The Australian federal budget is facing unprecedented storm clouds. An increase in illegal black market cigarette sales, for example, has caused a $6.9 billion loss in tobacco tax revenue. Legal cigarettes sold on the black market are subject to a steep excise tax of as much as $35 for each 25-pack. Yet the tide of illegal tobacco sales has crashed down on expected revenue. In response, the federal government is stepping up with hundreds of millions of dollars in new funding. Their aim is to stop the illegal smuggling of black market cigarettes into our nation.
To get ahead of this issue, we’re committing $157 million in the next two years. This funding will be used to support law enforcement and customs operations. Almost $50 million of this funding is directed towards the Australian Federal Police. We’re thrilled that they will use it to combat illicit OCGs whose profitable illegal tobacco and vape trade includes serious violent crime. These measures are steps towards a larger plan to soften the fiscal impact to the federal coffers.
Impact on Government Revenue
The federal budget has been significantly affected by declining legal cigarette sales, with Treasury forecasting a $6.9 billion reduction in revenue between now and 2029. Unfortunately, this decline is mostly due to the boom in illegal tobacco trade, not because of fewer people smoking. Last year’s budget forecast tobacco excise revenue to reach $11.5 billion in the 2025-26 financial year. This estimate makes clear how dire the current deficit truly is.
Treasurer Jim Chalmers acknowledged the impact on tobacco excise, stating:
"There is a big hit to tobacco excise, and there is no use pretending otherwise."
Illegal tobacco sales have skyrocketed, whether because Australians are trying to save money or converting to vapes. Imagine the budget impact without any government intervention—that would obviously be much worse.
Government Response and Funding Allocation
The federal budget sets aside more than $150 million to fight the expanding illegal tobacco trade. The funding is intended to launder and greenwash efforts of going after black market smokes. These grants would go a long way toward improving compliance and enforcement efforts nationwide.
Treasurer Jim Chalmers emphasized the importance of these measures:
"We're certainly providing the resources that we can to try and turn this around."
Enforcement efforts have focused on dismantling the OCGs mainly responsible for the distribution of illegal tobacco products. The government’s investment in enforcement is key to getting a handle on the issue and shoring up tobacco excise revenue.
Addressing Organized Crime
The Australian Federal Police will receive nearly $50 million to intensify their focus on organized crime groups linked to illegal tobacco and vapes. Funding for this provision is part of a larger push to empower law enforcement agencies across the country to better equip them to fight illegal activities.
Treasurer Jim Chalmers highlighted the importance of this investment:
"More people giving up is a good thing. More people avoiding it is a bad thing, and that's why we're investing in compliance and enforcement to try and turn that around."
Black market cigarette sales are booming, making a dangerous problem even worse. In response, the federal government is taking steps to reduce these dangerous effects on both public health and national revenue.
