Sydney black market cigarettes cost economy billions of dollars

One in four cigarettes smoked in Australia is illegal, with a boom in Sydney retailers selling half-price tobacco and authorities unable to crack down on the booming black market.

Tobacconists across Sydney are peddling black market cigarettes, with one in four tobacco products consumed across the country coming from an illegal source — costing the federal government $4.2 billion last year, according to a new report.

Aussies consumed an estimated 2.6 million kilos of illegal tobacco in 2022, up from 2.2 million kilos the previous year and costing the government an extra $800m, according to new figures from auditor FTI Consulting.

In total, the government lost $4.2 billion in unpaid excise taxes, which could have gone towards funding hospitals, schools, roads and public services.

The report estimates illegal tobacco consumption makes up 23.5 per cent of all tobacco bought by consumers nationwide.

The Daily Telegraph approached 15 tobacconists around Haymarket, Surry Hills, Newtown and Enmore, and found 10 retailers sold illegal cigarettes without plain packaging, ranging in cost between $15 to $26. Legally taxed cigarettes usually cost between $40-$50.

Illegally-imported cigarettes are being sold by the packet, left, while other cigarettes can be purchased singly by cash-strapped smokers. Pictures: John Grainger

Single cigarettes could be bought from 14 of the shops from $1.50 to $2.50 each.

It is an offence for retailers to sell cigarettes individually.

Rogue retailers selling out of newsagencies, corner stores and tobacco shops pulled branded packs of cigarettes out of plastic bags from underneath the counter.

These would range from Chinese-made cigarettes Double Happiness and the Korean-made Esse.

In some stores, there were even menus stuck to the wall listing the contraband items.

Industry bodies say the increase in demand for cheap and illegal tobacco is driven by sky-high inflation.

A Daily Telegraph journalist purchases illegal Esse smokes and single cigarettes in Sydney CBD. Picture John Grainger

National Lotteries and Newsagents Association chief executive Brendan Tohill said the effect of rising inflation and increased interest rates on the cost of living meant both retailers and consumers were looking for cheaper options.

He said illegal sales of tobacco seemed to be more prevalent in Sydney because it was the biggest market.

Police raids on retailers selling illegal tobacco are limited, with responsibility stretched over multiple government agencies on a state and federal level.

Much of the oversight for operations falls on the Australian Taxation Office, with very little responsibility falling on NSW Police.

“NSW Police, including a number of State Crime Command Squads continue to provide assistance to the ATO, Australian Federal Police and Australian Border Force,” a NSW Police spokesperson said.

In 2021-2022 the ATO seized and destroyed 110,349 kilos of illegal tobacco, most of which was domestically grown. The agency mainly focuses on targeting domestically grown product rather than illegal imports.

“Tobacco growing operations are not run by small producers or farmers, they are run by organised crime syndicates that deliberately engage in illegal activities,” an ATO spokesperson said.

“Retailers who choose to become involved in the sale of illegal tobacco gain an unfair price advantage over honest businesses who are doing the right thing.”

In the last 12 months only three people have been charged in NSW for cultivating illegal tobacco.

While the federal government takes a significant interest in illegal cigarettes, a spokesperson for health Minister Mark Butler said his latest crackdown, including the banning of menthol cigarettes and emblazoning every individual cigarette with health warning, s would help protect Australians against the harms caused by tobacco.

British American Tobacco head of external affairs John Trezise said government’s enforcement laws were not tough enough.

“FTI’s findings demonstrate that, despite the existing efforts of the law enforcement community, significant increases to their resources are needed,” he said.

“The illicit tobacco trade is a very real issue for the federal government.

“It destroys small business, makes communities less safe and means the government can’t even meet their own financial and social targets.”