Nobody torches tobacco shops in Melbourne’s central business district. That’s the rule.
While there have been more than 130 firebombings linked to the tobacco war across the state, the CBD has never seen a single attack.
Illicit tobacco is being sold openly in Melbourne, including near the headquarters of the federal police.Credit: Luis Enrique Ascui
The reason peace reigns in the CBD has nothing to do with government crackdowns on the illicit sale of tobacco, or law enforcement operations stamping out organised crime.
The CBD has been declared an “open territory” by the warring gangs – a zone where any of the half dozen criminal syndicates vying for control of the multibillion-dollar black market are free to ply their wares without fear of violence.
An agreement was reached for a truce because it’s more profitable and less dangerous than waging open war in the city’s most densely populated area.
The Age has spoken to four police, underworld and industry sources – as well as criminology, public health and security analysts – to examine the extent of the issue, the failings in enforcement so far, and possible solutions.
Sales have become so brazen that The Age has found packs of illicit Manchester and banned vapes in shops near parliament, the headquarters of the Australian Border Force (ABF), Victoria Police, the Australian Federal Police, and the Department of Justice and Community Safety.
The war on illegal tobacco has seen specialist anti-organised crime and illicit tobacco taskforces created at the state and federal levels, including an injection of more than $188 million to the ABF. More than 100 arrests have been made in Victoria alone.
In 2018, a federal Illicit Tobacco Taskforce (ITTF) was established to tackle the problem of increasing infiltration in the illicit tobacco market by organised crime syndicates.
Yet, the price of a pack of illicit cigarettes has dropped 20 per cent in a little over a month – to just $14 – as the city and country are flooded with black-market products. The last time cigarettes were so cheap in Australia was about 2010. A legal pack now costs $38.
Tobacco industry research shows Manchester is now likely the most popular cigarette brand – legal or illegal – in the country. Covert shop surveys have found Manchesters being sold at more than 1200 speciality tobacco shops, convenience stores, supermarkets and petrol stations in the state.
The way the problem is being tackled clearly isn’t working, but experts say the solution would require a rethink of Australia’s tax system and changes to our current law enforcement approach.
Dr James Martin, a criminologist at Deakin University who specialises in mapping out the economic dynamics of black markets, the dark web and cybercrime, first sounded the alarm about a looming explosion in the illicit tobacco market six years ago.
“When you’ve got very strong demand, which we do for nicotine in Australia, and you have readily available illicit supply, which we also have, then the argument is it doesn’t matter what enforcement does,” Martin said.
Criminologist Dr James Martin, who specialises in black market economics.Credit: Jason South
“You can ramp up penalties as much as you want, it’s not going to make a meaningful difference.”
Martin, who will be presenting some of his findings on black market economics at the Victorian Alcohol and Drug Association biennial conference on Thursday, said Australia was waging a “war on drugs”-style campaign against nicotine products – and much like the battle against narcotics, it isn’t working.
He pointed to declining drug prices (when adjusted for inflation) and increased drug use as evidence that unprecedented spending on law enforcement, arrests and record seizures of drugs aren’t making a dent in supply in Australia. He said ongoing policy assumed criminals would respond to an increased crackdown instead of adapting to ensure supply.
“The analogy I like to use is a bunch of doctors sitting around celebrating that their patient has got a record temperature from some infection. It’s not a sign that things are going well. It’s a sign that things are going wrong,” Martin said.
Australian Border Force officers checking illegal cigarette imports found in shipping containers in Melbourne.Credit: Luis Escui
“The fact is we are operating in this kind of utopian universe. It would make sense to increase the price of tobacco if there was no black market, but of course, the black market is selling cigarettes cheaper than what they were 10 years ago.”
Martin said increased enforcement and hefty penalties instead of a nuanced approach to what is a complex health issue risked further entrenching the violence.
Dropping the tax
Slashing the hefty taxes on cigarettes could help end the tobacco war and hobble the crime syndicates making hundreds of millions of dollars off the illicit trade, according to security analysts, criminologists and industry insiders.
A move to cut the tax has been backed by Dr John Coyne, head of strategic policing and law enforcement at the Australian Strategic Policy Institute and a former officer with the Australian Federal Police.
Coyne said higher taxes pushed people to give up smoking for a time, but the context had since changed and rising costs were now pushing people into the black market and legitimising the illicit trade.
“Is now the time to admit that it’s time to end the tax hike approach and look at ways to push organised crime out of the market?” Coyne said.
“It worked in the ’90s. It worked in the 2000s. But it’s not working now. We were warned that it was coming, and we’ve chosen to go down the same path.”
Martin also backs the move, paired with increased access to less harmful nicotine products such as nicotine pouches and vapes as a way of transitioning people out of smoking, a similar approach to Sweden’s strategy to becoming smoke-free.
Smoking rates have dropped sharply over the last two decades, with 24.3 per cent of adults smoking in 1991 compared to just over 8 per cent in 2022-23, according to data from the National Drug Strategy Household Survey.
That success has been attributed to a combination of rising taxes and strong public health campaigns that have increased the number of people quitting and stopped new smokers from starting. However, there are limited studies on the effectiveness increased taxes have directly had on discouraging smoking.
“The fact is we are operating in this kind of utopian universe … the black market is selling cigarettes cheaper than what they were 10 years ago.”
