Coalition Unveils Plan to Slash Tobacco Tax Amid Illicit Trade Crisis
The Coalition has formally announced a significant policy initiative aimed at dramatically lowering the excise tax on tobacco products. This bold measure is explicitly designed to combat the rapidly expanding illicit tobacco trade and the sophisticated organized criminal activities that have flourished alongside it. Under the proposed framework, consumers could see the cost of a legal pack of cigarettes reduced by approximately $30, a move intended to directly undercut the profitability of illegal suppliers.
This policy proposal comes as a direct response to what the Coalition describes as a crisis in the tobacco market, where high taxes have inadvertently created a lucrative environment for criminal enterprises. By making legal tobacco significantly cheaper, the Coalition aims to remove the primary economic incentive that drives consumers towards the black market, thereby starving criminal networks of their revenue streams.
Economic Rationale for Price Reduction
The economic logic underpinning the proposed tax cut has garnered support from academic circles. Richard Holden, a prominent economist at the University of New South Wales, has publicly endorsed the strategy of reducing cigarette prices to dismantle the economic incentives for organized crime, unequivocally describing the approach as a "no brainer." Professor Holden’s analysis suggests that when the profit margin for illegal goods becomes negligible, the motivation for criminal organizations to engage in their trade diminishes significantly.
In discussions, Professor Holden advocated for an even more aggressive and temporary strategy: the complete removal of the tobacco excise. He posited that such a drastic, albeit temporary, hiatus would effectively "knock the illicit industry out of the market" by eliminating its entire profit base. This would create a clean slate, allowing the market to reset without the distortion of high-profit illegal trade.
Professor Holden further outlined a two-phase approach to this economic intervention. Initially, the excise would be entirely removed to eradicate the substantial profit margins currently fueling the black market. Following this period of market disruption, he argued that policymakers could then "start again and think about an appropriate level of excise that generates revenue, but doesn't provide an incentive for them to come back into the market." This perspective frames the tax cut not merely as a consumer relief measure, but as a strategic economic tool engineered to structurally disrupt criminal supply chains and restore integrity to the legal tobacco market.
Explosive Growth of Illicit Tobacco and Escalating Violence
The urgency of this policy proposal is starkly underscored by alarming data illustrating a dramatic and rapid shift in the Australian tobacco market over the past several years. Estimates indicate that approximately 80 percent of all tobacco consumed in 2025 was illegal. This figure represents an extraordinary and troubling increase from just 12 percent in 2017, highlighting a profound failure of the current tax regime to control the market.
During this same period, the tobacco excise has more than tripled, creating an ever-widening price gap between legal and illegal products. This direct correlation between soaring taxes and the explosive expansion of the black market has drawn intense scrutiny from law enforcement agencies, economic analysts, and public health officials alike. The substantial increase in the excise is widely linked to a surging black market for tobacco products, which in turn has fueled a disturbing wave of associated gang violence across major cities.
This violence is not merely anecdotal; it includes documented incidents such as the firebombing of tobacco stores, which have become a grim hallmark of turf wars among criminal syndicates vying for control of the lucrative illicit trade. Authorities have been forced to respond to multiple such attacks, particularly in cities like Melbourne, where the competition for illicit tobacco sales has reportedly led to widespread intimidation and destruction. The rise of this criminal element poses a significant threat not only to public safety but also to the legitimate retail sector, which faces unfair competition and the risk of becoming collateral damage in gang conflicts.
Political Scrutiny and Justification
In the wake of the policy announcement, the Coalition has faced scrutiny regarding the origins of its proposal. Specifically, the party has moved to refute claims suggesting its strategy is merely copying policies previously put forward by One Nation. The Coalition maintains that its proposal is a distinct and independently developed measure, specifically tailored to address the pervasive criminal elements embedded within the tobacco supply chain, rather than aligning with the broader platforms of other political movements.
Central to the Coalition's justification for the proposed tax cut is the undeniable data regarding the illicit market's dominance. With the proportion of illegal tobacco consumption skyrocketing from 12 percent in 2017 to an estimated 80 percent in 2025, the Coalition argues that the existing tax structure has demonstrably failed to prevent the black market from overwhelming legal consumption. The proposed $30 reduction in the price of a legal pack of cigarettes is therefore positioned as a critical intervention designed to restore competitiveness to legal retailers and to significantly diminish the financial viability of illicit suppliers.
Professor Holden’s expert recommendation to temporarily abolish the excise further underscores the perceived severity of the economic distortion caused by excessively high taxes. By systematically removing the financial incentive for organized crime to peddle illicit tobacco, the overarching goal is to fundamentally reset the market conditions. This strategic reset would then pave the way for the reintroduction of a tax level that achieves a delicate balance between generating necessary government revenue and maintaining market integrity, without inadvertently creating a breeding ground for criminal activity.