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South Australia is busting illegal tobacco traders big time. What’s stopping the rest of the country?

26 Monday May 2025

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Labor’s stunning election victory and the relegation of the conservative opposition to likely years of political eunuch status opens up many opportunities across all areas of government. With health minister Mark Butler playing a powerful wingman role to the Prime Minister, he is in the driver’s seat to finish the historic job he started back in 2022 with regulating vaping. In the three years, Australian streets have been deluged by blatant law-breaking cheap tobacco and convenience shops selling smuggled cigarettes and vapes, since 2024 permitted to be sold only in pharmacies.

Butler’s deeply impressive leadership on vaping and tobacco reforms saw him carry forward a Labor heritage which started in 1973 when Gough Whitlam took the first step to ban tobacco advertising. Butler was Minister for Ageing and Australia’s first Minister for Mental Health in the Gillard Government when Nicola Roxon was the senior health minister and introduced the world’s first plain tobacco packaging bill, now adopted by 25 nations and under active consideration in another 14.

Like plain packs, the regulation of access to vapes to pharmacy sales is another world first. But Butler must be understandably frustrated by what has become an epidemic of political duck-shoving where some states have talked the supportive talk, but not walked the implementation and enforcement walk.

As a result, illicit vapes remain readily available mostly via the plague of “cheap cigarette” shops which lead their trade with lucrative totally illegal duty-not-paid smuggled cigarettes which also break Australia’s plain packaging laws.

So how has this got to the in-your-face blatant law-breaking it has, and what should happen to fix it?

Enforcement of the law

All states and the Commonwealth government now have in place laws that make selling vapes anywhere but in a pharmacy unambiguously illegal. Importing, wholesaling and retailing tobacco products which have evaded excise tax are all illegal under Commonwealth law, attracting eye-watering major maximum fines for large scale offenders and routine confiscation and destruction of stock.

But illegal sales of both vapes and tobacco are rampant with the Sydney Morning Herald noting that there are currently 60 “cheap smokes” shops in Sydney for every one McDonalds outlet. 824  have opened in recent years in the Inner West council region alone. This situation is most pronounced in NSW and Victoria, the two states yet to implement mandatory tobacco retail licensing, despite calls for years from public health experts for this to happen. Licensing provides a database enabling authorities to routinely check whether licensees are compliant with the law and the threat of removal of a license and close-down orders for those not.

However clearly, many now selling illegally will reason from several years of experience that no authorities have ever raided their shops, so why would things be any different if they bothered to not get a tobacco retailing license? 

And that has been the elephant in the room sized problem that few will talk about. Most state health authorities seem purposefully blind to what everyone else can see: that there is a burgeoning forest of “cheap smokes” and convenience stores selling illegally which open every day with zero consequence.

How have they justified this wholesale neglect?

I recently had dinner with the head of a NSW state public health unit. I asked him what his unit was doing about enforcement of the laws on selling illegal tobacco and vapes. He confirmed very little was being done with the major reason being concern about staff safety. His staff were well aware and concerned that violent criminals are involved in the tobacco and vape trade, and of the screaming headlines of multiple arson attacks on tobacco outlets by rival tobacco supply gangs, particularly in Victoria. All illegal tobacco outlets have CCTV cameras and staff were anxious they would be identified and threatened. Several public heath chiefs understandably took these concerns seriously and believed that police needed to be involved far more in enforcement of the laws.

Imagine if criminal syndicates decided that there were vast amounts of money to be made by selling prescribed drugs in high street shops and online to anyone who wanted them without a prescription. Or that the law on selling alcohol only through premises with liquor licences could just as easily be ignored with every town and suburb opening up multiple shops selling duty-not-paid booze. Public and licensed liquor outrage would be immense and police action swift.

Pharmacies are rarely prosecuted for supplying drugs to those without prescriptions, and pubs, clubs and bars known to routinely sell liquor to kids are jumped on fast, with their goldmine liquor licences under threat. 

One mystery here is why the supermarket sector, which has always had an exemplary record of rarely selling tobacco to kids, has not used its massive power and united to demand strong action against illegal tobacco retailing. If this trade diminished in a major way, supermarkets would be major beneficiaries of returning smoking customers.

NSW

The Herald reported that some 2000 inspections of these dodgy retailers in metropolitan illegal trade had been undertaken by NSW health inspectors who had seized illegal stock worth $24m. These are far from trivial numbers, but there’s an obvious mystery here. Conspicuously absent in the Herald’s report was any mention of completed or in-process prosecutions of those from whom these products were seized. 

Let’s assume that nearly all those inspected were selling. The customers who come and go into these premises each day know that. So why wasn’t stock seized from all of them, and why is there no apparent data on how many are facing prosecutions when since November 2024, NSW has had maximum penalties of $154,000 and up to $22,000 for selling to children, with higher for corporations?

Last Friday, one Sydney tobacco retailer with a business turnover of $3.3m was hit with a $5,560 fine plus $6,850 in costs. The cynical Herald commented “That’ll show him, or it would if the financial gains made from running tobacconists weren’t so generous … [the] fine and the prosecution’s costs put a 0.37 per cent dent in last year’s bottom line.”

