The size of Australia’s illicit tobacco market is nearly three times bigger than previous estimates, forcing enforcement activities to ramp up retail store inspections, even as experts say it may not be enough.
Authorities seized $3 billion worth of illicit tobacco last year which included 2.7 billion cigarettes, equivalent to 107 cigarettes for every Australian. The total volume of seized tobacco amounted to more than two thousand tonnes, which is equal to the weight of 120 buses or 450 elephants.
A report from the government’s new illicit tobacco and e-cigarette commissioner addresses the crisis in the illicit tobacco market, which has fuelled organised crime and contributed to billions of dollars in lost revenue levied from the government’s tobacco tax.
Enforcement authorities across Australia conduct nine routine compliance checks on retail stores and tobacconists each day. In 2024-25, these checks amounted to 3321 inspections, 1752 infringement notices, 71 criminal proceedings and $27.6 million in fines.
But former head of the Australian Border Force’s tobacco strike force Rohan Pike said enforcement-only responses to illicit markets will not work, and the government needs to consider lowering the tobacco tax rate.
“It’s pretty easy to rack up some big numbers in seizures,” Pike said. “As this enforcement regime ramps up, we’re going to see more record seizures.
“We need a holistic approach with policy to reduce the drivers [of illicit tobacco demand], harm reduction to give smokers healthier alternatives, as well as enforcement across the supply chain.”
Treasurer Jim Chalmers will release his mid-year budget update on Wednesday, and Pike said he believed it would include more funding for the states for enforcement.
“The funding is required if they want the states to get on board. Some states have been reluctant to dedicate the required resources to it,” he said.
The commissioner’s report also found that if illicit tobacco users switched to the legal market, the federal budget would be up to $11.8 billion better off every year from higher tobacco excise revenue. However, this assumes their consumption of tobacco remains the same.
“This assumption may not hold in practice, as consumer behaviour is price-sensitive, and substitution between illicit tobacco and alternatives (such as vapes or quitting altogether) is uncertain,” the report said.
Researchers from the e61 Institute Josh Clyne and Lachlan Vass argued in a new report that a cut to the tobacco tax rate should be considered, and that not doing so would benefit organised crime.
They estimated that the effect of cutting the excise rate to 2019 levels could range from a $2.1 billion annual loss of revenue to a $3.2 billion gain, which would depend on how consumers respond.
Commissioner Amber Shuhyta said the illicit tobacco and vapes problem now posed a serious threat to health, safety and the economy.
She said the normalisation of illicit markets directly supports serious and organised crime. The report found some illicit vaping products had been laced with nitazenes, which are lethal synthetic opioids that are 10 times stronger than fentanyl and 100 times stronger than morphine.
“A clear view has emerged that there is no single solution to addressing the illicit market,” Shuhyta said. “Instead, a multipronged approach is needed across the ecosystem, from supply to demand.”
Higher enforcement numbers may actually be a sign of the problem.
“When products are seized at higher quantities, it can often be an indicator of the size of the market rather than how well enforcement is going,” University of Sydney public health lecturer Edward Jegasothy, whose research was cited in the commissioner’s report, said.
“If you’re gardening, and each week you are plucking more weeds than the week before, it doesn’t mean that your weeding strategy is working. It means that the weeds are growing faster than you can pluck them.”
The 2244 tonnes collected in 2024-25 was 370 per cent more than the amount seized just eight years ago. The commissioner estimated the illicit market imported or produced up to 6000 tonnes of tobacco in the 2024-25 financial year.
The Australian Taxation Office in October announced they had underestimated the true size of the illicit tobacco market, which was likely “significantly higher” than their previous estimates.
It said its previous figures were “unreliable” and were working with ITEC on its project of developing more comprehensive estimates.
The ATO had estimated that 19.6 per cent of the tobacco market was illicit in 2023-24, but ITEC’s new methodology puts it at 55 per cent in 2024-25.
The Australian Bureau of Statistics is trying to estimate how much households spend on illicit tobacco, which is impacting the economic statistics relied on by the Reserve Bank of Australia.
In a Senate estimates hearing last week, ABS deputy statistician Brenton Goldsworthy said the statistics agency would measure wastewater in sewers to detect consumption of illicit tobacco.
Jegasothy said that the current rate of excise meant it would be difficult for enforcement authorities to keep up with the size of the market. He said that reducing the rate “may help facilitate a comprehensive strategy to reduce the black market and make enforcement more manageable.”
The report also found that 95.7 per cent of the vape market was illegal and half a million vapes were imported. In 2024, the government legislated that vapes can only be sold at a pharmacy to help people quit smoking.
Extracted in full from: https://www.afr.com/policy/economy/450-elephants-the-scale-of-government-s-illicit-tobacco-problem-20251212-p5nn3z
