Budget 2025: Black Market Tobacco Burns $6.9 Billion Hole in Australia’s Budget Revenue

Three years ago, tobacco excise was the government’s fourth-largest source of revenue. This year, it is the seventh.

A photo illustration of black market cigarettes displayed in Melbourne, Australia on March 26, 2025. Asanka Ratnayake/Getty Images

The 2025/26 budget’s revenue has taken a blow as black market items eat into expected excise tax revenue from the sale of tobacco products.

The budget was supposed to net the government around $7.4 billion in the coming year, a figure that’s almost 50 percent less than predicted in the 2021/22 budget.

That follows a $12.5 billion reduction in the forecast in last year’s Budget, and a further reduction of $10.7 billion in the mid-year update.

In an attempt to claw back some of that revenue, Treasurer Jim Chalmers has allocated $156 million to combat the black-market sale of tobacco and tobacco products, including vapes.

Less Aussies Smoking

A small part of the revenue reduction can be attributed to government efforts to get people to stop smoking, with the number of smoking over 18 year olds dropping by 63 percent between 1995 and 2023, according to the Australian Institute of Health and Welfare (AIHW).

The government’s target is to have 5 percent or less of the adult population smoking by 2030.

But at the same time, part of the anti-smoking strategy has been the introduction of additional taxes on tobacco products, starting with a 25 percent rise in April 2010, then eight 12.5 percent annual increases occurred from 2013 to 2020, and a further five percent excise applied for three years from September 2023. That’s in addition to an annual increase in line with inflation.

It means that every 25-pack of legal cigarettes sees the purchaser paying around $35 in excise.

The theory was that tobacco products would eventually be priced out of the reach of most smokers, encouraging them to quit.

But what has happened instead is that Australians have turned to cheaper illegal tobacco or switched to vapes, leading Treasury to forecast that $6.9 billion in expected excise revenue between now and 2029 will not eventuate.

“There is a big hit to tobacco excise, and there is no use pretending otherwise,” Treasurer Jim Chalmers told the ABC.

“There are two reasons that tobacco excise comes off. One of them is a really good reason, and one is a really bad reason.

“More people giving up is a good thing. More people avoiding it is a bad thing, and that’s why we’re investing in compliance and enforcement to try and turn that around.”

Enforcement to be Ramped Up

Most of the $156 million in new enforcement spending—$49.4 million—will go to an Australian Federal Police (AFP) task force which targets organised crime groups, who are believed to be behind most of the illegal importation.

A further $40 million will be given to the states and territories to develop strategies designed to combat their specific challenges, while $31.6 million will strengthen monitoring and enforcement under existing laws.

On average, a packet of legal cigarettes now costs around $50, while illegal outlets sell the same thing for around $15.

Further confusing the issue for the government is that research suggests excise taxes don’t actually have a significant direct effect on the quantities of legal tobacco purchased.

A 2007 survey found that the majority of people who used illicit tobacco said they would not change their consumption even if the price advantage was reduced.

Other Australian studies have found that smokers incorrectly perceive illicit tobacco as healthier or more “natural” than the legal product, while some participants in a UK-based survey said they bought illicit tobacco specifically so that the government does not benefit from receiving tobacco tax revenue.

Some of the 10 million cigarettes smuggled into Australia by six Melbourne men, who were arrested in a joint Australian Federal Police / Australian Border Force / Victoria Police Joint Organised Crime Taskforce in February, 2024. Courtesy of the Australian Federal Police

While price may not have a straightforward relationship to demand for “chop-chop”—as many Australians call illicit tobacco—availability undoubtedly does.

In the 2019 census, more than 15,000 businesses were registered to sell tobacco in Australia, but how each is policed and how laws are enforced differs for every state and territory.

According to Victoria Police, there are 1,300 standalone tobacco stores in Victoria, and of those, 1,000 sell some kind of illicit tobacco.

The Illicit Tobacco Taskforce was established in July 2018, and upon executing its first warrant, found more than 6.9 hectares (17 acres) of illegal tobacco crops and six tonnes of tobacco leaf, with an estimated excise value of $13.3 million, growing near Katherine.

Multiple raids and arrests since seem to have done little to deter the trade, with the Australian Federal Police last year arresting six people, including some with alleged links to a suspected Middle Eastern crime family, for trying to import 10 million illicit cigarettes into Victoria, and in September charging two men for attempting to import more than 7 million illegal cigarettes into Australia from India and Vietnam.