The Report That Finally Said the Quiet Part Out Loud

For years, Australians have been told that the explosion of illicit tobacco and vaping is primarily an enforcement problem. We have been promised more inspectors, larger seizures, tougher penalties, stronger border controls and new powers to close offending shops. Yet the black market has continued to expand in plain sight. It has become easier in many communities to buy an illegal cigarette or disposable vape than to obtain a regulated vaping product through the legal pharmacy system. Now a New South Wales parliamentary committee has finally said what governments and much of the public health establishment have been reluctant to admit: enforcement is not enough when government policy keeps creating the demand, the price incentive and the commercial opportunity that organised crime exploits.

Report 68 of the NSW Legislative Council’s Portfolio Committee No. 5, released on 20 August 2026 after receiving 71 submissions, 49 short submissions, seven supplementary submissions and holding two public hearings, is one of the most consequential Australian reports on nicotine policy in years. It contains 16 findings and 11 recommendations, but its importance lies in a much simpler conclusion. Australia’s current approach is no longer merely failing to suppress an illicit market. It is helping to sustain one.

The figures recorded in the report are staggering. The Illicit Tobacco and E-cigarette Commissioner estimated that illegal tobacco now accounts for approximately 50 to 60 per cent of Australia’s tobacco market. In comparison, illicit e-cigarettes account for 95.7 per cent of the vaping market. NSW Police told the inquiry that illicit tobacco may have represented only 15 to 20 per cent of the market in 2016 and was then largely underground. It has since “ballooned”, becoming highly visible in cities, suburbs and regional towns, sometimes with several tobacco shops operating on the same street.

The seizures have grown with the market. During 2024–25, the Australian Border Force seized 2.53 billion illicit cigarettes, 435.46 tonnes of loose tobacco and more than six million illegal vaping products through 23,097 detections. The estimated customs duty avoided on those seizures alone was $4.36 billion. Cigarette seizures were reportedly 320 per cent higher than four years earlier. Those numbers are often presented as evidence that enforcement is succeeding. Still, they can just as easily be read as evidence of the enormous scale and profitability of the supply continuing to reach Australia. Record seizures occurring alongside record illicit market estimates are not a victory. They are a warning that authorities are intercepting part of a rapidly expanding trade.

The committee’s most important contribution is its willingness to examine why that trade expanded. It found that increases in federal tobacco excise taxes played a “decisive role” in the dramatic growth of the illicit market and that current excise levels are no longer primarily deterring smoking. They are deterring the purchase of legal tobacco. That distinction matters. A tax can reduce consumption when people respond by quitting, but once an established illegal supply offers a dramatically cheaper substitute, further tax increases can change where people buy rather than whether they smoke.

Australia’s collapsing tobacco excise receipts strengthen that argument. The report records that Commonwealth tobacco excise revenue fell from $16.270 billion in 2019–20 to $7.767 billion in 2024–25. The estimated return for 2025–26 was cut to $4.130 billion, despite an earlier projection of $11.550 billion. The Illicit Tobacco and E-cigarette Commissioner estimated total excise avoidance of between $7.7 billion and $11.8 billion, while correctly cautioning that not every avoided dollar would have become government revenue because consumers change their behaviour when prices change. Even with that qualification, the direction is unmistakable. Legal sales and revenue have collapsed much faster than the underlying demand for nicotine.

This is the central contradiction of Australian tobacco policy. Governments continue to defend excise as though consumers can choose only between paying the legal price and quitting. In reality, millions of transactions now occur in a third market, one without tax, product standards, age controls, plain packaging compliance or meaningful accountability. A policy designed around a legal market cannot retain its intended effect after much of that market has migrated outside the law.

The consequences extend far beyond lost revenue. The report describes illicit nicotine as one of Australia’s largest and most profitable criminal commodities and the second-largest illicit drug market by expenditure and number of consumers. It documents the infiltration of wholesale and retail distribution, the use of cash-intensive businesses for money laundering and the growing involvement of organised crime networks with links to Southeast Asian and Middle Eastern supply chains. Evidence to the inquiry connected the national tobacco conflict with more than 270 firebombings, multiple homicides, robberies, extortion and at least one terror attack linked to a tobacco crime figure.

The report also includes an important qualification. NSW Police said the direct connection between recent violence and tobacco was much weaker in New South Wales than in Victoria and Queensland. Police identified 37 arsons involving tobacconists or other premises selling illicit tobacco among approximately 13,100 arsons in NSW over four years and said recent serious violence in the state had principally involved other criminal markets. That evidence should not be ignored or exaggerated. Yet it does not make the illicit tobacco trade harmless. Police also described a diversified NSW criminal market in which almost every organised crime group participates in tobacco at some level. The absence of a Victorian-style monopoly war in NSW does not erase the money, corruption, laundering and criminal capacity generated by the trade.

The committee therefore reached another crucial finding: there is no clear evidence that enforcement and regulation alone will meaningfully reduce the black market. This should end the ritual response in which every failure produces another announcement about raids, fines and shop closures. Enforcement is necessary. Illegal suppliers should not be allowed to operate with impunity, sell to children or use shopfronts to launder criminal proceeds. But enforcement cannot permanently overcome a market in which lawful products are extraordinarily expensive, lower-risk alternatives are difficult to obtain legally and illegal sellers can satisfy established demand at a fraction of the price. Close one shop and the customers do not disappear. Supply changes address, moves online or reappears behind another counter.

