By Max Maddison and Penry Buckley
NSW Police Minister Yasmin Catley has warned that law enforcement officers cannot be expected to regulate the ballooning tobacco black market and conceded it was not clear how many tobacconist retailers would sign up to a new licensing scheme designed to combat the problem.
After Federal Treasurer Jim Chalmers on Wednesday ruled out scaling back the tax on tobacco – which has rocketed from 26 cents per cigarette in 2010 to $1.37 in September 2024 – the debate has shifted to who should take on greater responsibility for tackling the explosion of illicit products.
Catley on Thursday downplayed the idea that police should take over from NSW Health to enforce compliance, despite Premier Chris Minns earlier this week raising the prospect of handing officers a greater role in tackling black market tobacco.
A tobacconist is seen peeking from a counter on Macquarie Street, Sydney.Credit: Sam Mooy
“Police aren’t regulators, and there’s no question about that. They are not regulators. The police are out there catching crooks, and that’s what we want them to do,” Catley said.
Earlier this week, Minns ignited a conversation over whether the federal government’s “massive” excise on tobacco should be reduced as a means of combatting the explosion of illegal tobacco and vapes across Australia, with the lucrative trade providing a rich vein of revenue for criminal organisations.
But with NSW Health and the existing regulatory framework failing to stem the number of shops selling illicit tobacco, Catley said the introduction of a licensing scheme from July 1 would give the government a better understanding of “how many shops are turning up” and “where they are”.
Police thought there might be about 6000 to 8000 tobacco retailers, but that was “anecdotal”, Catley said. Oversight of the current retail identification number (RIN) required to sell tobacco products was poor, senior government sources said, with little punishment for failing to register under the scheme.
On Thursday, the store manager of an EzyMart near Martin Place in Sydney’s CBD told the Herald he was aware of the new licensing scheme, saying: “Of course, all the shops have to be signed up.”
But the owner of a souvenir shop which sells tobacco near Parliament House on Macquarie Street was initially unaware of the changes coming into effect in less than a month.
“What’s that about?” he said, before later recalling Health NSW officials, who visited the store on Wednesday to investigate reports the shop sold illegal tobacco, had advised staff about how to apply for the new licence.
Edward Jegasothy, a lecturer at University of Sydney’s School of Public Health, said the premier’s call to reduce the tobacco excise was a “good point”, casting doubt on the capacity for the state’s licensing scheme to address the prevalence of illegal retailers.
“I agree the tax is the main driver for the illicit trade taking over the tobacco market,” he said.
“We need to be seriously looking at winding it back to zero. Given how much of a problem the black market is, it definitely needs to be on the table. The tax itself hasn’t proven to be effective in reducing public smoking rates.”
Deakin University senior lecturer in criminology James Martin said there was no historical example of a black market of this size being dealt with via enforcement, saying licensing was reliant on retailers playing by the rules, an unlikely proposition given the infiltration of criminal enterprise into the sector.
“We don’t know exactly how much of the trade is dominated by organised crime. But we know it’s a lot and it’s worsening with each tax hike. Criminal enterprise won’t necessarily start playing by the rules once this licensing scheme comes into effect,” he said.
“Declines in legal tobacco sales were around 30 per cent last year. No industry can survive year-on-year declines like we do with legal tobacco. Legal tobacconists are going out of business and being replaced by illegal ones.”
As part of modelling conducted for the Australian Association of Convenience Stores (AACS), Tulipwood Economics concluded the legal tobacco market was in “terminal decline” and would be eclipsed by demand for illicit products by 2026-27, with excise revenue declining year-on-year until July 2029.
The report found only a combination of freezing the tobacco excise, a regulatory crackdown and legislation of products such as vapes or nicotine pouches would stem the fall of revenue from the excise and GST. Illegal tobacco is estimated to represent nearly 40 per cent of the market currently.
Chalmers said the Albanese government was not considering lowering or freezing the tobacco excise, saying he did not believe the excise was causing the proliferation of illicit tobacco products, making a veiled criticism of the compliance arrangement.
“I’m not proposing to cut taxes on cigarettes to make them cheaper for people,” he said.
“I respectfully disagree with Chris [Minns] … I think the answer here is to get better at compliance, and the [federal government] have come to the table … with hundreds of millions of dollars of new funding to try and combat the scourge of illegal tobacco.”
Chalmers acknowledged a decline in national tobacco consumption figures might in part reflect the growing market for illegal tobacco, but said he did not think the federal excise was to blame.
“More people are giving up the darts, but more people are also doing the wrong thing. I’m not convinced that cutting the excise on cigarettes would mean that that would be the end of illegal activity.”
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