The illegal tobacco market has left a $3.3bn hole in the federal government’s finances, with Australia’s national criminal intelligence agency warning organised crime’s dominance of the market is continuing to grow.
The Australian Taxation Office believes the illegal trade now accounts for one in five tobacco sales, which has led to reduced tax revenues despite the government’s excise on legal cigarettes reaching almost $30 for a pack of 20 sticks in September. The excise has increased almost eightfold since 2006, when it was $4.65.
The excise increase – designed to reduce rates of smoking – has drawn critics, including the New South Wales premier, Chris Minns, who has called on the federal government to undertake a review.
The recent surge in Australians looking for cheaper alternatives is proving profitable for organised crime networks, with an estimated $3.3bn in excise avoided in 2023-24, the Australian Criminal Intelligence Commission revealed in a report on Thursday night.
The ACIC’s analysis determined the overall impact of illegal tobacco on Australia – including $700m in related healthcare costs and reduced productivity – totalled $4bn over that 12-month period.
It also referenced the escalating violence, or so-called “tobacco wars”, as rival gangs competed for black market profits. The ACIC noted there had been at least three people killed and more than 200 firebombings related to the growth of the illicit tobacco market since 2023.
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The Australian Institute of Criminology said the $4bn estimate was “almost certainly an underestimate”, as it did not include e-cigarettes and illegal vapes.
In a report released alongside the ACIC analysis, the institute said there had been a “substantial and rapidly expanding market” for vapes since retail stores were banned from selling them.
While illicit tobacco trade had grown, the ACIC estimated that it accounted for a small portion of the $82.3bn cost of serious and organised crime to the Australian economy each year. Of that, illicit drugs were estimated to have a $19bn impact each year, with drug-impaired driving overtaking drink-driving as the leading cause of fatal crashes.
The report estimated about $10.9bn was spent on illegal drugs each year, with $6.5bn lost to productivity losses and $1.6bn spent on medical services as a result of drug use.
Debate over excise
On Tuesday, Minns said the federal government’s excise was the “leading reason” for the recent boom in illegal tobacco use by the general public.
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“A legal packet of 20 cigarettes costs $50 bucks … and you can pick up an illegal packet of cigarettes for $13,” he told ABC Radio Sydney.
“If you look at the economics of this, we are effectively providing a subsidised, cheap … widely available, ubiquitous tobacco industry that is untaxed,” he said.
In 2011-12, the federal government pocketed $16.3bn from the excise. Next financial year, it was forecast to be less than half, at $7.1bn.
Treasury forecasts in the May federal budget show the tobacco excise would be slashed by $6.9bn over the next four years.
The federal treasurer, Jim Chalmers, has so far rebuffed calls for a review into the excise policy to price Australians out of smoking. In June, he said he did not think the answer was “to make cigarettes cheaper for people”.
