At a busy tobacconist in the Melbourne suburb of Frankston, a constant flow of customers are walking through the front door and leaving with colourful packets of cigarettes in their hands.
It is in stark contrast to the scene at three other tobacconists nearby — and there is one key reason for the difference.
One of the customers, a 68-year-old man, walks out and reveals to 7.30 he’s bought 10 packets of illegal cigarettes for $150.
The man doesn’t want to be identified but is happy to open his shopping bag and show us his purchase.
At just $15 each, the packets are labelled “Manchester”, a brand of tobacco that can’t be bought legally in Australia.
He says the same number of plain-packaged legal cigarettes would have cost him more than $300.
Tobacco sales in freefall as illicit trade booms
Industry data obtained by 7.30 indicates a third of the legal tobacco market has dropped off in the past 12 months, with tobacco retailers reporting a 29 per cent decline in the number of cigarette pack sales during the last financial year.
The price of tobacco also rose by 6.8 per cent on September 1, which includes a 5 per cent increase to the excise on top of the regular indexation.
It pushes the average packet of cigarettes to almost $50.
It’s the second of three consecutive 5 per cent increases to the tobacco excise from 2023 to 2025 legislated by the federal government.
Health Minister Mark Butler told 7.30 that price signals around tobacco were “a very important tool in the toolbox of reducing smoking rates”.
But criminologist James Martin says the government’s tax policy has only pushed people to cheaper, illicit tobacco.
“That would be fantastic news … if that drop was primarily driven by people quitting smoking, but it’s not. It’s primarily driven by people preferencing the black market,” he told 7.30.
We’re well on the way to not having any legal tobacco sold in Australia.”
In the last federal budget, forecast excise revenue was revised down from $14.7 billion in 2026-27 to $10.7 billion by 2027-28.
Mr Martin believes this money is flowing into the black market.
“There’s a $5 billion hole in the federal budget,” he said.
“Now that’s not due, again, primarily to people quitting smoking, but rather taking that money [and] instead of paying tax on it, paying for illegal product that is going straight into the hands of organised crime.”
The tobacco industry commissioned research through FTI Consulting that shows illicit consumption made up almost a third of all tobacco consumed in 2023.
From July 2023 to May 2024, Australian Border Force seized and destroyed more than 410 tonnes of tobacco and more than 1.7 billion cigarettes.
The duty evaded is estimated to be almost $3 billion.
“That’s up threefold from four years ago,” Mr Martin said.
“We know that that’s just a small fraction of the cigarettes that are actually successfully being trafficked into the country.”
Is the federal policy still working?
The national adult smoking rate, which is sitting between 10 to 11 per cent of the population, has been in decline since plain-packaging laws and steep tax increases were imposed on tobacco products almost 15 years ago.
But Ed Jegasothy, a lecturer at the University of Sydney’s School of Public Health, says the drop in the daily smoking rate since 2010 cannot be exclusively linked to increases in excise.
“The prevalence of smoking has decreased; it’s not clear how much of that is attributable to the increases in price,” he said.
“What we’re also seeing is that the rates of decline in smoking prevalence was not consistent across different population groups.”
He said smoking had declined less sharply in population groups “with lower socio-economic status, First Nations populations, people with mental illnesses and other disadvantaged marginalised groups”.
“That means that people are still smoking and still paying those high prices for cigarettes and, for people on lower incomes, that means they must be foregoing other goods and services and activities in their lives to pay for to pay for those cigarettes at the higher price.”
Frankston resident Glenn Cooper is a disability pensioner. He says he refuses to buy illegal cigarettes and spends $250 on tobacco a week.
“I do not want to support the illegal tobacco,” he said.
“Although the government’s shafting us over it all, I still will not support criminals selling tobacco.”
Mr Cooper has tried to quit smoking many times but says the price of cigarettes has never been a motivating factor for him.
“I’ve got to want to give up my smoking,” he said.
“No matter how financially that hurts me … I enjoy it, right? It is an addictive habit. I enjoy my smokes.”
Government optimistic about reducing smoking rate
The health minister admitted the decline in smoking prevalence has plateaued.
“We got advice sort of 12 to 18 months ago that that steady reduction that we’d seen over the course of 30 years had started to stagnate, and that was in part a product of the lack of any real change in tobacco control,” Mr Butler told 7.30.
He said the government was focusing on making cigarettes “less attractive” to new smokers through its $63.4 million “Give Up For Good” campaign, which involves four anti-smoking advertisements rolled out across television and digital platforms.
In July, the federal government also announced an extra $188 million for the Australian Border Force and federal police to crack down on illegal tobacco importation, while legislation was passed late last year to ban features designed to make tobacco more palatable and attractive, like menthol or crush balls
Mr Butler remains optimistic these measures will keep Australia on the path towards a national daily smoking rate of 5 per cent by 2030.”I think it is possible, and I think it’s possible because of the updated regulations through the parliament last year,” the health minister said.
Dr Jegasothy said instead of targeting smokers through tax, the government needed to start listening to people like Glenn Cooper.
“The high price [of cigarettes] is becoming quite detrimental to communities because it’s not having the intended effect,” he said.
“It’s not making people like Glenn quit.”
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