How Australia’s Extreme Tobacco Taxes Created a Criminal Empire — with Expert Voices That Governments Can’t Ignore
- Alan Gor
- 5 minutes ago
- 6 min read
By Alan Gor 03 December 2025 Before anything else, let’s be clear: the government was warned. Experts from every sector, criminologists, economists, former AFP and Border Force officers, public-health analysts, retailers, and even international researchers, have said the same thing: Australia’s extreme tobacco taxes and prohibition-heavy nicotine policies were supercharging the black market. Yet when pressed, Minister Murray Watt denied it, waving away the evidence from Dr James Martin; dismissing retailer testimony; ignoring the ACIC wastewater data; brushing off a Lancet Public Health analysis confirming taxation-driven illicit supply; and even rejecting the CIS report documenting exactly how fragmented regulation and punitive excise created the perfect storm. As experts like Sinclair Davidson warned that the crisis was “absolute chaos,” and Dr Ed Jegasothy cautioned that the system was “designed to fail,” Watt’s denialism will ensure the problem metastasises. While every credible source pointed to policy-induced demand for illegal supply, Watt insisted there was no fire, even as the country is burning. For years, Australian governments have insisted that sky-high tobacco taxes were “saving lives.”
Instead, the policy has delivered something entirely different:
A booming black market, violent turf wars, industrial-scale smuggling, and a public-health disaster.
The evidence is overwhelming in economic, criminological, and public health terms.
And as criminologist Dr James Martin has repeatedly explained, this crisis was not only predictable, but the policies themselves created it.
The Tax That Broke the System
Australia now has the world's most expensive cigarettes.
A legal pack can cost $50–$65 after 12 years of relentless excise hikes.
The Centre for Independent Studies (CIS) spells out the result plainly:
“Australia has taxed tobacco into illegality.”
— CIS, Taxing Tobacco into Illegality
Governments became addicted to tobacco tax revenue and kept raising excise taxes long after they had ceased to reduce smoking.
They then starved enforcement agencies of resources, leaving criminal networks to fill the gap.
The outcome?
A perfect storm of incentive, opportunity, and government neglect.
James Martin: High Taxes Fueled the Illicit Trade
Criminologist Dr James Martin has been one of the clearest voices exposing the obvious:
High taxes pushed smokers into the black market
“If you’re a smoker who has been priced out of having access to legal cigarettes, you still want to consume that nicotine… you can access the black market to cigarettes, or the black market for vaping.”
Tax hikes did not reduce demand
“Simply restricting supply, whether it’s through taxation or outright prohibition, doesn’t necessarily mean that it results in less use.”
Australia created its own criminal market
“Australia’s excessively high cigarette taxes are to blame.”
Martin’s conclusion is brutal but accurate:
The government engineered the very crisis it now pretends to be shocked by.
The Lancet: High Taxes Push People to Illicit Tobacco
“High taxation may drive substitution toward illicit tobacco when legal cigarettes become unaffordable.”
This is exactly what happened in Australia.
High taxes didn’t make people quit; they made people switch.
Dr Edward Jegasothy: The Excise Has Failed Its Promises
As legal cigarette prices exploded, Dr Edward Jegasothy warned early and often that high taxes would not deliver the intended health outcomes but would instead fuel illicit supply. As reported by ABC and other media outlets:
“The prevalence of smoking has decreased; it’s not clear how much of that is attributable to the increases in price.”
“What we’re also seeing is that the rates of decline in smoking prevalence was not consistent across different population groups … people on lower incomes … are still smoking and still paying those high prices … for people on lower incomes … that means they must be foregoing other goods and services … to pay for … cigarettes at the higher price.”
Jegasothy bluntly criticises any faith in excise as a catch-all solution:
“I can’t see a solution that doesn’t involve bringing down the tax.”
He argues tax hikes alone are “essentially putting more holes in the bottom of the boat.”
He also points out that the real drivers of persistent smoking among marginalised groups are upstream social issues like poverty, disadvantage and marginalisation — factors untouched by excise-only approaches.
In other words, for many low-income and vulnerable people, tobacco never became “unaffordable.” It became criminalised.
