Australia’s illicit tobacco market has gone over the “Laffer Curve,” where excessive taxation leads to lower overall revenue, according to numerous experts, including U.S. economist Dr. Arthur Laffer. “It’s not working at all. Your taxes are way too high,” he told 7.30 News. “Australia has raised its tax rates on tobacco so high that people have found illicit products.”
According to internal industry data, illicit products now account for 64% of all tobacco and 82% of total nicotine consumed in Australia. The black market is valued at nearly $10 billion, coinciding with a sharp drop in federal tobacco excise revenue—from $16 billion in 2020 to $7.4 billion in 2025.
The federal government, however, has rejected calls to lower tobacco taxes, arguing that high excise rates and plain packaging have been effective in cutting smoking rates to 10.5% in 2024, down from 25% in the 1990s.
The term “Laffer Curve” was made famous 50 years ago after Laffer drew it on a napkin at a meeting with then Ford Administration officials Dick Cheney and Donald Rumsfeld. Laffer said the concept wasn’t new, dating back to 14th-century writings.