NSW Health staff are known to be immensely frustrated by the Department’s legal branch refusing to proceed with cases. This must be a major focus of the current NSW parliamentary enquiry into illegal tobacco trade.

Police in some states seem reluctant to see illegal tobacco retailing as serious crime unless violence or arson is involved. The Sydney Morning Herald reported a senior officer as saying “Our involvement is primarily about the acts of violence that was used by these people to take the tobacco.  I think our system and our response is adequate, and we’ll keep maintaining that.”  

South Australia, and to a lesser extent Queensland seem to have sorted out any problems that NSW seems to have with lack of police interest In enforcing the law. There, the police apparently don’t pick and choose which law breaking they will investigate.

South Australia

Under A media release dated 6 May 2025 from South Australia’s Consumer and Business Services stated:

“More than $23 million in illicit tobacco and vapes have been seized across South Australia since the start of Consumer and Business Services’ crackdown.

Since 1 July, our illicit tobacco taskforce within CBS, in partnership with SAPOL’s [South Australian Police] Operation Eclipse and other agencies, has seized millions of dollars’ worth of illicit cigarettes, vapes and loose tobacco.

This includes:

  • 17.2 million cigarettes valued at $13.7 million. (860,000 packs of 20)
  • 105,100 vapes valued at $4.5 million.
  • 6 tonnes of loose tobacco valued at $3.1 million.
  • 2.3 million cigarette tubes valued at $1.4 million.
  • 834 nicotine pouches valued at $25,000.

More than 500 inspections have been conducted around the state with 20 per cent of these taking place in regional South Australia representing $4 million of the illicit products seized.

The Minister has also issued 33 short-term closure orders and successfully had two long term closure orders approved by the Magistrates Court for illicit tobacco stores in Salisbury North and Hackham West.

The state government has been relentless in its fight against the illicit tobacco trade investing $16 million in a new taskforce within CBS from 1 July last year.

The state government has also introduced among the toughest penalties of any state or territory in the nation against the sale of illegal vapes and tobacco, with fines of up to $1.5 million for those caught selling.

The government has also recently passed legislation to increase fines to up to $6.6 million for the supply and possession of commercial quantities of illicit tobacco and vapes.”

South Australian Health Minister Chris Picton who is driving enforcement in the state. Picture ABC News

Queensland

In early May, Queensland conducted raids in  30 locations across the state in one week. Products worth $20.8m were seized including 76,000 vapes, 19m illicit cigarettes and3.6 tonnes of loose tobacco. This is a good start, but there are clearly far more than 30 locations across Queensland selling illegal vapes and tobacco. Why isn’t Queensland doing this regularly?

In the 2023/24 financial year, the Australian Border Force made over 51,600 detections of illicit tobacco, including over 1.8 billion cigarettes and more than 436 tonnes of loose leaf tobacco. The May budget allocated $157m to further enforcement of laws against illegal vape and tobacco importing and trade.

Lowering tobacco tax: a fools’ errand

Simplistic solutions calling for tobacco excise tax to be reduced to make illegal cigarettes less competitive instantly fail the most rudimentary question: how much would the tax need to be lowered to make legal (tax paid) cigarettes competitive with illegal cigarettes?  I answered this in a recent blog. Spoiler, government would need to scrap all tobacco tax. Pigs flying in formation across Sydney Harbour is far more likely.

I wrote:

“It’s easy to call for ‘lower’ tobacco tax, but how much lower would it need to be to see budget-conscious smokers switch back to buying taxed cigarettes? A common price for the most popular illegal brand of cigarettes in Australia is $15. The current excise rate on cigarettes in Australia is $1.40313 per stick. So the tax alone on a pack of 20 cigarettes is now $28.06.

A common retail price for popular brands of legal duty paid cigarettes is around $40, with the extra component costs (after ~$12 tax is deducted) being those going to cigarette manufacturers and retailers. Given that tobacco manufacturing and retailing interests are not talking at all about radically dropping their margins to compete with $15 illegal pack prices, are the “cut the excise” voices then suggesting that the government should therefore  “take one for the convenience stores” and give up perhaps all of its tobacco excise ($40-$28 = $12), a price that would certainly blow illegal retail trade out of the water?

We don’t know how low illegal cigarette retail pricing could fall to still remain very profitable to those running it. But by now, simplistic calls to “cut excess” lead us very quickly into this truly absurd territory, when the obvious solution is instead for governments to crack down hard on the illegal retailers. Small cuts would make no significant difference to the large gap between legal and illegal cigarettes. Only massive or even entire scrapping of tobacco excise would bridge that gap.”

Enforcement, enforcement, enforcement

Now fully equipped with legislation and weapons-grade penalties for illegal selling and advertising (now $6.6 million in South Australia), the Albanese government now needs to seriously address some states’ unwillingness to implement the law. If they are looking for a role model, South Australia is the clear front runner.

Every shop advertising “cheap smokes” effectively has a neon sign saying “Here I am, selling illegal tobacco and vapes. Step inside, bust me, seize all my stock, fine me heavily and close me down”. There’s no detective work involved here. It’s blatant, walk-in crime busting.

Similarly, every social media ad offering “fruit” has long been offering illegal flavoured disposable vapes. You text a number that regularly disappears, but the Achilles heel is when the illegal vapes are handed over to the buyer via a delivery courier. A suburban street corner is arranged. Police could easily order a delivery, interrogate the delivery riders or follow them back to where they pick up their stock to bust the suppliers.

