in the four years to 2022-23 (AIHW, 2024).
When the AIHW measures smoking, they count everyone who smokes, whether they bought their cigarettes legally or not. Both kinds kill you.
Professor Emily Banks and colleagues (2015) estimated that up to two-thirds of deaths in current smokers can be attributed to smoking. So even though illicit tobacco purchasing has exploded, the thing public health actually cares about – the proportion of Australians who smoke – has kept falling.
An interesting (but also rhetorically contortionist) version of the argument for reducing excise relates to the idea that Australia may now be past the revenue-maximising rate, known as a Laffer curve by economists. This is the point beyond which pushing a tax higher leads to less revenue being collected overall. If taxes are too high, economic orthodoxy holds, people shift to untaxed alternatives.
The problem is revenue raising was never the point. It was to make people smoke less, and tobacco taxes have been a major contributor to that.
Assuming a fall in revenue is proof of failure accepts that the underlying rationale is a fiscal one instead of a health one.
Equity matters
The equity argument goes the other way to what’s presented. The most coherent case for cutting the tax is probably the one that focuses on equity, and I get where it’s coming from. Excise is regressive and has the hardest impacts on people with low-incomes, who smoke at higher rates.
Taxes that affect people in poverty most don’t sit well with me, and we should acknowledge that rather than pretending it’s a non-issue.
We should think that through, though. Price is the single most effective lever we have for reducing smoking, working both by discouraging people from starting and by prompting established smokers to cut down or quit (Chaloupka et al., 2011).
The cigarette price elasticity in high-income countries sits at around -0.4 (Jawad et al., 2018 – Mohammed Jawad has also done excellent work on shisha/arghile use, which is an interest of mine). That means that a 10 percent increase in price produces approximately a four percent reduction in consumption.
In high-income countries the evidence is reasonably consistent that lower-income smokers are more responsive to price, not less. Seng Eun Choi’s (2016) analysis of Korean data found the lowest income quartile had a price elasticity of -0.81, against -0.33 for the highest.
That means lower-income smokers in Korea were roughly 2.5 times more responsive to price increases, i.e. they quit or cut down more when prices rose, comparatively, and smoked more when prices fell.
The evidence is admittedly weaker and more contested in low- and middle-income settings, as Guindon et al. (2023) showed, but Australia isn’t a low-income country.
This is the problem with the equity argument, because making cigarettes cheaper would disproportionately increase smoking amongst precisely the groups the argument claims to be protecting.
The harms from smoking are far more regressive than the tax on it. The most disadvantaged Australians already carry both the highest smoking rates and the heaviest disease burden (AIHW, 2024).
Money a low-income smoker “saves” on cheap cigarettes is not a welfare and wellbeing gain when it buys a product that kills up to two-thirds of long-term users (Banks et al., 2015).
The harms from smoking are far more regressive than the tax on it.
A more honest response to the regressive nature of tobacco taxes would be to spend more of the revenue on direct support for the people who bear its impacts. I’m thinking of things like properly funded cessation services and direct income support, not making a lethal product cheaper.
Whose argument is this?
An aspect of excise reduction advocacy that bothers me is the co-opting of harm reduction language.
Harm reduction means meeting people who already use a drug where they’re at, and offering something safer – clean needles, naloxone, nicotine replacement. It doesn’t mean making a lethal product with no safe level of use cheaper and easier to start. Dressing up a price cut in that language is bad faith.
If you find yourself making the case Philip Morris made internally that “of all the concerns, there is one, taxation, which alarms us the most” (Phillip Morris, specific date unknown), it’s worth zooming out to ask whose interests your argument serves, even if you manage to fall for the rhetorical misdirection.
Big Tobacco is frightened by price controls. BAT told a Senate committee that the 2010 25 percent excise increase cut its sales by around 10 percent in a single year (cited in Chapman, 2015).
What actually works will be slower
None of this means black markets are unbeatable. The World Bank review identifies countries that have pushed back on the illicit trade (the UK, Georgia, Kenya). They did this through enforcement, track-and-trace, and customs and tax agencies working together while still keeping their tobacco taxes up (Dutta, 2019).
The World Health Organization’s Protocol to Eliminate Illicit Trade in Tobacco Products recommends exactly this approach and pointedly does not recommend cutting taxes (WHO FCTC, 2013).
Australia is slowly, belatedly, doing this through the Australian Border Force-led taskforce and the new Illicit Tobacco and E-cigarette Commissioner (ATO, 2025; ITEC, 2025). This won’t have an immediate impact but experience suggests it will have a slower, longer-lasting change.
The choice to “cut the tax or live with the black market forever” is a false one. It’s more along the lines of “keep building enforcement capacity, which is slow, hard and not glamorous, or surrender the single most effective population-level tool we have”.
I’ve been thinking about this for a while now, but I try to stay open to new ideas and evidence. If someone can show me a tax cut can close the price gap, doesn’t increase smoking, and isn’t a massive win for Big Tobacco, I like to imagine I’d change my mind.
What’s being proposed would instead make cigarettes cheaper, smoking more common, and everyone who sells them (legally and illegally) richer. The cheap cigarette fix is a mirage. Head towards it, and it retreats into the distance, and you’ve given up a lot of ground and gone nowhere.
• References for this article are here.
Author details
Ben Harris-Roxas is a health services researcher, educator and impact assessor with over 20 years of experience in Australia and overseas, and an Associate Professor in the School of Population Health at UNSW Sydney. He has worked for several universities, consulting firms, government agencies and NGOs. He is trained as a social worker and in social research, and received his PhD in public health.
See Croakey’s archive of articles on tobacco control
Add Comment