Australia’s cigarette excise rises again as black market booms and budget revenue collapses

Australia’s position as home to the world’s most expensive legal cigarettes has been reinforced, with another six-monthly excise increase pushing prices even higher. From March, tobacco excise has risen by a further 2 per cent in line with wage growth, taking the tax on a single cigarette to about $1.52. That equates to more than $30 in tax on a standard pack of 20 before GST or retail margins are added. The latest rise means excise has climbed by roughly 60 per cent since 2020 and now makes up about three-quarters of the $40 to $50 cost of a legal packet. For smokers, the financial toll is staggering. In 1980, a packet of 25 Winfield Blue cigarettes cost $1.07, equivalent to about $5.79 in today’s dollars. Today, the same packet is selling for $46.95, with about $38 of that price going directly to excise and duty. A pack-a-day habit now costs about $14,600 a year and is projected to exceed $15,000 next year. Black market boom fuels violence But as legal prices have soared, so too has Australia’s illicit tobacco trade, with Victoria emerging as the epicentre of a violent turf war. Dubbed the “Melbourne tobacco wars”, the battle between organised crime syndicates over the booming black-market trade has led to more than 125 arson attacks on tobacco and convenience stores since early 2023. There have also been extortion demands, shootings and at least one death, prompting Victoria Police to establish Taskforce Lunar to target the syndicates. Illicit packs, often sold under the counter or through pop-up tobacconists, can cost as little as $10 to $15, less than half the legal price. Authorities estimate up to 60 per cent of all cigarettes consumed in Australia are now purchased through the black market. The shift has had a dramatic impact on federal revenue. Tobacco excise receipts peaked at $16.3bn in 2019–20 but are expected to fall to $5.5bn this financial year. Treasury forecasts suggest the figure could drop further to about $4.4bn by 2028-29. In the latest mid-year budget update, Treasurer Jim Chalmers revealed an $8.2bn downgrade in expected tobacco excise revenue over four years, reflecting the mass exodus from the legal market. Policy under review Despite the revenue collapse and escalating violence, the federal government has ruled out cutting the excise, instead committing hundreds of millions of dollars to strengthen border enforcement and compliance operations. However, questions about whether the tax has reached a tipping point are gaining traction in Canberra. At senate estimates, Finance Minister Katy Gallagher confirmed Treasury was examining how sensitive tobacco demand was to price changes, a concept known as price elasticity, and consulting with health and home affairs officials as part of ongoing policy work. Treasury deputy secretary Diane Brown told senators that officials were modelling whether demand patterns had shifted in response to the soaring prices. Some economists argue the government’s long-running strategy of taxing smoking out of existence has collided with economic reality. Chris Richardson has publicly said Australia “got the taxing of tobacco spectacularly wrong”, arguing that the widening price gap between legal and illegal products has handed organised crime an unprecedented revenue stream. Others have suggested at least freezing the excise to allow the real cost of cigarettes to ease over time, paired with tougher enforcement and licensing regimes. High-risk, high-reward market Australia already imposes some of the highest tobacco taxes in the world. Tobacco-specific taxes account for more than 65 per cent of the average retail price and as much as 84 per cent on cheaper “budget” brands. The rapid escalation began with a 25 per cent overnight hike in 2010, followed by eight consecutive annual increases of 12.5 per cent between 2013 and 2020. More recently, the government introduced additional 5 per cent annual rises from September 2023 through to 2025 on top of routine indexation. The policy has helped halve the national daily smoking rate over two decades, dropping from 22.1 per cent in 2001 to 9.2 per cent by 2022. But critics argue the unintended consequence has been the creation of a lucrative, low-risk market for criminal syndicates willing to undercut legal retailers. Victoria, the only state without a comprehensive tobacco retail licensing scheme, has announced plans to introduce one in an effort to shut down an estimated 1100 illegal “pop-up” tobacconists. Meanwhile, authorities face mounting logistical costs in seizing, storing and destroying millions of illicit cigarettes and vapes as youth vaping surges and discarded devices spark fires at waste facilities due to their lithium-ion batteries. The central question for policymakers is whether ever-higher cigarette prices will continue to reduce smoking rates or simply push more Australians towards the black market.