Screenshot from Facebook Marketplace

The apparent police culture in some states that they are the ones who will decide which laws they will and won’t enforce needs to be called out by governments, which control police. Imagine where we would be if police decreed they would not investigate white collar or cyber crime, or domestic violence, three areas where in the past they were often reluctant to act.

“But you’ll never wipe it out”

I routinely am finger-jabbed on social media that it doesn’t matter how illegal you make any drug, including illicit tobacco and vapes: there will always be a market willing to buy and enrich the criminals keen to supply   No nation has ever eliminated illicit drug use, just as no nation has ever eliminated all crime, tax avoidance or drink driving. From that, it obviously doesn’t follow that any constraints on any of these activities should be abandoned as “not working”. While crime elimination may well be an aspiration, crime reduction is plainly the year-on-year reality against which the success of police and border force efforts are assessed. 

Drug decriminalisation  is being wound back in Oregon as problems accelerate. No nation I’m aware of is seeking ways to liberalise access to tobacco or vapes. All news from around the world about regulation describes tightening access, raising tax, ending retail display, making packaging evermore gruesome and licensing retailers. Nations like Britain, New Zealand  and Canada which have had sell anywhere policies on vapes are now back peddaling furiously especially with bans on disposables. Meanwhile, Big Tobacco — major donors to Trump — are likely to be running their hands together with the axing of the US FDA’s tobacco control section.

But the convenience store industry’s cracked record here is to call for vapes to be deregulated and sold by licensed law-abiding convenience store operators. You know, those very same law-abiding store owners who have been ignoring the law all these years and selling cigarettes and vapes to kids.

Smoking is now at record lows among adults and teenagers. The entire illegal trade issue is not seeing smoking prevalence rise: it is a story of mostly price-sensitive low income smokers buying smokes where they can save thousands of dollars a year. Treasury is losing big money from reduced tobacco excise. But, we all need to understand that people who don’t smoke do not somehow shirk their ‘duty’ as provident tax contributors – a point made by Professor Ken Warner from the University of Michigan,  who summed all this up in a heavily cited paper in 2000.

“when resources are no longer devoted (at all or as much) to a given economic activity, they do not simply disappear into thin air—the implication of the industry’s argument. Rather, they are redirected to other economic functions. If a person ceases to smoke, for example, the money that individual would have spent on cigarettes does not evaporate. Rather, the person spends it on something else. The new spending will generate employment in other industries, just as the spending on cigarettes generated employment in the tobacco industry. Studies by non-industry economists in several countries have confirmed that reallocation of spending by consumers quitting smoking would not reduce employment or otherwise significantly damage the countries’ economies.”

Cheap illegal cigarettes save low income pack-a-day smokers over $9000 a year. So why don’t social justice champions give them full support?

22 Saturday Mar 2025

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In my first weeks working at the University of Sydney in the late 1970s, I received a tip-off that a lunchtime talk in the School of Economics would be led by a student who was a Rothmans employee. I went along to a room where about 20 listened to a highly detailed and occasionally furtive talk about how Rothmans gathered its intelligence about what impacted its cigarette sales. The audience were all economics wonks interested in data processing. But I had my then innocent eyes opened to something elementary I’d never forget.

He explained something obvious, if you thought about it. The company had day-by-day, suburb-by-suburb, shop-by-shop and brand variant by brand variant sales data. This was routinely gathered from its delivery van drivers at the end of each day after their stock drop offs. Their sales analysts could map these data against any variable of interest: their prices and those of their competitors, against advertising launches and campaign reach , seasonality and to assess the impact any further bad news reporting on tobacco and disease, or any new policy or campaign the government introduced designed to reduce smoking.

The delivery drivers and a small army of sales workers would also gather qualitative information from shop staff about what customers were saying about anything relevant to smoking.  In two papers, my research group later looked at how this was used here and here.

Unsurprisingly, the information collected by on-the-ground staff is used to shape and fine tune company efforts to maximise sales and profits. Compared to the delayed and state or nationally aggregated information available to those in public health via large cross-sectional surveys done every few years, the industry’s intelligence about changes was Exocet precise. Today with instantaneous sales data recording, business intelligence is lightning fast. Price discounting remains the main strategy left to an industry that cannot advertise, promote, place its deadly products in highly market-researched packaging or even display it in shops.

The memory of the Rothmans guy’s presentation came back to me when I read an opinion piece this week in the Guardian coauthored  by Ed Jegasothy, from the School of Public Health at Sydney University and Francis Markam from the ANU.  Their drift was that Australia has lost its way in tobacco control, despite – they acknowledged — tobacco being “a vitally important public health issue” and smoking rates having “declined remarkably”. They declared that the “growth of the black market fundamentally undermines the health aims of the tobacco excise”.

So are we all getting confused here? Or perhaps it’s the authors who are? If smoking rates have declined remarkably (yes, true see their graph and see here for extra detail on just how much), how has the rise of black market retailing undermined the “health aims” of the tobacco excise when presumably this means lowering smoking and after a lagged period, the diseases it causes?

