When Policy Defends Itself: A Critical Look at Australia’s Tobacco Tax Strategy and the Illicit Market Explosion
The recent paper by Samuel Brookfield, Cheneal Puljević, Ara Cho, and Coral E. Gartner attempts to defend Australia’s tobacco taxation strategy despite the rapid growth of the illicit tobacco market. While the authors present the paper as a balanced analysis of policy challenges, it ultimately reads more like a defence of an existing policy framework than a critical evaluation of whether that framework is still working.
The central argument is familiar. High tobacco taxes reduce smoking and therefore remain justified even if illicit trade increases. However, the paper struggles to reconcile this position with the reality it acknowledges. The authors themselves note that Australia’s illicit tobacco market has expanded dramatically over the past decade, rising from a relatively small share of the market to estimates that now place it at roughly half of all tobacco consumed. When a market reaches that scale it is no longer a marginal side effect of policy. It represents a structural shift.
Rather than confronting this shift directly, the paper often frames the discussion around protecting the policy narrative. The authors caution against arguments that link high taxation to illicit trade because such claims can be used by the tobacco industry to undermine tobacco control policies. Yet the scale of the illicit market is now widely documented by law enforcement, retailers, and government agencies themselves. Treating the issue primarily as a messaging risk risks overlooking the policy consequences that are already visible.
The paper also characterises critics of Australia’s tax policy as advancing simplistic arguments. At the same time, its own underlying assumption is similarly simplified. The authors largely rely on the idea that increasing cigarette prices will continue to reduce smoking regardless of how markets respond. What receives far less attention is substitution. When legal cigarettes become unaffordable many smokers do not simply stop. They look for cheaper sources. In Australia that increasingly means illicit tobacco.
Even within the paper the consequences of this shift are clear. The illicit tobacco trade has become associated with organised crime networks and violent competition for market control. There have been hundreds of arson attacks on tobacco retailers linked to criminal disputes over illicit supply chains. These are not minor enforcement issues. They represent the emergence of a parallel market that now operates at scale across the country.
The discussion of equity in the paper is also conflicted. The authors acknowledge that tobacco taxes fall most heavily on lower income smokers and that households continuing to smoke are now spending a larger share of their income on tobacco than in the past. At the same time they argue that the policy ultimately improves equity because some smokers quit. That argument relies heavily on population level averages while paying less attention to those who do not or cannot quit and who now face extreme financial pressure.
Another striking feature of the paper is the limited attention given to harm reduction. The authors call for more cessation support but give little consideration to the potential role of lower risk nicotine products in reducing smoking. In countries where alternatives such as vaping or heated tobacco are available through regulated markets many smokers transition away from combustible cigarettes rather than turning to illicit supply. Australia’s regulatory model has instead combined very high cigarette prices with severe restrictions on alternative products. That combination removes legal substitutes while maintaining strong incentives for illicit markets.
The authors also argue that reducing tobacco taxes would not eliminate illicit trade because price differences with international markets would still exist. That may be technically correct, but it avoids a more important question. At what point do price distortions become so extreme that enforcement alone cannot maintain a functioning legal market? When the price difference between legal and illicit products reaches very large levels the incentives for smuggling and illegal distribution grow rapidly. Enforcement agencies then face a problem of scale rather than simply a problem of resources.
The paper concludes with a discussion of the idea of a tobacco endgame and suggests that even if tobacco sales became entirely illicit, declining smoking prevalence could still be viewed as a success. That argument raises difficult questions about the broader consequences of policy. A strategy that knowingly pushes large segments of a market into criminal supply chains does not only affect smoking rates. It also reshapes law enforcement demands, criminal activity, and community safety.
Australia’s illicit tobacco market did not emerge in isolation. It developed within a policy environment that steadily increased cigarette prices while limiting legal alternatives and assuming enforcement could manage any unintended consequences. The scale of the illicit market today suggests that assumption may no longer hold.
A genuine policy evaluation would examine whether the current strategy has reached the limits of its effectiveness and whether new approaches are needed. Instead, this paper largely reinforces the existing framework while attributing emerging problems to enforcement challenges, economic pressures, or industry narratives.
Protecting a policy model is not the same as analysing whether that model is still working.
All policies involve trade-offs. Including cigarette excise. Increasing cigarette excise increases the price of cigarettes and generally that decreases consumption. Decreasing cigarette consumption is very beneficial. Increasing cigarette excise also increases government revenue and this helps governments to fund health and welfare programs, improve education, transport and all the other things communities want governments to do. But cigarette excise also has some important negative consequences. It’s a regressive tax so low income people pay a higher proportion of their income buying cigarettes than high income people. And while moderate cigarette excise may have clear net benefits, it may not be the same for sky high cigarette excise which Australian smokers now have to pay for legal cigarettes. This is the nub of the problem that the authors ignore. The unintended consequences of the sky high cigarette excise they defend includes: a huge and increasing black market; rampant extortion of retailers by criminals; widespread firebombing of retailers; several alleged homicides of alleged criminals by alleged criminals plus the alleged homicide of a bystander; and the loss of 5-8 billion dollars a year government revenue as legal cigarette sales migrate to illegal cigarette sales. Several highly regarded economists have argued that decreasing cigarette excise is necessary and inevitable. The Bloomberg followers describe anyone who accepts the views of these distinguished economists as “accepting the tobacco industry narrative”. Sadly we have got to a stage where tobacco control happily twists itself into knots trying to defend the indefensible. Cigarette excise has got to be decreased for the government to ensure that legal cigarette sales once again account for the overwhelming majority of the market. No one knows how far cigarette excise will have to be reduced in Australia. That can only be decided by trial and error. Risk proportional regulation of safer, smoke-free nicotine products as in New Zealand will also help reduce the size of the black market in cigarettes, tobacco and vapes. Law enforcement is likely to be as expensive and ineffective for reducing the cigarette black market as it has been for reducing the illicit drug market.
Spot on as usual, Al. They're defending broken policies at all costs. Except their salaries and grants, as you say, Tom. The tobacco control economy is sustaining itself at great expense to so much and so many and, most of all, to public health. On top of that, the government is terrified of being accused of a giant 'backflip'. It's impossible to believe every Labor party Federal MP supports the policies and those who don't should stand up!