Australia's Tobacco Tax Hikes Fuel Thriving Black Market

New York City considers similar prohibitive taxes, risking repeat of unintended consequences

Published on Feb. 17, 2026

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Australia has raised tobacco taxes by 12.5% annually since 2016, pushing the average price of a pack to A$55. This has led to a thriving black market that now accounts for up to half of all tobacco sales, fueling organized crime and violence. As New York City considers similar prohibitive taxes, this story highlights the unintended consequences of overly aggressive tobacco taxation policies.

Why it matters

Tobacco tax policies aimed at discouraging smoking often have the unintended consequence of creating lucrative black markets that are policed by violent criminal organizations rather than regulators. This pattern has played out in Australia and threatens to repeat itself in New York City if lawmakers pursue similarly prohibitive tax hikes.

The details

In 2016, the Australian government began raising tobacco excise taxes by 12.5% each year through 2020, aiming to drive the price of a pack up to A$40. By 2025, continued tax hikes pushed the average price to A$55 or A$2.32 per cigarette. This has fueled a thriving black market now estimated to account for as much as half of all tobacco sales in the country. Organized crime groups competing for a share of this lucrative market have triggered waves of violence, including firebombings, extortion, shootings, and homicides.

  • In 2016, the Australian government announced it would raise tobacco excise taxes by 12.5% each year through 2020.
  • By December 2025, continued tax hikes pushed the average price of 'mainstream cigarette packs' to A$55 or A$2.32 per cigarette.

The players

World Health Organization

The WHO has claimed that tobacco taxes are the most cost-effective way to reduce tobacco use, despite evidence that such policies can fuel black markets and organized crime.

Australian Senate

The Australian Senate declared the country was in the midst of an 'illegal tobacco crisis' and referred an inquiry to its parliament's Legal and Constitutional Affairs References Committee.

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What’s next

The Australian Senate's inquiry into the illegal tobacco crisis is expected to report its findings and recommendations by March 27, 2026.

The takeaway

Overly aggressive tobacco taxation policies, as advocated by the World Health Organization, can have the unintended consequence of fueling lucrative black markets and organized crime, as seen in Australia. Policymakers should carefully consider the economic realities and potential for unintended harm before pursuing similar prohibitive tax hikes.