The fight against illegal tobacco

The fight against illegal tobacco

The illegal tobacco trade has been back in the news lately, with industry experts saying that organised crime is on track to supply all of our tobacco and nicotine products by 2030… That points to a massive increase in demand for cigarettes and vapes that are smuggled illegally into the country, and it means we’re missing out on a heap of public money that would’ve been raised through tax. So in this Squiz Shortcut, we'll take a look at:

• What's happening with the tobacco industry in Australia

• And what’s being done about it…

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Why is there such a big demand for illegal tobacco in Oz?
Experts say a lot of it has to do with how expensive tobacco products are now. For example, an average packet of 20 cigarettes costs around $50… Around $28 of that - so more than half - is excise (or tax) going to the government. 

How much has the excise gone up?
It’s risen sharply in the past decade. If you grew up in the 80s and 90s, you might remember adults paying just a few dollars for a pack of 25s… But there's a reason the government has piled on that tax ever since…

What’s the reason for it?
The government wants people to stop smoking, so in theory, a higher cost is a deterrent. The reason is that smoking-related diseases have put a huge burden on our health system… 

Is it working on that front?
Well, smoking rates have dropped dramatically compared to 30 years ago, when one in 4 Aussies used to smoke every day. That number is now down to fewer than 1 in 10. So on the surface of it, that sounds like good news - but it also hides what experts say is really happening, because a lack of legitimate tobacco sales doesn’t necessarily mean people are smoking less…

What’s really happening?
Those in the know reckon smokers are increasingly turning to illegal cigarettes that cost less than half the price of legal brands. And people don’t need to go too far out of their way to get them. Police say illegal brands are often being sold under-the-counter (meaning they’re not on display) at corner and tobacco stores…

Give me an example of how that works…
Let’s take a packet of Winfield 20s cigarettes. It’ll cost around $45, whereas an illegal packet of a similar type goes for about $15… But they’ll have come into the country illegally by being smuggled in (either by being hidden in other products or being declared as something else), so no tax has been paid on them. 

What are some other types of illegal products?
Some of the ones for sale under the counter are foreign brands like Manchester, Marlboro or Double Happiness - or they’re fakes of popular brands made in places like China, South-East Asia or the Middle East… When it comes to smuggling them in, Border Force officers and police say cases of illegal tobacco imports are through the roof. 

What’s the scale of the problem?
International tobacco giant Philip Morris recently warned a parliamentary inquiry that illicit tobacco use is on track to cross the 70% threshold next year in 2027. They say that without immediate policy reform, the supply of all tobacco and nicotine products in Australia will be almost exclusively provided by organised crime by 2030. 

That’s… serious. Who’s bringing them into the country?
Police say it’s organised criminal gangs who're making big bucks by supplying more affordable cigarettes to people who wouldn't otherwise be able to keep up the habit. Those gangs are in a battle for control of that extremely lucrative market which has led to a violent turf war between rival criminal gangs - and it's been particularly bad in Victoria. 

I’ve heard about this…
It’s been in the news a lot over the past few years - you might’ve seen it referred to as the "tobacco wars”. But it's not just a fight between gangs. Border Force officers are battling every day to stay on top of the huge amount of illegal cigarettes and vapes coming in. And both police and Border Force say a big part of the problem is that the penalties for being caught importing illegal tobacco are a lot lower than those for harder drugs like cocaine or methamphetamine.

How much is the tobacco black market worth now in Oz?
It’s estimated to be worth around $10 billion annually. And while those billions of dollars are being funnelled into the pockets of criminals, it means us - the taxpayers - are missing out on revenue that might otherwise be spent on hospitals, infrastructure or other public works. Reports say the federal Budget will have lost $65 billion by the end of the decade because of the collapse in legal tobacco sales.

How is it impacting retail businesses?
Businesses like service stations and grocery stores have reported a steep fall in cigarette sales. As an example, Ritchies IGA CEO Fred Harrison says his sales have dropped by around 80% since 2020/21. And he says there's a flow-on effect from fewer smokers coming into his stores because they'd often buy grocery items like bread and milk at the same time, so he misses out on those sales too. 

What’s being proposed to fix it?
As we mentioned, tobacco giant Philip Morris is one company agitating for change. To bring legal sales back on track, some tobacco companies and retailers are calling for the excise to be lowered on tobacco products.

How has the call to lower the excise been received?
Labor has so far rejected those calls. Health experts also aren’t on board with cutting the tax, because data shows that the percentage of Aussies who smoke daily has more than halved since 2001, which they’re taking as a sign we're on the way to raising a generation of non-smokers. Although, national sewage samples contradict those results… 

What do they show?
Recent samples have shown nicotine levels in the population staying high, so industry experts believe a lot of smokers have just switched to vapes…

How do vapes come into this?
Vape usage has shot up among people aged 18 to 24 - it’s quadrupled what it was in 2019 - and that is a huge concern for the government and the health industry because they're the generation the government is trying to stop from getting hooked on nicotine. And while vapes don't contain tobacco, most do contain nicotine…

What are the rules in place around buying vapes?
Since October 2024, vapes have only been allowed to be sold through pharmacies. Adults aged 18 and over can buy a therapeutic vape with a nicotine amount up to 20mg without a prescription, but they need to have a chat with the pharmacist first. Anyone under 18 still needs a script - except in South Oz where vaping is banned for under-18yos.

What has the impact of restricting sales been?
A lot of people thought it’d be a big win - but health experts have warned it’d just drive sales underground where vapes would become as lucrative for criminals as cigarettes… Another big concern was that if vapes become a black market commodity imported from overseas, it's impossible to trace their origins or their ingredients. And that prediction has largely played out… 

How do we know that?
The Australian Border Force has intercepted more than 6 million non-compliant vaping products at the border in the past year alone, which points to the vast majority of vapers sourcing them illegally from convenience stores and tobacconists rather than going to a pharmacy. 

So what’s being done?
Regulation of the industry is state based, and several states have taken action… In February, Victoria rolled out a new licensing scheme meaning every shop selling tobacco products needs a licence. Inspectors are now on the ground enforcing it, and the penalties are serious. Anyone caught selling illicit tobacco faces fines of nearly $370,000 or up to 15 years in jail, while businesses risk fines of more than $1.8 million. The Victorian Government has also put $46 million into setting up a new regulator.

What about the other states?
Penalties to crack down on illegal tobacco sales have also been introduced in NSW, Queensland, Western Oz and South Oz. In NSW and South Oz, they include the power to close shops down for 90 days, and steep fines. In the meantime, the problem with both illegal tobacco products and vapes is ongoing, and time will tell if those measures - and any potential federal moves on the excise - can stop the slide towards that 2030 scenario… 

Onto our Recommendations

Reading: This article published in The Australian (paywall) which quotes that prediction by Philip Morris and the reasons behind it…

Watching:  This episode of Border Force from May last year showing just one of the ways illegal tobacco comes into the country…

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