#Why the Government Won’t Lower Tobacco Taxes

Health Minister Mark Butler has argued that lowering taxes would be akin to “raising the white flag” to organized crime, allowing criminals to dictate government policy. Instead, the government insists that enforcement and stiffer penalties are the solution, not cheaper legal cigarettes. However, critics like Deakin University criminologist James Martin argue that the excise is “well past its point of effectiveness,” driving smokers to the black market and costing the government billions in lost revenue—$3.5 billion in 2023 alone, with legal tobacco excise dropping from $16 billion in 2019 to $7.4 billion in 2025. The Australian Association of Convenience Stores’ CEO, Theo Foukkare, echoes this, noting that one in three cigarette packets sold is illegal, fueled by a 55% excise hike between 2016 and 2019.

The government’s stance is also influenced by the tension between health and fiscal priorities. Tobacco taxes fund essential services, and any reduction would require alternative revenue sources. Yet, the current policy inadvertently creates a lucrative gap for criminals, who sell untaxed cigarettes at half the price of legal ones, exploiting the cost-of-living crisis and consumer demand for affordable options. 

The illicit tobacco trade in Australia is dominated by organized crime syndicates, including Middle Eastern crime families and outlaw motorcycle gangs. Victoria Police’s Taskforce Lunar, established in 2023 to investigate over 100 arson attacks on tobacco shops, has identified these groups as key players. Detective Superintendent Jason Kelly notes that these syndicates have infiltrated a “large portion” of the tobacco industry, particularly in Victoria, where the trade is most violent. Notable figures include members of outlaw motorcycle gangs and influential underworld players, some operating offshore after deportation, like Hamad, a former drug trafficker linked to a “loyal and ruthless crew.”

These groups operate a sophisticated network, extorting shop owners with a “pay or burn” model: retailers must sell syndicate-supplied illicit tobacco and pay weekly “taxes” (often $1,000 in cash) or face arson or violence. In one case, four individuals linked to a motorcycle gang were arrested for extorting a Melbourne tobacco shop. The trade’s low risk compared to narcotics—fines rather than jail time for most offenses—makes it attractive to criminals, who use tobacco profits to fund drug trafficking, sex trafficking, and money laundering. 

– **Drug Trafficking**: Syndicates use tobacco revenue to finance imports of heroin, cocaine, and other narcotics.
– **Money Laundering**: Cash-heavy tobacco shops provide a front for laundering money from other illegal ventures.
– **Violent Enforcement**: Funds support hired “puppets”—often young, networked youth—who carry out arsons and shootings to maintain control.
– **Lavish Lifestyles**: Criminal leaders use profits to sustain extravagant lifestyles, leasing land for illicit tobacco crops or investing in other illegal enterprises.

The United Nations Office on Drugs and Crime highlights brands like Manchester, produced in places like the UAE with minimal regulation, as key to the trade. These cigarettes, often lacking Australian-compliant health warnings, are smuggled in vast quantities, with only 1% of incoming containers inspected by Border Force, allowing criminals to flood the market. 

1. **Underfunding and Jurisdictional Splits**: While the federal government collects tobacco excise, enforcement falls to under-resourced state police forces. The Australian Taxation Office (ATO) and Border Force lack the capacity to pursue organized crime aggressively, with ATO officers wary of personal risks like retaliation via Molotov cocktails.

2. **Unregulated Industry**: Unlike alcohol or gambling, tobacco retailing in most states, particularly New South Wales, requires minimal oversight. Anyone with an ABN can obtain a Tobacco Retailer Notification number in minutes, with no vetting process. This allows criminal fronts to proliferate, with Victoria alone estimating over 800 tobacco shops, many unregulated.

3. **Adaptive Criminals**: As noted by Labor MP Dan Repacholi, crime groups are “highly adaptive,” quickly replacing seized stock or burned shops. Taskforce Lunar and the ATO’s Illicit Tobacco Taskforce have seized millions in tobacco and laid charges, but the trade’s scale overwhelms efforts. For example, Lunar seized 7 tonnes of tobacco worth $12 million, yet new shops and shipments continue unabated.

4. **Low Penalties**: Until recently, penalties for illicit tobacco offenses were minimal—less than $50,000 in Victoria before 2024. Even now, fines of $22,000 for individuals and $110,000 for corporations in NSW pale compared to the trade’s profitability, offering little deterrent.

South Australia’s approach—establishing a 45-officer tobacco enforcement squad with warrant-free search powers—has shown promise, boosting legal sales when illicit shops are shut down. Queensland has followed suit, but other states lag, leaving police playing catch-up. 

– **Lack of Licensing**: Most states, including NSW, lack a robust licensing regime for tobacco retailers. South Australia and Western Australia have stricter systems, with 1,650 and 3,155 licensed retailers, respectively, but NSW’s minimal requirements allow shops to open rapidly, often as fronts for illicit sales.

– **Economic Incentives**: High excise taxes make legal tobacco uncompetitive, driving demand for cheaper illicit products. New shops, often backed by syndicates, capitalize on this, popping up in small towns and cities alike. In Bega, NSW, a town of 5,000, three new tobacco shops opened recently, undercutting legal retailers.

– **Policy Inertia**: Despite calls for a national licensing system and tougher enforcement, federal and state governments have been slow to act. NSW’s recent reforms, including a licensing regime and doubled enforcement officers, are a start, but critics argue they fall short of South Australia’s model. The government’s focus on health policy over criminal enforcement allows the black market to thrive.