Cutting the tobacco excise won’t stop the illegal trade. This is how other countries solved the problem

The Australian government has proposed cutting the tobacco excise by 80%, claiming that cheaper legal cigarettes will discourage illicit trade and deter organized crime. However, this proposal is deeply flawed, as it overlooks the critical role of strong tax administration systems in curbing illicit tobacco trade. Australia's high tobacco tax does help make untaxed sales profitable, but the success of such a strategy depends on the effectiveness of systems designed to detect and prevent tax evasion and hold offenders accountable.

According to international experience, illicit tobacco markets thrive when there are inadequate safeguards in place, such as the inability to track products, fragmented agencies, and weak penalties. Several countries have successfully reduced illicit trade while maintaining or even increasing tobacco taxes.

The Australian Bureau of Statistics reports a 40% increase in nicotine consumption from 2017 to 2025, driven by a significant rise in illicit cigarettes and e-cigarettes. Legal product prices have also tripled in the same period. The primary reason for Australia's illicit tobacco crisis lies in the failure of tax administration systems, including insufficient tracking and enforcement mechanisms.

High tobacco taxes have proven to be one of the most cost-effective measures to reduce smoking, according to the World Bank and the World Health Organization. Australia should maintain its effective tobacco taxes while simultaneously tackling illicit trade. Both advanced and developing countries can successfully pursue both strategies.

Other countries, like the United Kingdom and Canada, have tackled illicit tobacco trade effectively while maintaining or even increasing tobacco taxes. The UK reduced illicit tobacco trade by 4.9 percentage points between 2005-06 and 2024-25, even as tobacco taxes rose. Key factors in the UK's success include a comprehensive illicit tobacco strategy, a track-and-trace system, tax markings, covert security features on cigarette packs, increased funding for inter-agency cooperation, and enhanced collaboration between the tax office and border forces.

In contrast, Canada's attempt to reduce illicit tobacco trade by cutting excise taxes in 1994 had disastrous public health consequences. The lower legal tobacco prices reportedly led to increased smoking among young people, potentially resulting in 30,000–40,000 deaths. Furthermore, criminal organizations involved in tobacco diversion and promotion of tax cuts further exacerbated the issue.

In conclusion, Australia must develop a comprehensive, tailored response to illicit tobacco trade. This approach should go beyond intercepting shipments at the border and include strong systems for tracking and monitoring tobacco products, robust inter-agency cooperation, and effective enforcement mechanisms.