Soaring tobacco taxes have delivered our multibillion-dollar cigarette market to organised crime, but will slashing these same duties repair the damage or give us the worst of all worlds: an immovable black market for tobacco, dwindling tax revenue and a rising population of smokers?
The policy disaster has shattered the unity of politicians, health experts and law enforcement on how to fix the problem without doing serious harm to Australia’s collective health.
Nick Coatsworth, Australia’s former deputy chief medical officer, has described it as the “most wicked public policy and public health challenge that Australia faces”.
One Nation leader Pauline Hanson raised the stakes last month when she announced plans to slash the tax on a packet of cigarettes by $30, gazumping the Coalition, which followed with its own policy weeks later.
Hanson’s argument made via social media could not be simpler: “Cut the tax. Smash the black market. Cut off the cash for organised crime.”
But even some economists and health experts are backing her proposal.
Independent economist Chris Richardson labelled the bipartisan policy that has sent tobacco excise soaring since 2010 as “epic disaster territory” and said a massive cut was needed to stamp out the black market.
University of NSW economist Richard Holden even advocated a complete removal of the tobacco excise for a period to stub out the illegal tobacco market altogether.
“Then you can start again and think about an appropriate level of excise that generates revenue but doesn’t provide an incentive for them to come back into the market,” Holden told the Australian Associated Press this month.
In July, Coatsworth, an infectious diseases expert, went against his health colleagues by also making the case for winding back recent excise increases. He was backed by Rohan Pike, a former Border Force officer who helped set up Australia’s law enforcement response to the illegal tobacco problem.
“Given that the punitive excise is considered a major driver of the illicit market, it is logical to consider a reduction in that excise as a means to return smokers to the legal market. We should not, as a matter of principle, drive Australians with an addiction into an illegal market where a legal one exists,” Coatsworth said in a National Press Club address.
Hanson and Opposition Leader Angus Taylor would deliver an excise reduction in spades with a cut of up to 80 per cent, taking excise levels back to those of 2010.
This means Australia now has a significant political movement pushing back on a policy built on decades of increasing tax and cigarette prices to reduce smoking rates.
The medical establishment still has the federal government in its corner, fighting against proposals to pursue excise cuts as the cure.
“I appreciated the minister acknowledging our advocacy on tobacco policy,” federal Australian Medical Association president Dr Danielle McMullen told her members in a recent update after meeting Health Minister Mark Butler.
“As many of you will have seen, there has been renewed debate about tobacco excise in recent weeks … weakening tobacco control measures that have helped drive down smoking rates is not the answer. We should be tackling organised crime and illicit tobacco, not undermining public health gains that have taken decades to achieve.”
But polarisation in the heated debate has now extended to what the data is telling us about how illegal tobacco is affecting these “health gains”.
The Australian Institute of Health and Welfare’s latest National Drug Strategy Household Survey found a shrinking pool of people using any nicotine products, and the rate of daily smokers is at a historic low of 5.6 per cent. It found vape use is also dropping.
But other data doesn’t appear to back this up.
Based on analysis of the nation’s sewage output, the Australian Bureau of Statistics estimated that nicotine consumption grew by 40 per cent from 2017 to 2025, with most of the increase happening since 2021 as illegal tobacco sales soared.
This nicotine consumption covers all bases, including vapes and nicotine replacement options like patches and gums, but it still leaves a huge discrepancy.
At the National Press Club event, both Coatsworth and Pike suggested the health and welfare institute’s data suffered from one basic issue compared to actual waste water analysis: it produces an estimate, not the truth.
Coatsworth queried “whether the survey remains fit for purpose in a transformed tobacco market increasingly dominated by illicit products. Does that affect who responds? Does it affect how they respond?”
Pike was more blunt.
“Surveys measure what people say. Wastewater measures what people consume. One reflects perception; the other, reality. The science doesn’t lie.”
The argument over the facts extends to how we should interpret the only real-world example of a market that has cut excise in order to cure its illegal tobacco problem. Various Canadian provinces slashed excise duties in the 1990s to tackle soaring illegal tobacco use as organised crime smuggled in cigarettes from the US, where excise rates were lower.
Its success is disputed, as is the question of whether tax cuts or better law enforcement should be credited with any decline in illegal tobacco use.
A World Bank review from 2019 studied how different countries have tackled the problem and came away with the finding that the administration and enforcement of taxes may be a better determinant of success than the actual tobacco tax rate.
It cited the UK, which managed to reduce its illegal tobacco problem and raise its tax rate. Mind you, UK excise rates remain roughly half of Australia’s current levels.
Australia’s tobacco excise rates remain among the highest in the world, while we are also desperately playing catch-up when it comes to the lackadaisical enforcement that has allowed organised crime to flourish.
One thing is clear: finding a solution might involve confronting some ugly truths and finding common ground with sworn enemies like big tobacco, which, unsurprisingly, is a big fan of excise cuts.
“We must either temporarily align with some of the objectives of the worst corporate citizens on the planet, or surrender our youth or disadvantaged smokers to an illegal market. That is the choice that presents itself today,” Coatsworth says.
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Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.From our partners
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