Three years ago, the tobacco excise tax was the government’s fourth largest revenue stream. This year, it’s the seventh.
The revenues for the 2025/26 budget were hit hard as black market items dig into excise tax revenue expected from the sale of tobacco products.
The budget was supposed to win around $7.4 billion to the government next year, which is almost 50% less than expected in the 2021/22 budget.
This follows a cut in the forecast of $12.5 billion in last year’s budget, and a further cut in the mid-term update of $10.7 billion.
In an attempt to keep some of that revenue down, treasurer Jim Chalmers allocated $156 million to combat the black market sale of tobacco and tobacco products, including steam.
There is less smoking
According to the Australian Institute of Health and Welfare (AIHW), a small portion of the revenue cuts can be attributed to government efforts to stop people from smoking.
The government’s goal is to smoke less than 5% of the adult population by 2030.
At the same time, however, part of the smoking cessation strategy was the introduction of additional taxes on tobacco products, starting with a 25% increase in April 2010, resulting in eight 12.5% annual increases between 2013 and 2020, with an additional 5% excise tax for three years being applied by September 2023.
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That is, for every 25 pack of legal cigarettes, you’re watching the buyer pay around $35 in excise tax.
The theory was that tobacco products would eventually be priced out of reach of most smokers and encourage them to quit.
But what happened instead was Australians either turned to cheap illegal cigarettes or switched to Vipe, with the Treasury projecting an expected excise tax revenue of $6.9 billion from now until 2029.
“The cigarette excise tax has been a huge hit, and pretending it’s not going to be helpful,” treasurer Jim Chalmers told ABC.
“There are two reasons why cigarette excise taxes are out. One of them is a really good reason, and one is a really bad reason.
“It’s good that more people will give up. Avoiding that is even worse, and that’s why we’re investing in compliance and enforcement to try it.”
Enhanced execution
Most of the $156 million new enforcement spending ($49.4 million) goes to the Australian Federal Police (AFP) task force, targeting organized crime groups that are believed to be behind most of illegal imports.
An additional $40 million will be given to states and territories to develop strategies designed to address specific challenges, while $31.6 million will strengthen surveillance and enforcement under existing law.
On average, legal cigarette packets currently cost around $50, while illegal outlets sell the same for around $15.
What further confuses the government’s issues is that research suggests that excise taxes do not have a major direct effect on the amount of legal cigarettes actually purchased.
10 million cigarettes were smuggled into Australia by six Melbourne men arrested in February 2024 at the Australian Federal Police/Australia Police Joint Organized Crime Task Force. Courtesy of the Australian Federal Police
Prices may not have a simple relationship with the demand for “chop chops,” as many Australians call them illegal cigarettes, but they certainly may exist.
The 2019 census registered over 15,000 companies to sell cigarettes in Australia, but how each is policed and how the law is enacted will vary from state to territory.
According to Victoria police, there are 1,300 standalone cigarette shops in Victoria, of which 1,000 people sell some kind of illegal cigarette.
The illegal tobacco task force was established in July 2018, and upon execution of the first warrant, more than 6.9 hectares (17 acres) of illegal tobacco crops and 6 tons of tobacco leaves were found, with an estimated consumption of $13.3 million, growing near Catherine.
Since then, it appears that multiple attacks and arrests have been scarce to block trade. Last year, Australian Federal Police arrested six people, including links to cigarettes suspected of being suspected of crimes in the Middle East.
