Deep cuts in tobacco excise would be unlikely to stop the illicit tobacco trade, the nation’s tobacco tsar has warned, with evidence that everything from the cost of living to Reserve Bank interest rate rises and sophisticated rings of organised criminals are making the battle incredibly difficult.
Amber Shuhyta, the illicit tobacco and e-cigarette commissioner, told a conference of economists this week that even effectively abolishing excise would do little as the criminal trade could still make a profit selling illegal cigarettes at $5 a pack.
And separate research at the same conference suggests the illegal trade took off even before the most recent increases in excise as consumers became less worried by the stigma of buying bootleg smokes from criminals.
Up to four in five cigarettes now smoked in Australia are illegal, with a spike in consumption since the turn of the decade. Official measures of legal cigarette consumption show it at record low levels.
The collapse in legal cigarette sales has punched a huge hole in the federal budget. Between 2025-26 and 2029-30, the government now expects to collect $15.4 billion in excise, compared to $27.3 billion it had forecast for the same period in last year’s budget. Since the start of the decade, tobacco excise has collected more than $65 billion.
The federal government, along with the states and territories, is spending more than $300 million on combatting the illicit tobacco trade, which has been accompanied by a surge in violence, including at least 200 attacks on cigarette stores and an estimated three murders.
NSW Premier Chris Minns, along with many economists, has argued the government should cut tobacco excise to close the price gap between legal and illegal smokes.
Shuhyta revealed she has commissioned research into the impact of a change in excise rate on the illegal trade, which is due to be released publicly later this year.
But she said while high excise was an issue, there was a range of other factors at play that meant simply cutting the tax on cigarettes would not end the illicit trade.
“Lowering tax on its own is unlikely to resolve the criminal side of this market. It may compress price gaps to some extent but it does not remove demand, eliminate supply [or] underlying profit opportunities,” she told the Australian Conference of Economists.
“They [organised criminals] can undercut prices no matter where we see excise. They could charge $5 and still make a profit.”
Shuhyta said while there had been a heavy focus on higher excise on the legal trade in Australia, there had also been a sharp increase in illicit tobacco sales overseas in countries that had not varied their cigarette taxes.
She said the movement of large, sophisticated crime gangs into the illicit trade had become a major factor.
“We’ve seen the convergence of a few things in the last few years with organised crime groups being more networked, being more sophisticated, there is better communication channels, better use of technology, better use of each other. There is quite a massive uptick in the sophistication of organised crime,” she said.
“Price differential … is definitely one of the drivers of this market, but there are other drivers at play that don’t get addressed by a simple excise reduction.”
Home Affairs chief economist Justin Douglas said the price of legal and illicit tobacco had largely tracked each other, and increases in excise, until 2020 during the era of COVID-related restrictions on movement and work.
Since then, the price of legal smokes had climbed to around $1.50 per cigarette, while for illicit tobacco it had fallen to about 70 cents.
Douglas said this drop in illicit cigarette prices had occurred before a 5 per cent jump in tobacco excise that occurred in 2023.
He said the increase in the cost of living, including the Reserve Bank’s hikes to official interest rates, had changed the spending patterns of consumers, including for cigarettes.
“People were switching Sanitarium brand Weet-Bix for home brand weet-bix. They were switching their entire consumption bundle, so it’s not that surprising. It could have been cost of living as an important factor,” he told the conference.
Douglas said the country was in the midst of an “industrialisation” phase of the illicit tobacco trade.
Small retailers who, until 2020, got by on narrow margins had been effectively pushed out by larger organised criminal syndicates who were able to withstand steep falls in prices because of their sheer scale.
Every 10-cent fall in the price of illegal cigarettes costs up to $1.5 billion in revenue to criminal gangs.
“Competition’s actually costing the smugglers big, big sums of money,” he said.
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Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.From our partners
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