Australia has spent more than a decade taxing cigarettes on the theory that pain at the checkout would eventually get people to quit. It hasn’t. What it has actually built, according to the federal opposition’s June 2026 report, is one of the most lucrative black markets in the country’s history, plus a public health establishment that still can’t bring itself to call the policy a failure.
Bottom line up front: Australia’s decade-long strategy of taxing cigarettes toward abstinence has not reduced nicotine consumption — it has handed 60–80% of the market to organized crime, according to the figures in the Coalition Taskforce’s June 2026 report, while tobacco excise revenue collapses from its $16 billion peak toward an expected $2 billion by 2029–30. The entire market for reduced-risk nicotine products is in the hands of the black market. The policy has failed on every metric it was designed to move, and Australia’s public health peak bodies are still defending it. Europe, through the new legislation it is preparing — based on the excessive taxation of everything — risks making the same mistake. With the same disastrous results.
The numbers are damning#
The Australian Bureau of Statistics (ABS) data cited in the taskforce report shows the illicit share of nicotine consumption climbing from under 10% in 2016 to more than 64% by 2025, with the co-chairs of the Taskforce since citing figures as high as 80%. No reading of that trend looks like a policy succeeding. This is a policy in collapse.
Prohibition by price, paid for in blood#
When you tax a product until it costs three to four times more than the illegal equivalent, you have not eliminated demand. You have handed a monopoly to whoever is willing to break the law to meet it. Australia’s own agencies have said as much. The Australian Criminal Intelligence Commission and the Australian Institute of Criminology put the cost of illicit tobacco at $4 billion in 2023–24, a fourfold jump in three years, and have tied the trade to fire bombings, extortion, intimidation and homicide — more than 200 fire bombings since 2023 alone. The Australian Border Force, despite record seizures of 2.53 billion cigarette sticks in a single year, has openly admitted it “can’t seize this problem away.”
This is what a decade of escalating excise actually purchased: not a healthier country, but a criminal supply chain sophisticated enough to be linked, in the taskforce’s own account, to money laundering, drug and weapons trafficking and, most alarmingly, to networks that intelligence reporting has connected to actors like the IRGC. Ordinary retailers are absorbing the violence. Shops have been held up at machete-point, and small business owners watch their tobacco license fee cost more than their entire year’s legal tobacco sales are worth. That isn’t a side effect of prohibition-by-price. It’s the mechanism running the way economics says it will.
#
The revenue the government claimed to want is gone too#
If the goal was ever revenue, that has failed on its own terms. Tobacco excise revenue has fallen from around $16 billion at its 2019–20 peak to about $8 billion by 2024–25, and is forecast to fall to $2 billion by 2029–30 — and given how badly previous forecasts have undershot reality, it could disappear far sooner than that. The government has tried to spin the drop in legal sales as evidence its policy is working. It isn’t. The ABS data the taskforce cites makes clear this is substitution, not cessation: people haven’t stopped consuming nicotine, they’ve simply stopped paying tax on it and started paying organized crime instead.
Even the Parliamentary Budget Office, the government’s own costing body, has quietly conceded that large excise increases likely fuelled the switch to illicit tobacco, while admitting its models don’t even try to capture the second-round effects of a policy this badly miscalibrated: legal manufacturers threatening to exit the market entirely; the compounding cost of enforcement, seizure and prosecution; or the safety dividend of pulling consumers back into a regulated legal supply chain.
Where is the harm reduction?#
Here is the part that should embarrass Australia’s public health establishment most: none of this needed to happen. Countries that took a harm-reduction approach, Sweden and New Zealand chief among them, have shown that giving smokers a legal, regulated, lower-risk off-ramp (snus, vapes, nicotine pouches) drives smoking rates down without incinerating the entire regulated market in the process. Illicit trade will never be eliminated. But Australia’s near-total prohibition on legal vaping has produced, by the taskforce’s own consultation findings, a vape market that is roughly 97% illegal. Pharmacies are reportedly too afraid of organized-crime reprisals to stock the legal product. If you set out to hand a market to criminals, it’s hard to imagine doing it more effectively.
And yet, when the taskforce actually went out and talked to people, retailers, economists, police, GPs and respiratory specialists who spend their careers helping patients quit, the group most resistant to admitting any of this was the public health advocacy sector. Individual doctors treating real patients were, by the report’s own account, considerably more open to an excise reset than the peak advocacy bodies representing them. That gap should tell you something. When the people closest to the actual harm are more willing to change course than the institutions that claim to speak for public health, the institutions are the ones who have stopped listening to the evidence.
It’s difficult to overstate how badly this policy stance has aged. Public health bodies built their credibility on the idea that higher prices reduce smoking-related harm. In Australia today, higher legal prices have not reduced nicotine consumption. They’ve redirected it into an unregulated market with no age verification, no product standards and a direct financial line to organized crime. Defending the status quo in the face of that outcome isn’t caution. It’s an institutional failure to understand reality in the face of overwhelming evidence, at a cost measured in fire-bombed shops and a generation of teenagers taking up smoking through cheap illicit cigarettes, or taking up nicotine through vapes of unknown origin. Simply because the legal, regulated, harm-reduction alternative was regulated out of existence.
