Submission to the Senate Legal and Constitutional Affairs Committee

Australia is experiencing an unprecedented expansion in the illicit tobacco market. Available evidence indicates that as much as half of all tobacco consumption now occurs outside the licit market, representing a potential loss of up to $10 billion annually in excise revenue. This estimate is uncertain, but is consistent across multiple independent indicators: a sharp decline in licit tobacco sales since 2022, a significant reduction in tobacco excise receipts relative to historical trends, and law enforcement reporting of organised criminal activity linked to tobacco distribution.

The illicit tobacco trade is not merely a revenue problem. It poses interconnected risks across four domains: public health – through the erosion of Australia's tobacco control regime; law and order – through the entrenchment of organised criminal networks; tax integrity – through a large and growing excise tax gap, and fair competition – through a regulatory burden that falls entirely on law-abiding businesses while their illicit competitors operate unchecked.

Australian Industry Group's members include businesses across the retail, wholesale and distribution sectors who operate in full compliance with Australia's tobacco laws. These businesses bear significant and growing regulatory costs (licensing fees, staff training and reporting obligations) that their illicit competitors simply ignore. As the black market expands, compliant retailers face a compounding competitive disadvantage: higher costs, lower margins, and declining foot traffic. This is not a sustainable position, and it has consequences for the broader policy objective of maintaining a functioning licit market.

A durable solution requires a nationally coordinated approach: harmonised regulatory frameworks, strengthened enforcement, proportionate penalties, enhanced border detection capability, and improved alignment of responsibilities between the Commonwealth and the states, and a level playing field for law-abiding retailers.