Australia’s Illicit Tobacco Market: A Looming Crisis for Revenue and Public Health

Australia is facing a rapidly escalating crisis in its illicit tobacco market, threatening billions in lost tax revenue and undermining public health efforts. Driven by decades of increasing excise taxes, the illegal cigarette trade is poised to dominate the market, with forecasts indicating that nearly nine out of every ten cigarettes sold could be illicit by the conclude of the decade.

The Rise of the Black Market

The government’s own illicit tobacco and e‑cigarette commissioner estimates that half of all cigarettes purchased in Australia are now illegal, representing approximately $11.8 billion in evaded excise as of February 2026. This surge in illicit activity is directly linked to the widening price gap between legal and illegal tobacco products.

Economic Impact: A Collapsing Revenue Stream

Tobacco excise, once a significant contributor to federal government revenue, has experienced a dramatic decline. Forecasts for the 2025-2026 financial year estimate excise revenue at $5.5 billion, a substantial drop from the original projection of $13.6 billion in early 2022. Analysis by Oxford Economics, commissioned by Ritchies IGA, projects a further loss of $67 billion in excise revenue between 2018-19 and 2028-29 if current trends continue .

By 2028-29, with continued inflation-linked excise increases, total collections could plummet to just $1.5 billion, with an estimated 90% of all cigarettes being purchased on the black market. Four years prior, excise revenue for 2028-29 was forecast to be $16 billion .

The Retail Perspective: Ritchies IGA’s Warning

Ritchies IGA, operating 150 stores across Victoria and NSW, warns that nine out of ten cigarettes will be bought illegally by the end of the decade unless the federal government takes action. The retailer argues that cutting tobacco excise could generate billions in revenue for the budget and disrupt criminal gangs . Tobacco sales across Ritchies IGA stores have fallen from $300 million to $60 million in the past four years .

Price Sensitivity and Consumer Behavior

Oxford Economics’ research, including a survey of 1,500 Australian smokers, reveals a strong correlation between price and the consumption of illicit tobacco. The price gap between legal and illegal cigarettes has widened from $11 to $47 over the past decade, driving consumers towards cheaper, unregulated products. Consumers are actively managing costs by purchasing illicit tobacco, with many prioritizing affordability and product choice .

A Potential Solution: Excise Reform and Enforcement

Oxford Economics modelling suggests that reducing excise rates to 2019 levels and strengthening enforcement could significantly curb the illicit tobacco market. This approach could reduce illicit consumption by nearly half, shrinking its market share from 64% to 37% by 2029 and boosting excise revenue by $3.1 billion . The report emphasizes the need for a coordinated policy reset that addresses both the demand-side incentives (price gap) and supply-side controls (enforcement).

Looking Ahead

The illicit tobacco market poses a significant threat to Australia’s revenue base, public health, and law enforcement resources. Addressing this crisis requires a comprehensive and proactive approach, potentially including excise reform and enhanced enforcement measures, to restore the balance between legal and illegal tobacco markets and protect the well-being of Australians.