When health campaigners first dreamt of ending Big Tobacco’s grip on Australia, they probably did not imagine the killer role that organised crime would play.
A Senate inquiry into the tobacco crisis this month heard yet more evidence, as if it was needed, on how a combination of rising government cigarette duties and lax law enforcement delivered Australia’s multibillion-dollar nicotine market into the hands of criminals.
By some estimates, 65 per cent of our tobacco sales are now on the black market – up from just 16 per cent in 2020.
It’s what happens when a near-tripling in the excise on tobacco over the past decade means you are paying $28 more tax on a pack of 20 cigarettes than in 2016.
Billions of dollars a year are now flowing to organised crime instead of government coffers, and smoking rates are rising again. It is an unmitigated disaster that has not been repeated anywhere else on the planet, as Big Tobacco executives are pointing out.
“I have not seen a comparably rapid or extreme collapse in legal tobacco sales and tax receipts in any other country. Indeed, Australia is a unique case, and is being used worldwide as a salutary lesson of how not to use tobacco taxes to achieve either fiscal policy or health policy objectives,” British American Tobacco (BAT) executive Simon Trussler said in a submission to the inquiry.
Health advocates would be frothing at the mouth over such testimony, but it is hard to disagree when the government’s own watchdog, the Illicit Tobacco and E-Cigarette Commissioner (ITEC), estimates that illegal sales captured as much as 60 per cent of the market last year.
It would mean the market’s capture by organised crime was even more rapid and brazen than the industry predicted, with the Australian Association of Convenience Stores (AACS) saying in August last year that illegal tobacco accounted for about half of all cigarette sales in Australia.
Illicit Tobacco and E-Cigarette Commissioner Amber Shuhyta admits it will be hard to break the habit.
“There is a potential for further entrenchment of organised crime, with the development of innovative product designs and sales channels specifically engineered to evade detection,” she said in a submission to the inquiry.
Her agency estimates that up to $11.8 billion worth of excise duties went up in smoke last year alone.
“That money is not funding essential services – it is funding organised crime, while workers and legitimate businesses pay the price,” AACS chief executive Theo Foukkare told the inquiry.
It is hard to argue with the anonymous Philip Morris executive, who told the inquiry during a closed door hearing earlier this month that a complete capitulation to organised crime seems inevitable.
“Based on the current trajectory, legal supply will cease to exist by 2030 … gifting the entire supply of nicotine and tobacco products to organised crime,” they said.
A report by Oxford Economics commissioned by independent supermarket chain Ritchies IGA was the basis for this forecast. It sees organised crime on a trajectory to capture almost 90 per cent of total tobacco consumption by 2028-29 without government intervention.
The authors of the report, as well as tobacco executives, are recommending cutting the cigarette excise back to 2019 levels – a contentious battleline with health advocates.
Australian Medical Association President Dr Danielle McMullen is among those citing the Quebec experience in Canada as evidence that simply slashing the tax won’t work.
“There’s absolutely no evidence to support the idea that reducing excise will impact illegal tobacco — in fact the evidence says the opposite, with jurisdictions that have reduced the excise seeing a horrible combination of increased smoking rates and no tangible impact on the illegal tobacco trade,” she said.
Oxford Economics uses the Canadian experience to argue the exact opposite, saying a massive cut in excise sent illicit tobacco sales plunging.
But one of the most intriguing aspects of the story so far is the financial resilience of the global tobacco giants, which traditionally controlled 90 per cent of the market.
The most recent financial accounts of BAT, Philip Morris and Imperial Brands reveal the big three have proven remarkably successful at protecting the financial health of their operations and delivering massive dividends to their parent entities.
All three managed to generate a profit last year, once you account for a non-cash writedown at BAT.
They also paid $950 million worth of dividends to their global parents over the 2024 and 2025 financial years alone.
The vast majority of this dividend bonanza – close to $800 million – came from BAT, which controls more than 44 per cent of the legal market, according to industry statistics.
It is a remarkable achievement when you look at the collapse in revenues and government excise payments.
BAT’s cash receipts from customers in 2020 totalled $9.4 billion. For the year ending December 31, 2025, they had shrunk to just $4.1 billion.
But the biggest flow-on effect was to government coffers, with excise payments dropping roughly $5 billion over this period, according to BAT’s accounts.
BAT reported a profit of $652 million in 2020 and a loss of $291 million last year – but the latter was a result of writing down the value of its Australian business by $556 million due to illicit tobacco crushing its future sales. In real terms, the tobacco giant still made a healthy profit.
This is why BAT was still able to pay a massive $393.2 million dividend last year, thanks to surging cash flows as it saves money cutting back cigarette inventories faster than sales collapse.
This helped it create positive cash flows of $733.3 million in 2025. But as sales collapse further, it’s a trick that will have a very short shelf life.
The same sales collapse and hit on government excise payments is reflected in the financial results of its two rivals.
But Imperial Brands gross profit remained remarkably steady between 2020 and 2025, declining from $115.1 million in 2020 to $102.4 million in 2025, despite its revenue literally halving. It paid a $50 million dividend to its listed UK parent last year.
Philip Morris reported that net profit dropped from $90 million in 2020 to just $33 million last year. The Marlboro maker did not pay a dividend last year, but was able to pay out $68 million in 2024.
Whether the big three still have a business in 2030 could hinge on whether the health advocates or industry realists win the tobacco tax debate.
And the most interesting voice in this debate last week was Nick Coatsworth, an infectious diseases expert and Australia’s deputy chief medical officer during the COVID pandemic.
The former top medical adviser has criticised the “public health absolutism” that has prioritised smoking reduction above all else.
Coatsworth is among those advocating for a rollback of the tobacco excise to 2019 levels.
He compared those advocating for a high excise, and more strident measures, as making the same mistakes as some of his critics during the pandemic.
“The comparison with COVID matters because the intellectual pattern is the same. A narrow expert community defines the problem. It proposes increasingly restrictive interventions. It dismisses trade-offs as distractions,” Coatsworth says.
“Then, when harms emerge outside its field of vision, it insists the answer is more of the same.”
The Senate inquiry will hand down its final report on June 30.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.
