There is a remarkable sentence buried near the end of this ABC analysis of Australia’s illicit tobacco crisis:
“Having evidence that the high cost of legal cigarettes fuelled the black market is not the same as proving the reverse would solve the problem.”
Strictly speaking, that is true. Cutting tobacco excise would not magically eliminate organised crime overnight. But it also reveals how strangely the burden of proof in this debate has shifted.
Australia did not demand proof that pushing a packet of cigarettes towards $50 would remain effective once an enormous illegal alternative became available for $15 or $20. We did not demand proof that restricting legal vaping so severely would not hand almost the entire vaping market to organised crime. We did not demand proof that enforcement could contain the resulting market when criminal profit margins became extraordinary.
Yet now that the system is visibly malfunctioning, reform apparently requires near certainty before it can even be attempted.
The figures in this article should stop anyone in their tracks. More than half of tobacco consumed in Australia last year was reportedly purchased illegally. Once vapes, pouches and other nicotine products are included, the illicit share rises to around 80 per cent. Legal tobacco excise revenue peaked at about $16.3 billion in 2019–20 and has collapsed to around $4.1 billion in 2025–26, with Treasury expecting it to fall towards $2.14 billion by the end of the decade.
Meanwhile, Australia has spent hundreds of millions of dollars fighting the illegal market. We have experienced extortion, organised-crime turf wars and hundreds of tobacco-related arson attacks.
And still we are debating whether price might have something to do with it.
The story of Mat Evans illustrates the absurdity perfectly. He operates a licensed tobacco business, follows the law and turns customers away because they want “the cheap stuff”. His legal cigarettes cost roughly $40 to $50 a packet while illegal competitors can offer cigarettes for $15 to $20.
That is not merely a law-enforcement problem. It is an economic incentive of breathtaking proportions.
Former ABF commissioner Michael Outram provides perhaps the most important calculation in the entire article. He estimates that 10 million cheap cigarettes could potentially be purchased and imported for around $250,000 and be worth approximately $7.5 million on Australian streets. On his calculation, a criminal organisation could lose nine containers and the tenth could still produce an extraordinary return.
That is why “more enforcement” cannot be the entire answer.
Enforcement absolutely matters. Criminal networks should be investigated, prosecuted and stripped of their assets. Borders should be strengthened, and illegal retailers closed. But enforcement becomes extraordinarily difficult when government policy itself creates profit margins large enough to absorb enormous seizure rates.
Associate Professor James Martin describes this as a market driven by continuing demand for affordable nicotine, excessive tobacco taxation and the crackdown on vaping. That combination is critical because Australia has not merely made cigarettes extraordinarily expensive. It has simultaneously restricted access to one of the principal non-combustible substitutes smokers might otherwise use.
This is where the tobacco-control response becomes increasingly difficult to understand.
Professor Becky Freeman argues that criminals could simply reduce their prices if legal cigarettes became cheaper. Of course they could. Nobody seriously believes organised crime will voluntarily maintain today’s prices.
But that doesn’t mean relative price is irrelevant.
Criminals are businesses too. Their operations have costs, risks and profit margins. A $50 legal product competing against a $15 illicit product creates a completely different criminal opportunity from a $20 or $25 legal product competing against a $15 illicit one. Legal cigarettes do not necessarily have to be cheaper than illegal cigarettes to recover customers. Some consumers will pay a premium for a legal product because it is convenient, regulated and carries none of the risks associated with purchasing contraband.
That is precisely why this question should be modelled rather than dismissed.
And the Senate majority report released yesterday does not simply recommend plucking an excise number “out of the air”. It recommends pausing further increases and undertaking an independent review, with public modelling of alternative excise levels as part of a broader strategy involving enforcement, border controls, education and improved access to less harmful nicotine products.
That is considerably more sophisticated than the caricature being presented by some opponents.
There is another important problem with the ABC article: Canada.
The article states that after Canada’s 1994 tobacco-tax reductions, “smoking rates increased significantly” and illegal tobacco consumption eventually returned to its previous level. That description deserves considerably more qualification than it receives.
Canada is not a simple morality tale in which taxes were cut, and smoking exploded. Different provinces cut taxes by different amounts, national smoking prevalence continued its longer-term decline, and research suggests the reductions may have slowed that decline in the provinces that cut taxes rather than producing the simplistic nationwide surge sometimes implied.
