Australia Tried To Tax Smoking Out of Existence. Now 80% of Tobacco Aussies Consume Is From the Black Market.
With cigarettes costing around $40 a pack, Australia’s war on smoking has become a case study in how prohibitionist policies create black markets, violence, and criminal power.
The Australian government has spent the last decade introducing steep tax hikes to curb smoking, and, as a result, the country has the most expensive cigarettes in the world. The average price of mainstream cigarettes is 54.99 Australian dollars per pack (about $40). But the eyewatering prices have driven people to the black market.
In 2025, an estimated 80 percent of the tobacco consumed in Australia was illegal, up from 12 percent in 2017, according to new analysis from the Australian Bureau of Statistics (ABS). The study, which is the first attempt by the Australian government to estimate the size of the black market, found that "prices for legal tobacco products have almost tripled since December 2016 driven by annual tobacco excise increases, while estimated prices of illicit tobacco products have remained relatively constant." Since 2020, household spending on legal cigarettes and tobacco has almost halved, but between 2017 and 2025, the amount of nicotine consumed in Australia has risen by almost 40 percent.
Meanwhile, between 2016 and 2025, the price of legal cigarettes nearly tripled while tobacco duty revenue more than halved. As a result, the Australian Treasury has downgraded tobacco excise revenue by $8 billion over the next five years in the latest federal budget.
Lower tax revenue is hardly something to mourn, but Australia's collapsing legal tobacco market has come with a far darker consequence: a severe wave of gang violence, including firebombings and shootings. Since 2023, organized crime groups linked to Australia's illicit tobacco and vape market have been tied to "more than 200 firebombings," "at least 3 homicides," and "multiple other non-fatal violent attacks," according to the Australian Intelligence Commission.
"It's hard to see how it could get any worse," Rohan Pike, a former Australian Federal Police detective and Border Force member, tells Reason. Pike, who created and led Australia's Illicit Tobacco Strike Team, says the violence is now an "old-fashioned turf war" and that criminal gangs, attracted by the profits, are fighting to control distribution.
Pike says criminal groups are opening pop-up convenience stores, intimidating legitimate retailers into selling their products, and backing up those threats with "firebombings and other types of violence." Organized crime syndicates have destroyed hundreds of tobacconists, convenience stores, and hospitality venues, forcing legitimate businesses out. "Every part of the tobacco control policy is uncontrolled at the moment," says Pike.
Public awareness of the black market rose last year when Katie Tangey, a "completely innocent" 27-year-old woman, was killed in Melbourne in a case of mistaken identity linked to the tobacco wars. "We know it is linked to the illegal tobacco trade. That's one thing we can say with a high degree of certainty," Detective Inspector Chris Murray told the Australian Broadcasting Corporation. "This was always our fear, that someone would die as a result of the tobacco wars and unfortunately this has come to fruition."
"It is no surprise to me unfortunately that someone has died at the hands of individuals who use arson as a means of conducting their criminality," Murray added.
While this was a wake-up call to much of the public about the dangers of the illicit market, Pike says the crisis was already visible when he worked on tobacco enforcement at Border Force more than a decade ago. After Australia began "ramping up excise" from 2010, he says, the higher taxes gave criminals "a free kick into the market." By 2015, his team was making arrests but soon realised "we weren't going to arrest our way out, because it was so big."
In some cases, Pike says, the problem only worsened: "Some of those criminals who we put in jail came out and became bigger and better and became actually key players in the illicit market." Pike points to Kazem Hamad, who was jailed for heroin smuggling, deported to Iraq, and then allegedly built a global crime syndicate "on his laptop from Iraq," becoming "the major importer and distributor of illicit tobacco in Australia."
"The government's policy has basically meant that we're putting our health in the hands of criminals," he says.
Australia is yet another cautionary tale of what happens when the government polices the personal choices of adults and opens up a new front in the war on drugs. Even if the Australian government were to now reverse course and reduce tobacco taxes, illegal purchase has become normalized. It will be far more difficult to move customers out of the thriving black market that the taxes have created than it would have been in the first place.
