Taxpayers Paying Big to Australia's Illegal Smoke Habit

Australia's Tobacco Crisis Reaches Alarming Heights

Australia's tobacco crisis has reached new heights, with a staggering 65 per cent of our tobacco sales now being sold on the black market.

Billions of dollars a year are flowing to organised crime instead of government coffers.

A Senate inquiry into the tobacco crisis heard evidence of how rising government cigarette duties and lax law enforcement have delivered Australia's nicotine market to the hands of criminals.

Australian Medical Association President Dr Danielle McMullen warned that slashing the cigarette excise won't work, citing the Quebec experience in Canada as evidence.

However, Oxford Economics argued the opposite, saying a massive cut in excise sent illicit tobacco sales plunging.

The inquiry also heard from big tobacco executives, with British American Tobacco's Simon Trussler stating that Australia is a unique case and is being used worldwide as a lesson in how not to use tobacco taxes to achieve fiscal or health policy objectives.

In a separate submission, Illicit Tobacco and E-Cigarette Commissioner Amber Shuhyta expressed concerns that organised crime could further entrench itself in the market.

The agency estimated that up to $11.8 billion worth of excise duties went up in smoke last year alone.

'That money is not funding essential services – it is funding organised crime, while workers and legitimate businesses pay the price,' AACS chief executive Theo Foukkare told the inquiry.

The inquiry heard a forecast by Oxford Economics that recommends cutting the cigarette excise back to 2019 levels – a contentious battleline with health advocates.

According to an anonymous Philip Morris executive, legal supply will cease to exist by 2030, and the entire supply of nicotine and tobacco products will be gifted to organised crime.

Despite the alarming numbers and forecasts, the global tobacco giants have proven remarkably successful at protecting the financial health of their operations.

Their most recent financial accounts reveal that the big three – BAT, Philip Morris, and Imperial Brands – managed to generate a profit last year, even accounting for a non-cash writedown at BAT.

They also paid $950 million worth of dividends to their global parents over the 2024 and 2025 financial years alone.

BAT controlled more than 44 per cent of the legal market and contributed close to $800 million of the dividend bonanza.

The collapse in revenues and government excise payments had little impact on the financial performance of the tobacco giants.

The Australian Association of Convenience Stores estimated that illegal tobacco accounted for half of all cigarette sales in Australia in August last year.

Illicit Tobacco and E-Cigarette Commissioner Amber Shuhyta admitted that breaking the habit will be hard.

'There is a potential for further entrenchment of organised crime, with the development of innovative product designs and sales channels specifically engineered to evade detection,' Shuhyta said.

The inquiry highlighted the fact that the tobacco giants have managed to maintain their financial health despite the collapse in revenues and government excise payments.

Their most recent financial accounts reveal that the big three have generated a profit last year, even accounting for a non-cash writedown at BAT.

They also paid $950 million worth of dividends to their global parents over the 2024 and 2025 financial years alone.

The collapse in revenues and government excise payments has had little impact on their financial performance.

AACS' Theo Foukkare warned that the situation is 'bloody' serious and must be addressed urgently.

'The situation is getting more severe and complex. We are at a crossroads, and the consequences of our inaction will be catastrophic,' Foukkare told the inquiry.

The tobacco giants' ability to maintain their financial health while Australia's government coffers are being drained by the black market is a stark reminder of the complex issue at hand.

The situation in Australia serves as a warning to countries worldwide on the consequences of ineffective tobacco tax policies.

The global tobacco industry has consistently demonstrated its adaptability and resilience in the face of regulations and declining sales. However, the Australian market presents a unique challenge that may prove difficult to overcome.

The inquiry's findings shed light on the alarming scale of the tobacco crisis in Australia and highlight the need for urgent action to address this complex issue.