Should tobacconists even exist? Minister poses radical question as illegal sales soar

Assistant minister for customs Julian Hill delivered a speech on Thursday that framed a question most politicians avoid: should standalone tobacconists be allowed to continue operating in Australia?

The question is not rhetorical. Hill told an audience in Canberra that health advocates are asking why Australian society permits standalone tobacco shops to exist when the ratio of tobacco retailers to smokers has become absurd. Australia now has approximately 40,000 tobacco retailers serving roughly 8 per cent of the population who smoke. For comparison, about 7,000 petrol stations serve around 70 per cent of Australians who drive.

Hill suggested that tobacco products might instead be sold only through mixed-use retail settings like supermarkets, subject to stricter licensing, oversight, and compliance. He described these as "interesting questions for the future" rather than immediate policy, but the mere articulation marks a shift in how federal authorities are thinking about the structural drivers of Australia's illegal tobacco crisis.

The scale of the crisis

More than half of all tobacco products sold in Australia are now illegal. The 2024-25 report by the Illicit Tobacco and E-Cigarette Commissioner, released in December, estimated that organised crime groups earned between $4.1 billion and $6.9 billion in profit from this trade during that financial year. The report also found that approximately 95.7 per cent of all e-cigarette products sold in Australia were illegal, with a market value of about $1.6 billion.

Federal tobacco excise revenue, which at the turn of the decade was the federal budget's fourth-largest source of income, has collapsed. This financial year alone, tobacco excise originally forecast to raise $14.2 billion is expected to earn just $5.5 billion. By the end of the decade, the drop in legal smoking will have blown a $67 billion hole in the budget.

Federal authorities seized 2.6 billion cigarettes in the last financial year, a tripling from four years ago. Hill acknowledged that the government cannot solve the problem at the border and is overhauling federal law to make authorities more agile.

More than 130 tobacco shops were firebombed in Melbourne in a turf war over illegal cigarettes. Hill described the explosion of illegal trade as having "normalised law-breaking for a significant proportion of Australians."

New laws to treat tobacco kingpins like drug lords

The federal government will introduce legislation next week to revamp the customs, excise, and tax administration acts. Maximum penalties for crimes related to illicit tobacco will double or triple, rising to between five and 15 years' imprisonment. Bumping penalties to this level puts criminals pushing illegal cigarettes into the same class as the most serious criminals, enabling authorities to use the most sophisticated investigative techniques.

Hill said the changes would allow police to use wiretaps and rapidly seize cars, houses, boats, and other assets linked to tobacco criminals. The approach treats tobacco kingpins like drug lords in a national attempt to make illegal tobacco more risky and less profitable.

Hill referenced Al Capone's conviction for tax evasion rather than violent crimes as a model for targeting illicit tobacco networks through financial and regulatory enforcement rather than relying solely on border seizures.

New offences would also target large-volume shipments that indicate organised crime involvement, while states and territories are being urged to prioritise shutting illegal shopfronts, penalising landlords, and resourcing street-level enforcement.

Excise cut ruled out despite revenue collapse

The massive evasion of excise has prompted calls from NSW Premier Chris Minns, some opposition MPs, and tobacco-selling firms for the government to cut excise rates. Legal packs of cigarettes can cost $50 or $60, compared to black market packs retailing at about $15.

Analysis by Oxford Economics released earlier this year warned that without a reduction in excise, revenue from tobacco could fall to just $1.5 billion, with 90 per cent of all cigarettes likely to be bought on the black market. The analysis found that reducing excise rates back to their 2019 level, which would cut the price of a pack of cigarettes by a third, would stabilise the legal cigarette market.

Hill rejected the proposal. He said that based on current information and advice to government, there is no reasonable level of excise reduction that would make any material difference to the ubiquitous illicit supply chains and distribution networks operated by organised crime.

Hill acknowledged that high rates of excise over the past decade had been one of the key drivers of growth in the black market, but argued that price is the single most effective lever to encourage people to quit or reduce smoking. He also argued the excise was always designed to fall naturally as smoking rates declined, implicitly rejecting the idea that governments were greedy in chasing revenue.

A range of health groups and certain pieces of academic research make the point that even if legal cigarettes were made slightly cheaper, the price differential would remain too steep to change consumer behaviour.

State enforcement models diverge

Hill said South Australia and Queensland have helped the legal tobacco trade by having officers target the black market and comprehensively patrol certain areas. He said these jurisdictions are demonstrating that where enforcement occurs in 100 per cent of a geographic area, retailers see legal trade return rapidly to expected levels.

Victoria, which has far fewer officials knocking on shop doors, has struggled to drive down criminal sales. Between 1 January 2025 and 31 December 2025, NSW Health Inspectors conducted around 1,700 retailer inspections and seized more than 16.2 million cigarettes, over 2,650 kilograms of other illicit tobacco products, and around 215,000 illegal vaping goods with a combined estimated street value of around $24.8 million.

During this period, NSW Health also finalised 22 successful prosecutions, with the courts imposing a total of $784,700 in fines related to vaping goods and tobacco offences. Interim data shows that between 1 January 2026 and 31 January 2026, NSW Health Inspectors conducted a further 131 inspections, seizing around 560,000 cigarettes and 98 kilograms of other illicit tobacco products and over 6,000 illegal vaping goods with a combined estimated street value of around $830,000.

Hill said the biggest gains were to be made in post-border disruption and warned that Australians will rightly think any public official who stands up and talks tough about seizures is not living in the real world unless and until the illegal shops are shut down.

Enforcement alone is not enough

Rohan Pike, a former Australian Border Force officer now working as a consultant on the illicit tobacco trade, said stronger penalties would be welcome provided they were enforced rigorously and in a sustained way. Pike said putting stronger penalties as the one and only solution is misplaced and that the excise on legal products remains a source of ongoing imbalance in the market.

Pike advises the Global Institute for Novel Nicotine Products, a UK-based organisation representing makers of alternative products like nicotine pouches and heat-not-burn vapes. He has called for Australia to follow New Zealand, the United Kingdom, and other countries in legalising and regulating newer nicotine products as an alternative to cigarettes.

Hill said the government is also concerned about the rapid growth in unlawful importation, advertising, and supply of nicotine pouches in Australia and is actively pursuing options to respond to this growing threat, including reform of product regulation.

What success looks like

Hill outlined what success would look like in measurable terms: fewer shopfronts linked to illicit networks, an end to firebombings, fewer violent incidents, a lower illicit share of the tobacco and vape market, rising prices for illegal products, stronger excise compliance, more proceeds-of-crime recoveries, and safer communities with a fairer operating environment for honest retailers and workers.

He said progress will not be smooth or linear and that in some places, things may get worse before they get better. Hill said giving up is not an option, nor is being distracted or seduced by misplaced hopes and false claims about excise reductions.

The Coalition has been critical of the government's response to the illicit tobacco crisis. Shadow Home Affairs Minister Jonno Duniam described Labor's general approach to date as "all talk and no action" and said the Albanese government has lost control of the illicit tobacco market, allowing organised crime to grow while costing the budget billions in lost revenue.

A Senate inquiry into the issue will begin its hearings next month to examine how the government could better respond. Duniam said that at the moment, Labor's soft touch approach is only making things worse.