Overshoot: How Australia’s Nicotine Policy Has Crossed Its Own Tipping Point

https://www.abc.net.au/listen/programs/the-radio-national-hour/debate-over-tobacco-excise-sparks-fury-/106356198

For years, Australia’s tobacco control establishment operated from a position of confidence. Prices rise. Smoking falls. Enforcement manages the margins. The formula appeared settled, almost textbook. Australia became the global example of what aggressive excise policy could achieve.

Until the numbers stopped behaving.

In the recent ABC Radio interview, Terry Slevin, CEO of the Public Health Association of Australia, responded to Australia’s exploding illicit tobacco market with a familiar reflex: enforce harder, blame the tobacco industry, and reject any reconsideration of excise as a win for Big Tobacco. The tone was firm, morally certain, almost impatient with the premise that policy settings themselves might deserve scrutiny.

What stood out was not the conviction. It was the narrowness of the frame.

Slevin’s central claim is straightforward. Smoking rates have plateaued because the industry is breaking the law. Organised crime has moved in. Therefore, the solution is stronger enforcement, more raids, tighter compliance. The implication is that the policy architecture remains sound and only its policing needs reinforcement.

That framing performs two quiet manoeuvres. First, it reduces a structural market shift to bad actors. Second, it avoids examining whether current policy settings have created the conditions that organised crime is rationally exploiting.

Dr James Martin, a criminologist who studies illicit markets, provided the missing piece. Black markets do not emerge randomly. They form under predictable conditions: persistent demand, restricted legal supply, and large price differentials. When those variables align, the result is not surprising. It is economically rational.

Australia now has the highest cigarette prices in the world. A legal pack retailing for fifty to sixty dollars sits alongside illicit packs selling for eight to twenty dollars. Legal nicotine alternatives have been heavily restricted. Tobacco excise revenue has halved over six years. Smoking rates have stalled rather than continued their steady decline. Organised crime groups are embedded nationally in distribution networks that did not exist at scale a decade ago.

This is not a morality play. It is arbitrage.

Slevin insists enforcement is beginning to work, pointing to shop closures and seizures. But enforcement activity is not the same thing as market contraction. Drug markets have shown for decades that record seizures can coexist with stable supply, falling street prices, and rising availability. Seizures measure police effort. They do not automatically measure market shrinkage.

The revenue collapse is harder to dismiss. When excise rates double and government revenue halves, while smoking prevalence plateaus, something fundamental has shifted. Consumers have not vanished. They have migrated. That migration represents lost fiscal control and lost regulatory oversight.

Rather than engaging with this displacement effect, Slevin reframes any suggestion of recalibrating excise as capitulation to industry interests. It is rhetorically effective. No public health advocate wants to be accused of siding with tobacco companies. But it sidesteps the more uncomfortable question: when the legal market loses dominance and criminal networks set the floor price, who is actually benefiting?

It is not the multinational firms often invoked in this debate. As Dr James Martin has observed, much of the growth appears to involve organised crime groups capitalising on extraordinary price gaps. If youth access is the concern, handing distribution power to networks that do not request identification and do not comply with regulation is a strange form of protection.

On vaping, Slevin repeated familiar warnings about youth uptake, respiratory harm, and uncertainty. What went largely unaddressed was the international divergence. Sweden’s combustible smoking rate has fallen to among the lowest in Europe. New Zealand’s smoking decline accelerated following the widespread availability of regulated vaping products. One does not need to romanticise vaping to observe that alternative nicotine pathways can alter combustion trends.

Australia has taken a different path. Extreme excise on cigarettes combined with heavy restriction on legal nicotine alternatives has widened price gaps while narrowing legal substitution options. When legal alternatives are constrained and legal cigarettes become prohibitively expensive, the remaining pressure valve is illicit supply.

The analogy to the broader war on drugs is uncomfortable but analytically coherent. Enforcement can disrupt markets. It cannot repeal demand. When demand persists, supply adapts. Criminal networks thrive in the margins between price and prohibition. The more extreme the gap, the stronger the incentive.

Earlier phases of Australian tobacco control succeeded because escalation was calibrated. Price increases were significant but occurred while the legal market retained dominance. Compliance was high. Social norm shifts reinforced the fiscal signal. The system functioned because incentives and enforcement were broadly aligned.

What we are witnessing now looks less like calibration and more like overshoot.

When legal prices rise beyond what a significant minority of consumers are willing or able to pay, and when cheaper illegal options become widely accessible, the equilibrium changes. Policy intent does not guarantee policy outcome. Markets respond to incentives, not to aspirations.

None of this implies that taxes never work. For years, they did. Nor does it imply that enforcement is irrelevant. But enforcement alone cannot correct structural imbalances created by extreme price differentials and constrained legal alternatives.

The deeper risk is institutional rigidity. When plateauing smoking rates and collapsing revenue are interpreted solely as criminal defiance rather than as feedback from the market, the policy response narrows to escalation. More raids. More penalties. More rhetoric.

Dr James Martin’s contribution is notable not because it is radical, but because it is dispassionate. He does not call for deregulation. He does not deny smoking harms. He simply describes the structural incentives at play and cautions that a law enforcement heavy response to a demand driven market has predictable limits.

The uncomfortable possibility is that Australia’s nicotine policy has moved beyond its optimal point, that price, prohibition, and restriction have combined in ways that weaken legal control rather than strengthen it.

Calling any reconsideration a win for Big Tobacco may be politically expedient. It may mobilise supporters. But it does not address the core economic dynamics now visible across the country.

Markets do not disappear because policymakers disapprove of them. They relocate.

If Australia wants to regain control of its nicotine market, the conversation will have to move beyond slogans and moral binaries. It will have to confront the possibility that the current architecture, however well intentioned, is generating consequences that enforcement alone cannot contain.