The major rise of illegal cigarette retailing has certainly eroded excise receipts, but when we survey to measure smoking prevalence, we count smokers regardless of how they buy their cigarettes – excise paid and excise avoided are both counted. Both licit and illicit tobacco kill smokers.

Last year I began seeing Jegasothy quoted in news media on the issue of tobacco tax and smoking prevalence, particularly in low socioeconomic people. Curious, I looked up the authors’ track records on tobacco here and here. Between them they have just one published letter to a peer reviewed journal. [update 20 Jul 2025: they have since published this so far uncited paper on 24 March 2025. To date it is the only paper to have (self-cited) their earlier published letter from July 2024]

This was a critique of a paper on the impact of Australia’s tobacco tax on smoking prevalence. The authors of that original paper responded to the critique with an iron fist in a polite velvet glove writing diplomatically that serious criticism here “should be based on a deep understanding of the tobacco control landscape over this time period” and pointing out why the time period their original study had examined was most appropriate.

The simplistic scream test

Early in their Guardian piece, Jegasothy and Markam disparage the notion that what the tobacco industry protests most about is reasonably seen as a litmus “scream test” for policies that it cares most about. Linking to a recent Four Corners program where I used the expression, they call this “simplistic reasoning” because tobacco manufacturing and retailing price components often quietly rise under the air-cover of heinous, cruel tax rises that grab the headlines. So as long as Big Tobacco is still profitable despite tax rises, they couldn’t care less about these rises. Is that their interesting reasoning?

True, the industry has a history of raising its margins and profiting even further in the shadows of tax increases, but notwithstanding, here are a few historic examples of the industry screaming about tax. The tobacco company Philip Morris (Australia) in 1983 said:

… The most certain way to reduce consumption is through price.

Then again in 1985:

… Of all the concerns, there is one – taxation – which alarms us the most. While marketing restrictions and public and passive smoking do depress volume, in our experience taxation depresses it much more severely. Our concern for taxation is, therefore, central to our thinking about smoking and health. It has historically been the area to which we have devoted most resources and for the foreseeable future, I think things will stay that way almost everywhere.

And 1993:

… A high cigarette price, more than any other cigarette attribute, has the most dramatic impact on the share of the quitting population.

In 2011, British American Tobacco’s boss in Australia, David Crow, publicly acknowledged the impact of tobacco tax, telling a Senate committee:

We saw that last year very effectively with the increase in excise. There was a 25% increase in the excise and we saw the volumes go down by about 10.2%; there was about a 10.2% reduction in the industry last year in Australia.  (see here at p xviii)

So if these (and many more like them) do not indicate virulent industry concern about tobacco tax, why has it carried on screaming about tax in the same way for at least 42 years?

How low would tobacco tax need to go to make the black market disappear in Australia?

They write that “government officials remain inflexible, rejecting even temporary pauses in tax hikes”, let alone countenancing the profanity of significant falls in tobacco excise duty.

But those who blithely call for tobacco tax pauses or cuts never name the size of the cuts that would make illegal, duty-not-paid cigarettes less attractive to low-income smokers. Why be so shy?  Let me assist here by repeating what I wrote in my last blog.

It’s easy to call for “lower” tobacco tax, but how much lower would it need to be to see budget-conscious smokers switch back to buying taxed cigarettes? A common price for the most popular illegal brand of cigarettes in Australia is $15. The current excise rate on cigarettes in Australia is $1.40313 per stick. So the tax alone on a pack of 20 cigarettes is now $28.06.

A common retail price for popular brands of legal duty paid cigarettes is around $40, with the extra component costs (after tax is deducted) being those going to cigarette manufacturers and retailers. Given that tobacco manufacturing and retailing interests are not talking at all about radically dropping their margins to compete with $15 illegal pack prices, are the “cut the excise” voices then suggesting that the government should therefore  “take one for the convenience stores” and give up perhaps all of its tobacco excise ($40-$28 = $12), a price that would certainly go near to blowing illegal retail trade out of the water?

We don’t know how low illegal cigarette retail pricing could fall even further to still remain very profitable to those running it. But by now, simplistic calls to “cut excise” lead us very quickly into this truly absurd territory, when the obvious solution is instead for governments to crack down hard on the illegal retailers, importers and wholesalers. Small cuts would make no significant difference to the large gap between legal and illegal cigarettes. Only massive or even entire scrapping of tobacco excise would bridge that gap. And pigs might fly in that space.

Where incomes are unequal, pricing of every commodity is regressive

In May 2023 Jegasothy published a blog The tobacco tax hike is not a public health measure: it’s a regressive tax grab.  where he concluded for tobacco tax rises “The policy has not been successful in meeting the bar of being effective, equitable, or ethical.”

When there is income inequality in a society (which is and has always been the case in every nation) then there is inequity in the ability of people with different means to pay for any and every commodity or service, from basic necessities to luxury goods. Cigarettes are no different.

Lowering the price of tobacco would be a disincentive to quitting and reducing the number of cigarettes smoked per day by continuing smokers (this has fallen by 40% from 20 in 2001 to 12 in 2019). It would erode the severe disincentive to take up smoking by highly price-sensitive kids and it would make Australia a pariah in global public health by making it an easier decision to smoke.