Canada deserves serious analysis because both sides can learn from it. It should not be compressed into a sentence that conveniently settles the argument.
The same caution should apply to Australia’s smoking statistics.
The 2025 National Drug Strategy Household Survey reports daily smoking at 5.6 per cent. That is important evidence and should not simply be dismissed because it is inconvenient to critics of current policy.
But neither should it end the discussion.
The ABS estimates nicotine consumption increased almost 40 per cent between 2017 and 2025. As the ABC correctly notes, that does not tell us how much of the increase came from cigarettes, vaping or other nicotine products. That uncertainty is precisely why Australia needs better measurement rather than declarations of victory from either side.
The fundamental question has changed.
For decades, increasing tobacco excise worked partly because smokers overwhelmingly purchased cigarettes through the legal market. Increase the legal price, and smokers experienced the price increase.
But what happens when enormous numbers of consumers can simply leave that market?
A $50 cigarette packet cannot encourage somebody to quit if that person stopped buying $50 cigarette packets years ago and now buys illicit cigarettes for $15.
At that point the excise is no longer functioning as intended for that consumer.
And this exposes the great irony in Mark Butler’s argument that even abolishing excise would not necessarily make legal cigarettes cheaper than illicit cigarettes.
That may actually demonstrate how profoundly distorted the market has become.
Nobody should pretend that cutting tobacco excise is risk-free. Making legal cigarettes cheaper could increase consumption among some people, reduce quitting incentives or encourage initiation. Those risks are real and should be modelled.
But maintaining the present system is not risk-free either.
That side of the ledger now includes organised crime, enormous illicit nicotine markets, hundreds of millions spent on enforcement, collapsing excise revenue, violence against retailers, firebombings and a regulatory system that has lost control of much of the market it supposedly regulates.
The choice therefore isn’t between a dangerous experiment and a safe status quo.
The status quo is already an experiment, and the results are increasingly visible.
Australia needs a coordinated strategy: recalibrate tobacco excise to reduce the extraordinary profitability of illicit cigarettes, aggressively enforce the law against the criminal market that remains, and establish a tightly regulated legal market for safer nicotine alternatives so adult smokers have an attractive pathway away from combustion.
The most revealing question in the ABC article is therefore the simplest one:
“What happens to one of Australia’s most successful public health policies when enough consumers can simply avoid it?”
That is exactly the question tobacco control must now answer.
Because a tax designed to discourage smoking only works as a public-health instrument while smokers actually pay it. Once organised crime becomes the retailer, government isn’t taxing smoking anymore.
It is taxing the people who still obey the law.
Reading about Matt Evans, I could not help but wonder how different the situation might be if he had been permitted to sell regulated vapes. Rather than sending customers away in search of "the cheap stuff", he could have offered a government-regulated, lower-risk and more affordable nicotine product. Supporting legal retailers while encouraging smokers to move away from combustible tobacco would surely have been a better outcome than expanding the illicit market.  Back to basics: people smoke for the nicotine but die from the smoke!
Australia’s tobacco control policies are now a train wreck. This has become increasingly obvious and undeniable in recent years. Meanwhile, Coalition and Labor governments, public health and the entire health establishment and most mainstream media, ignored the horrendous unintended consequences of policies they had advocated and supported for years. In normal times, Labor has a commanding lead on health, social and education policies but lags behind its conservative opponents on economic management and national security. But in recent years, Labor has outpolled its conservative opponents on economic management. Though not without problems, the Australian economy is doing reasonably well at present. This should be a time when the federal budget should be in surplus almost every year. But it isn’t. Revenue from cigarette excise was over $16 billion in 2019 but is now down to $4 billion. This $12 billion shortfall makes it even harder for the Labor government to report a budget surplus. The string of budgets in deficit risks Labor retaining its coveted status as the better economic manager. Admittedly whether a government is only a few billion dollars in deficit or surplus has more to do with political gamesmanship than serious economic management. However, the concern in Victoria over crime and violence is justified and the effect of the bloated cigarette excise inflating organised crime is likely to contribute to the fall of the Labor government in the November elections. The report of the Senate Enquiry released last week makes it clear that critics of current sky high cigarette excise and vape quasi prohibition have by far the better arguments. Thank you once again Alan Gor for your masterly comments on Australia’s dysfunctional smoking and vaping policies.