Criminologist James Martin
The government has used tobacco taxes as a cash cow for years. The excise on tobacco products is one of the budget’s biggest sources of revenue after taxes on workers, companies, superannuation and diesel fuel, raising billions of dollars every year.
However, the well is drying up after years of declining smoking rates and people turning to the burgeoning black market for cheaper cigarettes.
According to figures from the final budget outcome released by the Treasury last September, revenue collected through the tobacco excise has collapsed to its lowest level in a decade, leaving a gaping hole in the nation’s finances.
Underworld sources say that a price drop on legitimate cigarettes could “crash” the illegal market.
“If tobacco companies can put out a $20 pack, that changes everything.”
Police at the scene of an arson attack on a tobacco store in Hadfield in 2023.Credit: Chris Hopkins
But Becky Freeman, an associate professor of public health at the University of Sydney, said lowering the tax would lead to a “lose-lose” situation where people would increasingly consume black market cigarettes as well as legal tobacco. Instead, she said Australia should impose stringent licensing requirements on importers, wholesalers and retailers.
“We’ve taken such a slack approach to the selling of tobacco products, for a product that kills two out of three people who continue to lose it to use it,” Freeman said.
“The idea that you would make all cigarettes cheaper and that would somehow have a positive impact on public health just doesn’t stack up at all.”
Licensing
Victoria is the very last state in Australia to implement a licensing regime for tobacco sales – and it could still be more than a year before it is actually enforced.
While there is agreement from government, industry and law enforcement that a licensing system is essential to pushing organised crime out of the tobacco market, infighting about the finer operational details of the scheme has delayed its implementation.
Until now, regulating tobacco retailers has been the responsibility of local council areas – and has proven to be a dismal failure.
Police outside the tobacco shop in Pier Street, Altona in January.Credit: Joe Armao
In 2022-23, as the tobacco war was starting and illicit sales were skyrocketing, councils issued only six fines and prosecuted no offenders, according to the Municipal Association of Victoria. Instead, several hundred verbal or written warnings were issued.
Victoria Police estimates there are now 1300 speciality tobacco shops operating in the state, which has actually risen over the last two years as the turf war has escalated.
The Allan government passed its “crackdown legislation” in December, after first promising it would move on the illicit industry in March 2024.
The announcement came two years after the government was warned by former Commissioner for Better Regulation Anna Cronin that a sweeping reform of tobacco regulation was urgently needed to tackle organised crime and crush the tobacco black market, and a year after the tobacco war officially started.
Originally, the new laws were not supposed to take effect until July 2026. This date was pushed up one year in the face of mounting concern about the violence of the tobacco war and the culture of lawlessness that was seeing illicit tobacco spread throughout the state.
This delay has come despite repeated concerns being raised with the government by Victoria Police, according to sources familiar with discussions and documents obtained through freedom of information.
“Victoria Police Crime Command has reached out to propose a meeting between parties in order to share some insight into the escalating risks we’re observing in the illicit and licit tobacco space, and the current need for rapid regulation,” Victoria Police’s police and legislative division wrote to the government in September 2023.
It would be another year before the legislation was introduced and passed, with the government hoping to have “boots on the ground” capable of enforcing the new law early in 2026.
The Department of Justice and Community Safety is currently mapping out the number of tobacco shops in Victoria and figuring out what the scheme will look like once it comes into place in July. Tobacconists will then have six months to apply for a licence before enforcement begins.
Under the new laws, businesses can have their licence immediately suspended for 90 days and blocked from holding a licence for up to five years. Fines for selling illicit tobacco will be up to $350,000 for an individual and $1.7 million for a body corporate.
Police sources, who cannot be identified criticising the government, have said the model and implementation posed by the government is “too little, way too late” and have pointed to South Australia as an example of swift action.
In South Australia, where a budding illicit tobacco market began to take hold as syndicates expanded beyond Victoria last year, the government announced a crackdown in late May 2024 that was launched in July and then accelerated in October.
Responsibility for enforcement was transferred from the SA Department of Health to Consumer and Business Services, the state’s watchdog for liquor licensing, commercial affairs and customer rights.
“They empowered a specialist unit right from the start. They moved in and closed shops. They may not have stayed permanently closed, but it sent a message. It’s not complicated, but it’s time-consuming and labour-intensive,” a police source said.
“In Victoria, it’s consult, consult, consult, consult. South Australia moved.”
Minister for Casino, Gaming, Liquor Regulation Enver Erdogan said there would be strong regulation and oversight of the tobacco industry, including stopping those unfit to hold a licence.
“We’ve introduced the toughest laws anywhere in the country to smoke out the illegal tobacco trade and keep Victorians safe,” he said.
“In Victoria, it’s consult, consult, consult, consult. South Australia moved.”
Police source
“Work is happening to determine the licensing details, including fees - this will be done in consultation with industry and we’ll make sure that retailers are kept informed along the way.”
While state government authorities put together the mechanics for the licensing regime, the syndicates are already prepping an alternative way to make money, especially for when access to an illicit network of retail outlets is threatened.
Underworld sources say the syndicates have commissioned the creation of an app that will allow customers to order cigarettes and have them delivered directly to their homes or businesses.
This kind of UberEats for illicit smokes is not yet active for only one reason – a search to find a company that is willing to provide a payment system without asking too many questions about what’s being sold.
“That’s the big hang-up. Once that’s sorted, it’ll be as easy as ordering a pizza or bottle of booze. Straight to your door,” a source said.
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