Oh, the irony … cheap illicit cigarettes “help the poor” right now

The huge irony in Jegasothy and Markham’s piece of course is that because the most price-sensitive smokers are heavily attracted to cheap duty-not-paid cigarettes, it might be argued that the black market is right now a huge welfare gift to low-income smokers.  If every time a pack-a-day smoker buys a $15 pack of black market cigarettes, they save $25 on what they would have paid to buy a popular taxed brand. That’s an annual saving of $9125.  So why aren’t  they out there urging low income smokers to count their luck and providing lists of illegally trading shops to support them in saving money?

Here of course, they’d be thoroughly wedged by the knowledge that smoking kills up to two in three long time users. Any public health researcher urging that poor smokers be given every encouragement to keep smoking by lowering the price they pay would be recommending a truly perverse way of ‘helping’ disadvantaged people.

Not just tax driving smoking down

In their Guardian piece. Jegasothy and Markham hint that other tobacco control measures may even work better than excise policy.

“Smoking rates have declined remarkably – but at similar rates during periods with and without significant tax increases. This suggests minimal impact from the tax hikes themselves.”   

They write that tobacco tax policy is “central” to tobacco control policy and that “policy discussions have been “fixated on tax as a silver bullet” and note that “smoking rates fell during periods of price stability indicates that shifting social attitudes and cultural norms around tobacco use, as well as policies such as smoke-free areas, are playing significant roles in reducing smoking prevalence.”

First, note here that there have been no periods of price stability across the years they consider. Prices have risen over the entire period. And in any case, it’s not just any acute, immediate effect of the increases that needs to be considered. Costliness/affordability exerts an impact even during periods between that dates when increases happen.

All this evinces large scale ignorance of the core guiding principle of tobacco control which has never been only about tobacco tax.  Since the 1970s, comprehensive policies and programs in reducing smoking through both preventive and cessation impacts have been the tobacco control policy template. Anyone who has worked in tobacco control and read its vast research literature knows understands this as ABC level awareness.

Far from being fixated on just tobacco tax, those working in tobacco control in Australia from the 1970s have fought (and won) a multitude of policy battles that in total have greatly increased consumer agency and profoundly changed social norms about smoking. Here are some highlights:

  • Four generations of pack health warnings starting in 1973, all resisted tooth and nail by the industry, with a fifth due for introduction in July this year
  • Bans introduced between 1973 and ‘76 of advertising of cigarettes on TV and radio, later extended to cinemas, and in print media in 1989 and the internet in 2010
  • Total bans on advertising and promotion on billboards, outside shops, on public transport vehicles and shelters and throughout all sponsorship of sport and the arts
  • Complete indoor workplace smoking bans, including on all public transport,  and in all restaurants, clubs, bars and pubs. Workplace bans reduce number of cigarettes smoked over 24 hours and were responsible for about 22% of the total decline in tobacco consumption in Australia between 1988-1995 when they were being introduced
  • Mandatory smoke-free zones in shopping malls, children’s playgrounds and between the flags on beaches
  • Unique among all general retail products, retail display bans (all stock kept out-of-sight)
  • Introduction of world-leading and emulated mass reach public education programs in every state and territory and nationally
  • Globally unique plain tobacco packaging commenced in Australian in 2012, starting a global domino effect that now sees 24 nations having implemented or legislated for their introduction, with more on the way. The industry invested massively to stop this, but always lost
  • end of all tobacco growing in Australia (this let the air out of the industry’s tyres to lobby via growers in the few electorates where tobacco was once grown)
  • end of all tobacco manufacturing (BAT and Philip Morris products are all now imported). This benefits tobacco control because there’s now negligible local industry employment and all profits are repatriated, a disbenefit to the balance of trade and therefore an incentive for governments to reduce smoking further)
  • world’s highest retail price of tobacco led by tax policy and the industry using tax rises as air cover to raise their own margins
  • ban on personal importation of cigarettes by mail
  • Import duty free limit of 25 cigarettes in an open pack
  • An end to misleading product names and additives that make cigarettes more palatable to children (due for introduction from July 2025)
  • The Liberal, Labor and Greens parties all refuse tobacco industry donations, unique among all industries
  • No university allows staff to accept tobacco industry grants or students to take scholarships
  • Only far right fringe of politics would ever be seen in a photo opportunity with tobacco or vaping interests.
  • Big Tobacco has long ranked (way) last as the industry with the lowest reputation (see chart below)
  • Widespread denormalization of smoking
  • The industry understands that all the above make it an unattractive employment choice which creates staff quality problems

Like Jegasothy now, I worked in the University of Sydney’s School of Public Health for several lengthy periods from 1977. I helped write and teach units of study in the first year in the first Masters of Public Health in the southern hemisphere and spent 17 years editing the BMJ’s specialist Tobacco Control journal from its 1992 launch. I’ve never met Ed and am unaware of any contribution he has made to tobacco control other than through his efforts to critique tobacco tax.

Criticism is a sacred duty of scholarship, but so is collegiality and constructiveness. Regardless of how much of a role taxes have played in reducing smoking in Australia, cutting them now would undoubtedly increase smoking, particularly so among young people and the most disadvantaged Australians. This is why every player with financial skin in the game is piling on to  attack excise taxes.

