Late Michael Egan the NSW Treasurer would be calling a spade a shovel and demanding extra funds to fight black market with a passion only Mike was able to project … back in 1998 I was still with NSW Public Accounts Committee and this story came out two years before the GST was implemented… Politics behind Premiers' GST tack change: Egan
NSW appeals for extra funds to fight tobacco black market
By Nicola Smith Canberra bureau chief
Nov 30, 2025
NSW Health Minister Ryan Park has issued a fresh appeal for extra financial resources from Canberra to fight the scourge of the thriving tobacco black market as smokers seek to escape soaring excise duties.
“With the federal tobacco excise at such a rate, we know that people are turning to illegal tobacconists that are flourishing in our suburbs and communities,” Park told The Australian Financial Review.
“The burden of this black market is currently being shouldered by the states; we would welcome additional investment and resources from the Commonwealth.”
The state Labor government under Premier Chris Minns has introduced some of the toughest penalties for illegal tobacco in the country – including penalties over $1 million and jail terms of up to seven years for the sale or possession of commercial quantities.
Supplies of illicit tobacco have been disrupted through the closure of 31 stores since early November.
Park’s call came as a new analysis by Sinclair Davidson, a professor of institutional economics at Melbourne’s RMIT University, recommends a deferral in excise increases until a “short, independent review” can prove that recent rises have reduced total nicotine use.
In a paper released last week by the Centre for Independent Studies, Davidson argued that the “combined evidence implies that the tax has reached the point of diminishing returns as a health measure”.
As tobacco excise revenue consistently shrinks faster than federal Treasury forecasts, Davidson set out the case that the National Tobacco Strategy target to slash the proportion of daily smokers to 5 per cent or less by 2030 had instead fuelled a billion-dollar black market.
“The excise escalator has become less a tool of public health than an incentive for substitution and illicit supply,” he wrote.
“Australia’s tobacco control policy has lost its way. Excise has kept rising, while legal sales have shrunk, and a large illicit market has emerged.
“Excise revenue once treated as a reliable cash stream has collapsed and now falls well short of budget forecasts. Violent crime tied to illicit tobacco is now constantly in the headlines.”
In Davidson’s view, this is the “predictable consequence of fragmented governance” where the Commonwealth sets the tax rate and reaps the financial benefits while the states shoulder the health and policing burden and local communities bear the brunt of arson, insurance shocks and lost trade.
“The issue is not that tobacco control lacks purpose, but that its institutional design provides no feedback when the policy begins to fail,” he said.
‘Reshape policy’
“Policy must now be reshaped to bring tax levels, enforcement capacity, and stated objectives back into line.”
Davidson’s thesis will offer additional firepower to NSW’s push for the federal government to find what the state believes should be a more equitable solution.
Ahead of the state budget in June, Minns urged Canberra to consider lowering the tobacco excise, labelling it “crazy” to turn a blind eye to a growing black market problem that could divert police resources from domestic violence and organised crime.
Federal Treasurer Jim Chalmers has defended excise as “an important public health measure to encourage people to give up smoking”.
Accepting state demands to further squeeze excise revenues would add to pressure on Chalmers against a forecast of a decade of deficits and gross debt to exceed $1 trillion next year.
Finance Minister Katy Gallagher on Sunday gave a nod to the difficulties in balancing the books as she defended a recent move to ask cabinet ministers and public service bosses to find savings in their budgets of up to 5 per cent.
Ministers and departments were frequently making financial requests, she told Sky News.
“At some point, you have to say we can’t just keep giving you more money for these things. You need to look at what you’re doing now and reprioritise within your existing budgets.”
Successive Labor and Coalition governments have collectively increased the tobacco excise by 282 per cent since 2013, pushing the cost of a 25-pack of cigarettes to about $50 – $34 of which goes to the government.
However, tobacco tax receipts are down to a nine-year low, with the federal government collecting just $9.7 billion last year as illegal cigarette sales boom – representing a 40 per cent fall from the record $16.3 billion haul in 2019-20.
It expects the figure to fall further to $7.1 billion as Australians turn to the black market or switch to vaping.
Evidence ‘contested’
Davidson wrote that based on forecasts from the budget papers, excise per stick can be expected to increase from slightly less than $1.50 per stick to over $1.70 per stick over the budget forecast period to 2028-29.
But while he points to evidence that escalating tobacco excise since 2010 initially produced an immediate fall in smoking prevalence and a decline in legal sales volumes, he says the question today of tax rises reducing the incidence of smoking is “contested”.
Chalmers’ office was contacted for comment.
The government takes the view that reducing the price of cigarettes will not address the long-term issue of an illegal trade, pointing to a $350 million federal boost to enforcement action over the past two budgets.
Australian Border Force has seized more than 2.5 billion cigarettes in the last financial year – a 320 per cent increase on the number seized four years ago – and more than 11 million vapes have been confiscated since January 2024.
Compliance and enforcement activities led to the seizure of 586 million cigarettes and over 3 million vapes in the first quarter of 2025-26.