#
#
What actually needs to happen?#
The Coalition Taskforce’s central recommendation, cutting the federal excise by up to 80%, is not radical. It’s a return to the only policy lever with an actual track record of shrinking an entrenched contraband market: Canada did it in the 1990s, and its contraband trade receded substantially as a result. Alongside that, Australia needs a properly regulated, standards-based legal vaping and nicotine pouch market, so smokers have a legal, safer, cheaper alternative to both cigarettes and the illicit trade, instead of a de facto prohibition that has simply guaranteed the illegal market a 97% share.
None of this is about going soft on nicotine, or supporting the industry. It’s about recognizing that the current approach isn’t reducing nicotine consumption, isn’t protecting children, isn’t funding the health system, and isn’t weakening organized crime. It is doing the precise opposite of all four. Every year Australia’s public health peak bodies spend defending the current excise settings is another year of ceding the market, the revenue and the safety of consumers to the people running that 80%.
A warning for Brussels#
Europe should be watching Australia’s experiment closely, because it is walking toward the same cliff. The European Commission’s July 2025 proposal to overhaul the Tobacco Taxation Directive would raise minimum cigarette excise by up to 139% and, for the first time, bring vapes, heated tobacco and nicotine pouches into a harmonized EU minimum tax — reportedly as high as €143 per kilogram or 50% of the purchase price for pouches alone. That is not a tax on smoking. It is a tax on the products people use to stop smoking, and tax-policy researchers have already warned it would narrow the price gap between cigarettes and demonstrably lower-risk alternatives, undercutting the Commission’s own stated goal of a “tobacco-free generation by 2040.” The European Parliament rejected an early version of this report in June 2026 by a wide margin, which tells you the fight is far from settled — but the debate in Brussels, so far, has been almost entirely about public health messaging and youth appeal, with barely a mention of what happened the last time a wealthy, high-excise market with a large smoking population got its legal-illicit price gap this wide.
Australia at least has the Tasman Sea and the Indian Ocean doing some of the enforcement’s work for it, and it still can’t keep organized crime out. The EU has no such luxury. It is a borderless single market of 27 countries with no land border checkpoints between most member states and thousands of kilometres of external land frontier to its east and southeast. A contraband cigarette, vape or nicotine pouch that enters the bloc anywhere — a port in Greece, a land crossing in the Balkans, a warehouse in Poland — can move to Paris or Berlin as freely as a legal shipment, with none of the choke points an island continent’s border force can at least attempt to patrol. If Australia’s illicit tobacco market, with the natural moat of an island nation and a single dedicated border agency, has still grown to consume 60–80% of consumption, the EU should ask itself what an equivalent price shock does to a bloc that was built, by design, to have no internal borders at all.
Frequently asked questions#
Has Australia’s tobacco excise actually reduced nicotine consumption? It is unlikely, at least not at the level they were hoping for. Legal sales have fallen, but ABS data cited in the taskforce report shows this is substitution, not cessation: the illicit share of nicotine consumption has climbed from under 10% in 2016 to over 64% by 2025. People switched suppliers, not habits.
Why has tobacco excise revenue collapsed if the tax rate keeps rising? Because the tax base is disappearing into the illicit market. Revenue has fallen from about $16 billion at its 2019–20 peak to roughly $8 billion by 2024–25, and is forecast to reach $2 billion by 2029–30 — a direct consequence of consumers moving to untaxed illicit product rather than quitting.
What does vaping have to do with a tobacco tax argument? Everything, because it shows what prohibition-by-regulation does to a market. Australia’s near-total restriction on legal vape sales has produced a vape market that is, by the taskforce’s own consultation findings, roughly 97% illegal — with pharmacies reportedly too afraid of organized-crime reprisals to stock the legal product. That’s the same failure mode as tobacco excise, running a few years ahead of it.
Isn’t nicotine harmful regardless of how it’s taxed or regulated? Nicotine isn’t risk-free, but the relevant comparison isn’t nicotine versus nothing — it’s a regulated, standards-based product versus what 60–80% of the market is already buying instead. Sweden and New Zealand’s experience suggests a legal, lower-risk off-ramp reduces smoking-related harm faster than pushing people toward whatever a criminal supply chain happens to be selling.
Is there a real-world example of cutting excise shrinking a black market? Yes — Canada in the early 1990s. Steep excise hikes fed a large contraband cigarette trade; federal and provincial governments responded by cutting excise, and the contraband market receded substantially through the rest of the decade. Australia’s illicit market is now larger than that historical comparison, but the underlying mechanism — price gap drives smuggling — is the same one at work here.
Sources: Coalition Taskforce Into Illegal Tobacco, “The Illicit Tobacco Crisis in Australia” (10 June 2026); Rick Koenig, “Aldred says cut the tobacco tax by 80 per cent to break the crime gangs,” Sentinel-Times, 26 August 2026.