Informed specific investigation of ways of actually reducing illicit trade in tobacco are the global focus of a huge amount of scholarship and collaborative work. It is an immensely sticky problem. No party with any standing, track record or credibility calls for the same response that those invested in having as many as possible smoking support tax cuts.

Australia has pioneered the regulation and sale of a large and diverse list of both useful and harmful consumer goods. Firearms, prescription medicines, asbestos, unleaded petrol, vehicle and consumer safety standards are several examples.  We have an enviable track record and matching outstanding global ranking on health vital statistics. No nation has ever eliminated  illegal tobacco, but many are now watching how current efforts will progress.

If expensive cigarettes are driving the Australian black market, why do so many countries with much cheaper cigarettes have thriving black markets too?

12 Wednesday Mar 2025

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Big Tobacco and its errand boys in the convenience store industry are clearly limbering up to try and make illicit cigarettes and vapes a hot button issue in the forthcoming election.

The buttons they are hoping to push are a wind back in tobacco excise, and scrapping of the pharmacy-only regulatory model of vape access. This would allow virtually any registered retailer to sell vapes, something many convenience stores have been doing illegally for years and continue to do so. So a great idea — let’s reward them now for years of ignoring the law, as they clearly have built community trust as responsible retailers!

The main games here, under the cover of raising community alarm about criminality in tobacco and vape retailing, are to remove the exclusive sale of vapes from pharmacies and the forlorn hope that lowered tobacco tax will see mass criminal exit from selling cheap cigarettes. As we will see, this fantasy has all the integrity of a chocolate teapot.

The Australian Association of Convenience Stores which has a long history of tobacco industry support and its chief executive Theo Foukkare who started his career with British American Tobacco, recently publicised its latest commissioned report on illegal tobacco retailing. In a report in The Australian, Foukkare wanted the government to freeze excise on tobacco products for four years. A few days before, he went further “it is time for the Government to seriously consider lowering the excise on tobacco”.

Foukkare, nor any other advocate for lowering excise, ever go beyond this slogan. But as we shall see later in the blog, excise reductions would need to be simply galactic to make legal cigarettes price competitive with illegal duty-not-paid cigarettes.

Two National Party MPs have also called for tobacco tax to be reduced in Australia to make legal, duty-paid cigarettes more competitive. The National Party receives financial support from British American Tobacco and Philip Morris International, which have lost every policy debate on tobacco control since the 1970s when the first pack health warnings appeared.

Both the ABC’s Four Corners and Nine’s 60 Minutes have very recently covered the issue, leading and promoting their programs with memorable graphic footage of standover firebombings of stores, as rival criminal gangs viciously shirtfront each other for greater control of the lucrative illegal market.

Australia currently has the highest retail and among the least affordable prices in the world (see two graphs below), and no one disputes that those who buy cheap illegal cigarettes here, as in every country which has illegal tobacco trade, are motivated alone by lower prices. So would lowering the price by lowering excise in Australia, see those running the many shops selling illegal cigarettes just walk away?

An obvious question

A most obvious question to ask here is “do nations with more affordable legal cigarettes, also have significant tobacco black markets?” If they do, it would be clear that criminals will continue to see large opportunities to sell illegal stock regardless of how high or low the prices of legal cigarettes are. The cut-the-tax house of cards would tumble down in the first breeze of evidence.

The commercially-motivated magic bullet of lowering tobacco tax to lower illicit sales reflects a parochial ignorance of global illicit trade in tobacco, and the lack of a consistent relationship between the operation of that trade and the retail price of legal tobacco. Low income nations (for example) Vietnam, Philippines and Senegal where tobacco is dirt cheap are often also awash with black market cigarettes.

This month, Thai officials arrested 690 vendors in just one week allegedly breaking Thailand’s laws on selling vapes.

Vietnam officials burning contraband tobacco

But what about nations that are more socially and economically comparable to Australia? Before I look at three such countries (USA, UK, Canada), a brief overview of the published literature on global illegal tobacco trade, including in Australia.

Illicit tobacco trade: a very long history

Some commentators on illicit tobacco trade appear to have come down in the last shower. This is a global phenomenon which has a long history. Over 30 years ago in 1994, tracking of European tobacco export and import data  found a 30.8% difference between the number of cigarettes officially exported and imported. The only plausible explanation for these missing cigarettes was smuggling, particularly of expensive premium brands moving from northern Europe into lower income eastern and southern European markets.

The tobacco industry has long been active in supplying cigarettes to the illegal duty-not-paid trade while trying to alarm governments about excise tax losses and lobbying for reduced excise. A 2019 systematic review of 35 assessments of the extent of illegal tobacco trade found that 31 of these reported that tobacco industry estimates of the extent of illegal trade were higher than independent estimates by researchers with no tobacco industry ties. Lack of transparency from data collection right through to presentation of findings was a key issue with insufficient information to allow replication of the findings frequently cited.

The authors concluded that tobacco industry data on illegal tobacco trade are not reliable and are intended to talk up the problem in the hope that governments would hobble policies like tax and plain packaging that have serious potential to reduce smoking.