The committee recommends that the NSW Government ask the Commonwealth to reduce tobacco excise immediately to its January 2019 level, then research an optimal rate that preserves a public health effect without maintaining such a powerful incentive for illicit supply. Importantly, this is not proposed as a standalone giveaway to smokers or the tobacco industry. The recommendation couples any reduction with sustained enforcement, retail density controls, penalties for supplying minors, cessation funding and regular publication of smoking, consumption, illicit-market, revenue and enforcement data. The January 2019 starting point was not unanimous, passing four votes to two during consideration of the report, and its real-world effect remains uncertain. That is precisely why transparent measurement is essential.

Reducing excise is politically confronting because price remains a legitimate tobacco-control tool. The answer is not to pretend that price no longer matters or that cheaper cigarettes carry no risk of increasing legal consumption. The answer is to recognise that a policy can work under one set of market conditions and become counterproductive under another. When half or more of the tobacco market may already be illegal, preserving the nominal tax rate is not the same as preserving its public health effect. A tax that is routinely avoided can become less of a deterrent to smoking than a transfer mechanism from the legal economy to organised crime.

The report is equally significant on vaping. It finds that current regulation has created a substantial black market in which the large majority of users obtain illicit products. It acknowledges that federal restrictions have indirectly expanded the illegal tobacco trade by reducing smokers’ access to potentially less harmful alternatives. It cites evidence that Australia has created a “topsy-turvy world” in which cigarettes remain widely available through ordinary retailers while adult smokers face a highly restricted pathway to obtain regulated vapes.

That is the absurdity at the centre of the pharmacy-only model. The most harmful nicotine product, the combustible cigarette, remains readily available. A far less harmful non-combustible alternative is treated as a therapeutic exception, burdened by a system many adults do not use and many pharmacies do not meaningfully support. Predictably, consumers have not vanished. They have purchased unregulated disposable products from the same illicit network selling cheap cigarettes.

The committee does not claim vaping is harmless, nor should it. Its finding is more balanced and more useful: vaping should be regulated through a legal market that reduces use, maximises its potential as a smoking-cessation tool and reduces smoking. It recommends a Commonwealth review of the 2024 vaping restrictions, examining their relationship with black-market purchasing and considering policies used in other countries. The report points to New Zealand, where a regulated retail market coincided with smoking declining at roughly twice Australia’s rate, including particularly large declines among Māori people and disadvantaged communities, while also recognising legitimate concerns about youth vaping.

This is where the report moves closest to genuine harm reduction, but it could have gone further. A review is not reform, and maximising vaping’s cessation potential is too narrow if it excludes adults who switch without entering a medical treatment pathway. Tobacco harm reduction is not simply another clinical program. It is the practical substitution of a high-risk product with a much lower-risk one. Australia will not dismantle the illicit nicotine market while making safer legal alternatives less accessible than cigarettes.

A credible response must therefore do three things together. It must reduce the extraordinary price gap that directs smokers towards illicit cigarettes, enforce the law strategically against criminal suppliers and create an adult-only regulated market in which non-combustible nicotine products are accessible, affordable, quality controlled and substantially more attractive than smoking. Product standards, licensing, strict age verification, responsible retailing, proportionate taxation and meaningful penalties for sales to minors can all coexist with adult access. That approach would not eliminate every illegal sale, but it would remove much of the black market’s artificial competitive advantage.

The committee also recognises the unequal burden of existing policy. Persistently high excise disproportionately harms smokers in poorer communities, who are more likely than wealthier smokers to turn to illicit tobacco. This is often dismissed with the claim that tax encourages low-income smokers to quit and therefore improves health equity. That argument becomes less persuasive when illegal cigarettes are abundant. People experiencing disadvantage should not be treated as theoretical consumers who will respond exactly as a model predicts. Policy must account for their actual choices, circumstances and access to alternatives.

Report 68 is not perfect. Some claims presented to the inquiry remain contested, the proposed excise reduction requires careful evaluation, and the report could have offered a clearer blueprint for replacing the failed pharmacy-only vaping system. Public education about links between illegal tobacco and organised crime, another of its recommendations, may have limited impact while consumers can save enormous amounts by buying illicitly. Information cannot overpower incentives indefinitely.

Even so, the report marks a major break from Australia’s policy complacency. It places harm minimisation at the centre of nicotine regulation. It acknowledges the limits and sometimes counterproductive effects of prohibition. It finds that enforcement alone will not solve the crisis. It recognises that vaping restrictions have helped create an illegal market and denied smokers easier access to potentially less harmful alternatives. Most importantly, it asks policymakers to judge the system by what is happening in the real world rather than by what the policy was intended to achieve.

For too long, governments have counted raids while the market grew, celebrated seizures while supply expanded and defended rules while consumers abandoned the legal system. They have treated every consequence as a reason to intensify the same approach. Report 68 finally changes the question. Instead of asking only how Australia can enforce its nicotine policies more aggressively, it asks whether those policies themselves are helping organised crime succeed.

That question can no longer be dismissed as industry rhetoric, consumer anecdote or ideological opposition to tobacco control. It now sits in a parliamentary report, supported by evidence, formal findings and recommendations for change. The Commonwealth and the states can continue defending the architecture of failure, or they can begin rebuilding a legal market around relative risk, adult choice, realistic incentives and measurable outcomes.

The black market did not appear from nowhere. It was cultivated by a widening gap between what governments demanded and what consumers were prepared or able to do. If Australia wants to shrink that market, it must do more than chase the people supplying it. It must stop designing nicotine policy that sends customers straight to their doors.