How 40$-per-pack Cigarettes Pushed Australians to the Black Market

Pat Felvus, a 75-year-old retired math teacher, found herself descending into an underground parking lot in suburban Melbourne last year, cash in hand. Headlights flashed from an unmarked van at the far end. She walked up, made the exchange, and emerged with a carton of cigarettes. Not from a pharmacy. Not from a licensed retailer. From a dealer.

"It's the injustice of the situation," Felvus told The New York Times. "Why would you pay four times the amount?"

The amount, in this case, is staggering. Australia now has the most expensive cigarettes in the world, with a pack of midmarket cigarettes costing on average about 55 Australian dollars, or almost $40 USD, nearly double what it would cost in New York City. That price tag is the result of a decade of steep tax hikes, eight increases in ten years, designed to crush smoking rates through sheer economic pain.

The policy worked, in part. Smoking rates did fall. But it also created something the government didn't anticipate: a thriving black market now estimated to be a multibillion-dollar industry that accounts for as much as half of all tobacco sales in the country.

The Numbers Tell the Story

Taxes account for 70% of the price of a legal cigarette following a triple-fold excise hike from 46 cents to A$1.40 per cigarette over the past ten years. The excise rate increases twice annually, in March and September, indexed to wage growth. On top of ordinary indexation, tobacco excise has been increasing by an additional 5% per year for three years starting September 2023.

The chart above shows a collapse. The Treasury expects tobacco excise collections to fall to A$7.1 billion this year, down 57% from the 2019-20 peak of A$16.3 billion, despite years of sharp tax hikes. The government keeps raising rates, and revenue keeps falling. That's the paradox at the heart of Australia's tobacco policy.

A study published by FTI Consulting found that illicit, excise-tax-evading cigarettes made up 50% of cigarette consumption in June 2025, up from 39.4% in 2024, 28.6% in 2023, and around 25% in 2018. The trajectory is unmistakable.

Where the Cigarettes Come From

Most illegal cigarettes in Australia are smuggled in from parts of the world with far lower prices, like the Middle East or China. Manchester cigarettes, reportedly manufactured in the United Arab Emirates, and Double Happiness, a Chinese brand, have become the go-to products for many buyers.

The price difference is hard to ignore. A knock-off black market pack can cost as little as US$5, with most street prices in the range of $6.50 to $10, compared to $26 to $45 for legal options. For a pack-a-day smoker, that difference adds up to thousands of dollars a year.

Unlike the movies, the black market for nicotine is not in a dark and desolate alleyway. Instead it is a corner shop with neon signs and bobblehead figurines displayed on the window sill. Bootleg cigarettes are readily available on every main street in Australia, at convenience stores, candy shops and tobacconists.

The discrepancy in these figures is itself revealing. The Australian Taxation Office reports a tobacco tax gap of about 33%, while more recent, higher figures cited in the media stem from internal tobacco industry data that have not been independently verified. What nobody disputes is the direction of travel.

The Tobacco Wars

The money flowing through this market has attracted serious criminals. And serious criminals, when they fight over territory, don't file lawsuits.

The conflict has been marked by firebombings, extortion, and shootings. As of early 2025, Victoria Police report over 125 arson attacks and more than 100 arrests. The violence has been concentrated in Melbourne, Australia's second-largest city, but it has spread to regional areas too.

In January 2025, 27-year-old Katie Tangey was killed in a house fire in Truganina, believed to have been a mistaken identity case tied to the conflict. The attackers got the wrong address. She had nothing to do with tobacco.

Melbourne has witnessed at least 106 firebombings since March 2023, and the attacks have escalated since the end of a turf war between a Middle East-based standover merchant and a prominent local crime family for control of Australia's illicit tobacco market. The violence follows a grim logic: if a tobacconist refuses to stock a particular supplier's product, the shop gets torched as a warning to others.

The Australian Border Force estimates organized crime controls 75% of the trade, smuggling in the equivalent of A$3 billion in untaxed tobacco last year alone. More than 120 Victorian outlets have been firebombed since 2023 in gang turf wars.

The Government's Dilemma

The government has said that Australia faces an illegal tobacco "crisis." But it has refused to back down from the tax hikes or acknowledge the role they may have had in fanning the illicit trade, even as it loses billions in tax revenue.

This is not an easy problem to solve. The World Health Organization recommends high tobacco taxes as one of the most effective tools for reducing smoking. And smoking rates in Australia have fallen, from 24% of adults in 1991 to 8.3% by 2023. The policy achieved its stated goal.

But the side effects have been severe. The estimated value of illicit tobacco entering the Australian market has soared, from $980 million in 2016-17 to more than $6 billion in 2022-23. Of this $6 billion, almost $3 billion entered the market undetected.

The 2025-26 federal budget allocates an additional $156 million over the next two years to combat illicit tobacco, on top of the $188 million committed in the previous budget. The Australian Border Force has stepped up enforcement. Between July 2024 and June 2025, officers intercepted more than 2.5 billion illegal cigarette sticks and 435 tons of loose tobacco, preventing an estimated A$4.4 billion in duty evasion.

But the seizures barely make a dent. British American Tobacco states that illicit traders can still profit even if 24 out of 25 shipping containers are seized, as just one successfully reaching Australia is enough to turn a profit.

What Comes Next

Rohan Pike, a former federal police detective who led a tobacco task force for the Australian Border Force, has called the situation a "pseudo-Prohibition." The comparison to 1920s America is imperfect but not absurd. The government has created a product so expensive that criminals can offer it at a fraction of the price and still make enormous margins.

Projections suggest that illicit tobacco sales could overtake legal ones within a year or two. If that happens, the revenue picture gets even worse, and the violence likely escalates further.

Some critics argue the government should freeze or reduce excise taxes to undercut the black market. But for the government, lowering the excise tax to encourage smokers back to legal cigarettes would be completely out of step with its public health objectives. That leaves enforcement as the primary tool, even as enforcement costs rise and results remain modest.

With the illicit tobacco trade now worth billions and showing no sign of slowing, the question for policymakers is whether Australia's tobacco control model, once hailed as the world's toughest, has reached a breaking point. The answer may depend on how many more shops burn before someone in Canberra blinks.