There has been a long history of illegal retailing of duty-not-paid cheap cigarettes and loose “chop chop” tobacco in Australia, with reports of use back to 2001. Tobacco industry estimates of the proportion of tobacco use in Australia sourced illegally since 2012, ranged from 11.8-23.5%, substantially higher than independent estimates from the Australian Taxation Office’s revenue gap analysis which estimates 5.4 to 14.3% between 2015-16 and 2022-23. The ATO estimates that approximately 18% of tobacco for sale is illicit.

Illicit trade in UK

The graphs above show cigarettes today are cheaper and more affordable in Britain than in Australia. A 2024 report by the UK’s HM Revenue and Customs concluded that the forgone value of the  “illicit market in tobacco duty and related Value Added Tax was £2.8 billion in 2021 to 2022.The proceeds of this crime fund the smuggling of weapons, drugs, and even human beings across the globe. We must tackle the cancer of organised criminal groups as unwaveringly as we tackle the harms of smoking itself.”

Years of effort by UK Border Force “have reduced the estimated duty gap for cigarettes by a third (from 16.9% in 2005 to 11% in 2021 to 2022) and for hand-rolling tobacco by a half (from 65.2% to 33.5% over the same period).”

From April 2015 to March 2023, this resulted in:

  • £10 billion: tobacco duty receipts in 2022 to 2023
  • 10.6 billion: non UK-duty paid cigarettes seized by HMRC and Border Force
  • 1,600 tonnes: non UK-duty paid hand-rolling tobacco seized by HMRC and Border Force
  • 1,571: people convicted of tobacco crime offences
  • 8,000: assessments to recover unpaid excise duty
  • 9,304: excise wrongdoing penalties issued for tobacco offences
  • £298 million: value of penalties and assessments raised

Illicit tobacco trade in USA and Canada

The graphs above show both cigarette prices and affordability in the US are much lower than in Australia. In 2024, the average cost of a pack of 20 cigarettes was $US8 ($AUD12.71) compared with Australia at around $40. Nonetheless, illicit traffic in the US is decidedly non-trivial.

The 2015 report from the US National Academies Understanding the US  illicit tobacco market estimated the total market represented by illicit sales in the United States was between 8.5 percent and 21 percent of the total. It recommended that“research and data are needed about the individuals and criminal networks who traffic in illicit tobacco.”

Comparing illicit trade in Australia with that is the US is difficult, because Australia does not have state taxes whereas the US has a variety of low and high taxing states. Illicit tobacco trade in the US is dominated by illegal movement of cigarettes from lower taxing states to those with higher taxes, including from Native American tax free  zones.  The US federal tobacco tax is $US1.01, with the lowest state tobacco tax an additional $US0.17  and the highest in New York state at  $US5.35. These sorts of differences also occur in Canada.

So like Australia where nation-wide high tax and prices have attracted significant illicit trade, high tobacco taxing US and Canadian states also attract incoming illicit trade from lower taxing states. But the critical point to make here, is that even though cigarettes are considerably more affordable than in Australia, illicit traders still have major involvement in tobacco commerce.

These US and Canadian examples illustrate that for whatever reason, where you have high retail prices, criminals will seek to illegally undercut these, and it doesn’t  matter how low the prices are, they will still try to do it.  New York’s average pack price is $US14.55 ($A23.12) far less than Australia’s ~$40, and far more affordable than Australia’s. And in very low income  countries, dirt cheap legal cigarettes are still undercut by illicits.

Market research firm Circana estimates that in 2024 sales of unauthorised, flavoured disposable vapes in the US amounted to  35% of the $6.8 billion worth of e-cigarettes sold in tracked convenience stores and supermarkets. And this estimate does not include massive on-line sales or those from vape shops. The FDA puts the proportion of vapes being sold in the US which do not have a required FDA marketing order at 86.4%. Vapes are sold openly in most of the US, as they are in Canada and the UK.

Canada

Taxes and prices are also considerably lower and cigarettes considerably more affordable in Canada than in Australia. The Canadian convenience store industry recently stated low-cost tobacco products have become a “major selling feature” for well-known and established organized criminal groups such as the Hell’s Angels. “It is absolutely organized crime at the highest level. It’s a billion-dollar industry for (organized criminal groups). It involves all the levels of violence, and extortion and gangsterism that comes along with it.” ) In Canada illegal sales outnumber legal sales in one province by 52% and 36-45% in three others.

The dramatic data above instantly repudiate claims that open access sales of vapes and cheaper, more affordable legal duty-paid cigarettes prevent or even reduce illegal supply and deter criminal involvement. 

Tobacco control—including tax policy – has driven smoking to its lowest ever level

Both 60 Minutes and Four Corners featured ex-Australian Federal Police and former Border Force Tobacco Task Force head Rohan Pike. Pike was described by 60 Minutes as someone “who now advises the retail sector” and by Four Corners as “a lobbyist for retailers”. But neither program asked Pike whether he was advising the convenience store industry out of the goodness of his heart, or whether he had any financial relationship with them.

Pike told 60 Minutes “excise rates are the primary driver of this problem from the start, we should be looking to reduce the excise rates” and hyperbolically described the illicit trade situation as “This policy is perhaps one of the biggest failures in Australian history, really.” A memorable soundbite, but “really”? Really? Bigger even than the housing crisis? The AUKUS submarine debacle? Indigenous health and incarceration rates? The plight of the Great Barrier Reef?