Sinclair Davidson (CIS): The Policy Is Economically and Institutionally Broken
The 2025 CIS report, Taxing Tobacco into Illegality, authored by economist Sinclair Davidson, formalises what critics like Jegasothy have long warned. Their analysis demonstrates:
The structural misalignment: the Commonwealth collects the excise revenue, but the burdens of health costs, policing, arson, insurance and social disorder fall on the states and local communities.
Excise has moved beyond the economically defensible “Ramsey–Pigouvian” range: what was once a legitimate corrective tax on external costs has become coercive, incentivising smuggling, unlicensed production, and organised crime.
Lost revenue is staggering: the report estimates that billions of dollars of excise go uncollected each year, while violence, black-market entrenchment, and criminal profit surge.
As the report concludes, Australia’s tobacco policy is no longer coherent. It has become a revenue-driven trap that institutionalises criminal supply rather than public health.
Integrating These Voices into the Bigger Picture: Why the Evidence Matters
When you place the warnings of Edward Jegasothy, James Martin and the rigorous economic analysis of the CIS report side-by-side, you get a clear conclusion:
High taxes don’t guarantee quitting. Jegasothy’s data show price increases do not necessarily accelerate smoking declines, especially among poorer smokers.
High taxes create black-market demand. Once legal cigarettes become unaffordable, a parallel illicit supply emerges — exactly what Sinclair Davidson describes as the “inevitable outcome” of over-taxation without enforcement.
The real victims are the disadvantaged. Those already struggling with cost-of-living, poverty, mental health or marginalisation pay the highest price — forced either to quit, go without essentials, or enter criminal supply networks.
The government loses either way. Instead of reduced smoking and cleaner public health outcomes, Australia ends up with rising lawlessness, lost excise revenue, violent crime, and a black market worth billions.
In short, the policy isn’t just failing, it’s actively harming the people it claims to protect.
Rohan Pike — former AFP / Border-Force officer, founder of the original illicit-tobacco task force
On illegal tobacco being a direct consequence of over-taxation:
“It’s a low-risk, high-reward crime pot that is attracting more and more criminal groups.”
On the inevitability of crime once cigarettes become extremely expensive:
“We’re easily the most expensive country for tobacco in the world, and it was natural that crime was going to follow.”
Pike’s perspective is particularly powerful: this isn’t about rogue criminals, it’s about policy-induced economics. When legal sticks cost more than criminals can sell them for, crime becomes inevitable.
Richard Holden, Economics Professor, University of NSW Business School
On the “tipping point” of excise being breached:
“We went pretty hard on increasing the excise rate, and it backfired. They raised it too high.”
On the need for a radical rethink rather than modest tweaks:
“Clearly, the excise has gotten over a threshold and triggered an illicit market reaction.”
Holden’s analysis confirms what criminologists and enforcement agencies are documenting: the tax rate has passed a point where it no longer serves public health but serves criminal profit.
Samuel Brookfield, Public Health Researcher, University of Queensland School of Public Health
On enforcement limitations and the scale of the problem:
The low level of fine repayments indicates how big the problem has become. The scale of the illicit trade has developed over the last five years.”
On the need for systemic approaches (not just fines):
Effective enforcement requires more staff and resources; fines alone won’t “have a systemic effect.”
Brookfield’s point underscores that even intensified enforcement will struggle because the illicit trade has become too large, too embedded, and too profitable.
Retailers & Legitimate Business Owners (e.g. Ritchies IGA) as observers of the shifting market
One retailer told ABC/Victorian media that the illicit cigarette trade has cut his tobacco-related sales by up to 80% over four years.
He summarised the situation plainly: “It’s been allowed to flourish.”
This evidence from honest, law-abiding retailers reinforces the narrative that illicit supply has largely replaced legitimate supply, hitting legitimate businesses hard, and enriching criminal operators.
And just today, the Bureau of Statistics estimated the rise of illegal tobacco in Australia.
As shown by Chris Richardson in this post on X
The Evidence Is Clear, Only the Government Pretends It Isn’t
The crisis is undeniable.
The experts know it.
Law enforcement knows it.
Retailers know it.
Consumers know it.
Criminologists know it.
Economists know it.
The only people who don’t know it are the ones responsible for it. Murray Watt can deny the evidence all he likes. But denial does not change reality; it just guarantees the problem gets worse.
Australia didn’t “inherit” this black market.
It built it.
And unless it reverses course on taxes, on vaping, on prohibition, it will keep growing.