Australia's illicit tobacco market is expanding rapidly after years of steady tax increases aimed at curbing smoking. As legal cigarette prices climbed to among the highest in the world, demand shifted to cheaper illegal products. Smoking rates have indeed fallen, but rising consumption of illicit tobacco has pushed overall nicotine use higher.
Legal cigarette prices in Australia have roughly tripled over the 10 years since the end of 2016, the Financial Times reported on the 4th. A pack now costs about 60 Australian dollars, or roughly 56,644 won, the highest in the world. More than 70% of that is tax.
As prices surged, the gap between legal and illicit cigarettes widened. More consumers turned to illegal products, and the market grew quickly.
Australia's tobacco regulator estimated that illicit cigarettes accounted for about 55% of the country's entire tobacco market last year. Spending on illegal cigarettes and vapes was estimated at about 8.5 billion Australian dollars a year, or roughly 8.02 trillion won.
The growth of the illicit market has drawn a response from the Australian Senate. Last month the Senate concluded that the illegal tobacco market had reached a tipping point, recommending an immediate halt to further tobacco tax increases along with a significant cut in rates. The opposition Liberal Party and One Nation are also calling for tax cuts to lower legal cigarette prices.
The government, however, has kept its existing tobacco tax policy in place, arguing that higher prices have been effective in reducing smoking.
Smoking rates among Australians aged 14 and over have in fact declined since the policy took effect. The smoking rate fell to 5.6% in 2025 from 8.3% in 2023, according to Australian government data.
The problem is total nicotine consumption. Nicotine use estimated by the Australian Bureau of Statistics through wastewater analysis rose about 40% between 2017 and 2025. Analysts attribute the increase to greater consumption of illicit tobacco.
Tobacco tax revenue is also falling. Australia's tobacco excise receipts peaked at 16 billion Australian dollars in 2020, or roughly 15.11 trillion won, but fell by more than half by 2025. The Australian Treasury projects that tobacco tax revenue will decline to about 2 billion Australian dollars, or roughly 1.89 trillion won, by 2030.
The government has also stepped up enforcement against illegal tobacco since 2024. But with illicit sales spreading online and beyond established distribution channels to pop-up shops and barbershops, critics say enforcement alone cannot contain the market, the FT reported.