In the 60 Minutes program, veteran organised crime observer John Sylvester stated  “putting heavy tax on smoking was done for two quite legitimate reasons: to raise revenue and secondly to discourage people from smoking. So governments and authorities would look and go, ‘Wow, our excise is down, that means people aren’t smoking.’”

Well, no. Only the most inexperienced analysts of tobacco and nicotine use in Australia would ever exclaim that a fall in total excise receipts could only be due to a fall in smoking. People moving to illicit duty-not-paid cigarettes would clearly reduce total excise but this would not allow any sensible conclusion about whether smoking was falling or rising.  The proportion of people who buy their cigarettes from illegal supplies is an entirely different question from the proportion of people who smoke. It’s not about how or where you get your cigarettes, it’s about whether you get them at all.

Mark McKenzie, CEO  of ACAPMA, Australia’s fuel industry lobby group, has also swallowed the tobacco consumption is rising argument writing that the explosion of illicit retailers “is clear evidence of a rising tide of tobacco consumption – one that government statistics fail to capture”. No Mark, it’s clear evidence of criminal interests fighting intensely over the shrinking market of smokers.

In a recent blog I showed that data on smoking prevalence from the National Drug Strategy Household Survey collected since 1998, shows smoking is now lower  than it’s ever been, with the most recent fall being the largest seen since surveys began. Smoking by kids is heading toward extinction.

So how low would tobacco excise need to go to make the black market disappear in Australia?

It’s easy to call for “lower” tobacco tax, but how much lower would it need to be to see budget-conscious smokers switch back to buying taxed cigarettes? A common price for the most popular illegal brand of cigarettes in Australia is $15. The current excise rate on cigarettes in Australia is $1.40313 per stick. So the tax alone on a pack of 20 cigarettes is now $28.06.

A common retail price for popular brands of legal duty paid cigarettes is around $40, with the extra component costs ( after ~$12 tax is deducted) being those going to cigarette manufacturers and retailers. Given that tobacco manufacturing and retailing interests are not talking at all about radically dropping their margins to compete with $15 illegal pack prices, are the “cut the excise” voices then suggesting that the government should therefore  “take one for the convenience stores” and give up perhaps all of its tobacco excise ($40-$28 = $12), a price that would certainly blow illegal retail trade out of the water?

We don’t know how low illegal cigarette retail pricing could fall to still remain very profitable to those running it. But by now, simplistic calls to “cut excess” lead us very quickly into this truly absurd territory, when the obvious solution is instead for governments to crack down hard on the illegal retailers. Small cuts would make no significant difference to the large gap between legal and illegal cigarettes. Only massive or even entire scrapping of tobacco excise would bridge that gap.

Recent advocacy by convenience stores to list the river of extra money that the government would receive if excise tax was “lowered” and smokers flooded back to buying legal cigarettes would therefore be conditional on the government removing most or all of the very tobacco tax which the convenience stores say would start pouring again into the coffers.  So how does that all work again?!

Enforcement of the law: the missing elephant in the room

The giant Achilles heel of rampant illegal retailing of cheap, duty-not-paid cigarettes in Australia is its sheer blatancy. Every shop selling them and every on-line ad for courier delivered vapes reaches out to its customers with often unmistakable signage and none too cryptic on-line language (eg: fruit, many varieties). “Here we are, come on in, or txt us a meeting point where we’ll deliver the vapes”. It could hardly be more in-your-face.  I recently counted 22 cheap smokes shops in just two adjacent Sydney suburbs.

If ordinary citizens can locate these outlets with absolute ease, it is obvious that so can those charged with investigating and enforcing the laws. So why are the shops proliferating and prosecutions occurring at dismal rates?  Many of the public are asking this question. Health Minister Mark Butler this week encouragingly announced $156.7m extra for police enforcement.

Those selling illegal recreational drugs do not open shops with signs like “Cheap meth, heroin, ecstasy here”. The government has for many decades “banned” all retailers other than pharmacies from selling prescribed drugs, but criminal gangs have not set up high street shops all over the country with signs “Get your medicines here – no prescription needed!” Neither do we see every second corner shop without a liquor licence selling alcohol.  In both cases, the law would come down very fast and hard.

Australian governments now have national and state laws with numbingly high maximum penalties for selling illegal vapes and duty-not-paid smuggled tobacco.  These penalties are set at levels designed to seriously deter both major a small-level commercial involvement in these illegal sales. 

The fuel industry’s Mark McKenzie,  the convenience stores’ Theo Foukkare and Big Tobacco all have got one thing very right: governments need to act quickly on illegal trade. Illegal and legal cigarettes are both deadly (up to two in three long term smokers die from tobacco caused disease). Legal tobacco retailers, like petrol-driven car manufacturers, DVD hire shops and typewriter manufacturers know they are well into the endgame of having large customer numbers who still want to buy their products.

As with illicit drugs, no government has succeeded in eliminating all contraband tobacco. But some, like the UK, appear to have made major in-roads into the illegal tobacco problem.

Australia’s pharmacy vape access policy together with governments acting against illegal retailers and importers, could feed a global appetite for a template that will make smoking history. So what is Australia waiting for?

Addendum

The Government today announced a huge round of law enforcement reforms to the issues raised above. Plus press conference transcript