Australia’s steep cigarette excise increases and restrictive vaping policies have fuelled a massive illegal tobacco market while undermining the country’s long-standing harm-minimisation approach to public health.
Australia should be very cautious when listening to beguiling arguments recommending keeping cigarette excise sky high after the increase of these rates from about 20 cents to about $1.50 per cigarette in the last 25 years has led to a massive, violent black market.
Defenders of these sky high rates ignore several fundamental aspects.
First, smoking rates are higher in low-income populations who also smoke more cigarettes per day. This shouldn’t be forgotten, especially during a cost of living crisis as Australia is experiencing now. Cigarette excise is inherently regressive.
Second, most Australians prefer to buy legal rather than illegal products et ceteris paribus. However, things aren’t very equal when a legal packet of cigarettes might cost $45 but an illegal packet might only cost $15 (or even less). If that gap shrinks from $30 to $20 or even to $10, it’s likely that many smokers will start switching back to legal sources. Economists refer to this phenomenon as the ‘elasticity of demand’. Thanks to competition and economies of scale, legal goods are usually cheaper than illegal goods unless the legal goods have been slapped with exorbitant taxes.
Third, the unintended consequences of a booming cigarette black market are substantial and increasing. Raising the price of cigarettes helped reduce smoking rates for decades. But the savage and multiple recent increases in cigarette excise have resulted in retail prices that Australian smokers have been increasingly unable or unwilling to pay. Rampant extortion of retailers, over 250 firebombings of retailers, several alleged homicides, possibly increasing smoking rates, a shortfall of $77 billion of government revenue over the last five years, and according to official figures 50-60 per cent of cigarettes and 95.7 per cent of vapes are now supplied by illegal sources: these are some of the unintended consequences we are now being asked to accept.
Our response to cigarettes and vaping started to go wrong when governments began to ignore Australia’s official national drug policy since 1985 of ‘harm minimisation’. This term was defined in the 1990s as the combination of supply reduction, demand reduction AND harm reduction. Harm reduction is explicitly endorsed in Article 1 (d) of the Framework Convention on Tobacco Control, signed and ratified by Australia; Australia’s National Drug Strategy and Australia’s National Tobacco Strategy. Harm reduction contributed greatly to Australia achieving and maintaining a low rate of HIV. Part of that achievement involves handing out over 60 million sterile needles and syringes a year.
However in the last 15 years, harm reduction has been missing from Australia’s response to smoking. Vaping is now accepted to be only a fraction as harmful as combustible cigarettes that are responsible for the deaths of up to two out of every three long-term smokers. Yet Australia severely restricts this much safer way of ingesting nicotine while allowing the more deadly option to be readily (if expensively) available. This is ethically indefensible.
Many global traded tobacco companies are now rapidly transforming from deadly combustible cigarettes to much safer, smoke-free, nicotine products. For example, these products in 2025 accounted for 42 per cent of the earnings of the world’s largest traded tobacco company, Philip Morris International, and 18 per cent of the earnings of the world’s second largest traded tobacco company, British American Tobacco. Both started selling smoke-free nicotine products in about 2014.
Not only is this transformation rapid, for a range of different smoke-free nicotine products, it is probably also accelerating. The Compound Annual Growth Rate in the US in 2025 was 48.3 per cent for heated tobacco products, 21.0 per cent for nicotine pouches, 9.5 per cent for vaping, and -7.9 per cent for cigarettes. Philip Morris International’s global cigarette shipment volume declined from 927 billion units in 2012 to 617 billion units in 2024. This global replacement of combustible cigarettes by smoke-free nicotine products is now inevitable and unstoppable.
It is preferable in my view to assess arguments on their merits rather than consider who supports or opposes them. If tobacco companies seem to have got it right and governments and the health establishment have got it wrong, I will side with who I think has got it right.
In 1999, together with some colleagues, I wrote to the World Health Organization requesting a meeting in Geneva to discuss their misguided opposition to needle syringe programs, desperately needed to control HIV among and from people who inject drugs. WHO agreed to a meeting, listened to our arguments and a year later one of their number said ‘I am with you individually and we are with you organisationally’. The contribution of this program to reducing the spread of HIV is now widely accepted.
The development of a range of safer, smoke-free nicotine products represents tobacco harm reduction. But it is also an example of a ‘disruptive innovation’. Disruptive innovations are new ways for the commercial world to better meet the needs of consumers. Examples include electric vehicles replacing cars powered by internal combustion engines; smartphones replacing Nokia or Blackberry which earlier replaced landline phones; Netflix replacing Blockbusters; and vaping, heated tobacco products and nicotine pouches replacing combustible cigarettes. People or governments who bet against harm reduction or disruptive innovations generally lose.
To reduce the huge illegal cigarette trade, Australia will have to start reducing cigarette excise, and ensure that smoke-free nicotine products are easier to obtain than combustible cigarettes. Regaining control of the market for cigarettes, tobacco and vapes will not be easy or rapid but it has to be done.
Dr Alex Wodak, AM, is a physician and has been a Director of the Alcohol and Drug Service at Sydney’s St Vincent’s Hospital, President of the Australia Drug Law Reform Foundation, Board Member of Australia21 & the Australian Tobacco Harm Reduction Association.
Emeritus Consultant, st Vincent’s Hospital, Darlinghurst, NSW, 2010 Tobacco Harm Reduction Adviser to the Harm Reduction Australia Board.