Instead, high prices have twisted the arms of many smokers, pushing them towards the highly lucrative tobacco black market.

Unlike the movies, the black market for nicotine is not in a dark and desolate alleyway. Instead it is a corner shop with neon signs and bobblehead figurines displayed on the window sill. It's an inviting shopfront with an array of illegal nicotine products hidden behind its till.

And at the heart of Australia's booming illegal nicotine market lies a single, undeniable culprit: cripplingly high taxation.

With extreme taxation and prohibition policy, the legal price of a 20 pack of standard cigarettes hovers around $40, a hefty sum for a daily vice.

Yet, the illicit tobacco market offers the same pack for a mere $14. That's a difference that's hard to ignore, especially during a cost-of-living crisis. And for many Australians, this temptation is growing.

But this shift towards unregulated black market consumption is dangerous and puts those trying to save a few bucks in the most harm.

Prohibition by Taxation:

Australia has used high tobacco taxes to restrict the consumption of nicotine for decades, slashing smoking rates in half since 2001.

The government's strategy has been to incrementally hike the excise of tobacco through annual increases of 12.5% from 2013 to 2020. This is followed by a 5% annual boost from 2023 to 2026. This means, a 25 pack of cigarettes averages to around $50, with taxes accounting for over 65% of the retail price.

For example, the average cost of a single cigarette stick rose from $0.23 in 2006 to a whopping $1.48 in 2024.

Source: Australian Taxation Office, NSW Retail Traders' Association via Tobacco in Australia

But the fact is, by making products prohibitively expensive through taxation, Australia is seeing a modern iteration of centuries-old prohibition tactics.
For example, the United States introduced the Marihuana Tax Act of 1937, which used high taxes as a quiet barrier to stop its use. Current tobacco policy in Australia echoes this tactic by making legal alternatives unaffordable.

And those with a nicotine addiction with little pocket money to spare are those disproportionately affected by regressive taxation.

Smoking rates are highest in regional areas, among First Nation Australians, low-income earners, young people, and vulnerable populations. Studies show disadvantaged groups in Australia smoke at triple the rate (16%) in comparison to the rest of the country (5.3%).

Smokers burdened with unaffordable prices are faced with few options: quit nicotine altogether, reduce their tobacco use, or enter the market of illicit tobacco for cheaper alternatives.

Australia is seeing a dangerous shift to the black market.

The Nicotine Black Market:

Prohibition has unintended consequences. By choking off access to legal tobacco and nicotine through exorbitant taxes, the Australian government has inadvertently birthed a flourishing black market.

From the Harrison Act on opiates to the Marihuana Tax Act, history demonstrates that restricting access to substances doesn't eliminate demand; it simply drives it underground.
The illicit tobacco market in Australia is not just hot, it's burning. In 2023, a staggering 25% of all tobacco consumed was illegal, encompassing smuggled nicotine, counterfeit cigarettes, and illicit domestic production.

Australia’s prohibitive vaping measures have also created a booming black market. With one of the most restrictive regulations in the world, whereby purchasing any legal nicotine-containing vapes requires a visit to a pharmacist (and for those under 18, a prescription).

Despite vapes being practically impossible for smokers to buy, especially those marginalised by the health care system, the reality is there is a booming vaping market. Over 90% of vapes are illegally purchased.
And who's profiting? Organised crime, controlling 80% of illicit tobacco activities. The situation has devolved into a "tobacco war," with rival syndicates battling for control. This has ignited a terrifying wave of arson attacks on rival shops selling illicit tobacco, brutal standover tactics targeting shop owners, and even public homicides.

The legal tobacco market has plummeted by a third in the past year as desperate consumers turn to cheaper, illegal alternatives.

The result? A gaping $5 billion hole ripped into the federal budget. This isn't just bad governance; it's a catastrophe that empowers organised crime, punishes individuals seeking cheaper alternatives, and ultimately sabotages public health efforts.

Economist Chris Richardson highlights a problem. Despite increased cigarette taxes, the government is collecting less tax revenue from cigarette sales.This shortfall is attributed to the massive drop in smoking over the past four years. But Richardson cautions that this reduction is a 'fake success.'

This is because the purchasing of tax-free cigarettes and vapes has skewed these numbers.

Australian journalist John Silvester highlights this problem, stating, "the idea that smoking has dropped [is] sullied by the fact that many smokers are getting their product from illicit sources". 

Deakin University criminologist James Martin also reinforces the ineffectiveness of the taxation, stating, “when we’re seeing smoking rates flatlining in this country, when we’re seeing the increase in the black market, these are signs that the policy isn't working”.

Increasing Risky Behaviours of Consumers:

While high taxes are intended to encourage quitting, nicotine's powerful grip on the brain makes it an incredibly difficult addiction to overcome.

Smoking tobacco is harmful and the leading cause of preventable illness and death in Australia each year, according to the AIHW.

Therefore, while Australia may be successfully deterring new nicotine addictions through tax, the reality is that only a small percentage of those already addicted are successful in quitting nicotine.

In 2023, three quarters of Australians who currently smoked reported an attempt at changing their smoking behaviour. 29% percent reported that they failed in their attempt to quit, while only 20% managed to abstain from nicotine for more than a month. A further 40% were only able to reduce the amount they smoked daily, highlighting the immense difficulty of overcoming nicotine addiction.

Therefore high tax and prohibition measures have had little effect on those who enjoy smoking, but instead propelled them on route with the black market, placing themselves squarely in the path of serious health, legal, and societal consequences.

These risky behaviours associated with purchasing illegal tobacco disproportionately affected disadvantaged populations, especially those with lower incomes. By exacerbating financial stress, health risks, and legal ramifications.

As previous examples of prohibitions have demonstrated, the dangers and risks of the black market go beyond just systematic violence. Illicit nicotine is unregulated, meaning it could contain harmful and adulterated substances beyond those found in legal tobacco.

It also poses the legal problems of criminal charges for the possession or purchase of illicit tobacco, which can lead to fines or imprisonment.

There is also the impact on the black market by increasing demand. Over 40 firebombings in the last six months were recorded in Victoria alone.

Beyond Prohibition: Reduce Tax and Increase Safety

High taxes, prohibition, and the resulting surge in illegal nicotine products have created a dangerous situation that demands urgent attention.

History has consistently shown that effective regulation of harmful substances depends on striking a balance – limiting access and mitigating harm without inadvertently creating a lucrative black market.

As a society, we have seen the effects of prohibitively high taxation and burdensome compliance requirements. The Marijuana Tax Act in the United States bears striking similarities to Australia’s tobacco taxes, whereby prohibition policies created a thriving black market.

Theo Foukkare, CEO of Australian Association of Convenience Stores itterates, "keeping taxes high is only a gift to the black market". 

To reduce further risk for Australia, the government must lower taxes on regulated products and incentivise smokers to choose safer alternatives through legal channels.

If the current trajectory continues, we risk further entrenching the black market, driving more people to unregulated and potentially dangerous products, and ultimately failing to achieve the desired public health outcomes.