← Quillette Narrated
Loading summary
Transcript6 lines
- [00:00]
A
Howdy, shoppers. Fire up that propane grill and settle in for a new season of Hulu's hit animated series King of the Hill. Hank and Peggy are staying active in retirement.
- [00:08]
B
That's a dog. You will not have to lift a finger.
- [00:11]
A
Bobby and Connie hard launch their relationship.
- [00:14]
B
Now that we're dating, it's important your parents know I'm a man.
- [00:18]
A
And the alley guys are. Well, they're still the alley guys. Yep. Watch the new season of the Hulu original series King of the Hill, now streaming on Hulu and Hulu on Disney. For bundled subscribers. Terms apply. This has been a paid advertisement.
- [00:32]
B
Welcome to Quillette Narrated the Tobacco Wars How Australia's War on Tobacco Backfired Written by Andrew Bushnell, read by William Lang in the early 1930s, the Australian government lost a war against emus, and its present war, this time on tobacco, is heading the same way. Excessive taxation in the name of public health has backfired in extraordinary fashion, helping create a massive black market in tobacco products. This has led to an effective transfer to criminal gangs of billions of dollars of revenue previously earned by the legal tobacco industry and a corresponding significant drop in excise tax revenue collected by the government, unprecedented violence between gangs as they scrap over money and territory, and to top it all off, an increase in the consumption of tobacco and nicotine. The tobacco wars, as the gang related violence has been called, may attract the headlines, but they are downstream of the government's public policy failures. Indeed, the government should also be considered one of the belligerents in the fighting, and it urgently needs to rethink its strategy. The government's approach so far is emblematic of Australia's regnant style of governing, which might be called technocratic wowzerism. It is essentially a determination to use law and policy for the purported moral improvement of the public rather than to support their established customs and way of life. In recent years, this moralistic tendency, ever present in this most utilitarian of countries, has run rampant with increasingly perverse results. The story of how Australia came to have a gang war over a product as commonplace as tobacco is therefore broadly instructive about the decline of this once prosperous and happy country. The tobacco wars began at least three years ago when crimes including arson, extortion and murder started being more frequently committed by gangs fighting over control of the tobacco black market. The epicentre of this violence is Australia's crime ridden largest city, Melbourne. Since 2023 there have been more than 200 firebombings of tobacco shops across the country, 140 of them in Melbourne as gangs have sought to enforce control of local markets and extort business owners. Evoking memories of the classic TV show the Wire, Victoria police believe that the violence in Melbourne increased after the failure of an attempt by some gang leaders to form a cartel to divide up territory and revenue. A proposal that was violently rejected by one ambitious gang leader. The ruthlessness of the gangs was demonstrated in 2025 when a notorious criminal, who had survived several previous attempts on his life over the years, was brazenly killed in the car park of his apartment complex. The gang's recklessness too was evident when a 27 year old woman was killed in an arson attack on her home in an outer suburb of Melbourne in in what police said was an attack on the wrong address. Far from being a parochial turf war in Melbourne, the tobacco wars are being fought over a national black market. Firebombings and extortion are merely one part of the competition between the organised crime networks that handle importation, distribution and money laundering. In Sydney recently, New South Wales police seized $3 million worth of illegal cigarettes and made three arrests. And they had previously made large seizures, leaving linked to organised crime. On the other side of the country, Western Australian police are also dealing with shops being torched and they too are making large seizures. The warring between gangs reflects the high stakes on the table. Over the past five years, there has been a huge increase in the size of Australia's tobacco black market, according to the Illicit Tobacco and e Cigarette Commissioner ITech, an office recently established to address the problem. In 2025, Australia's tobacco black market was valued at $5.6 billion, constituted about 55% of the national market in tobacco, and resulted in an estimated $7.7 billion to $11.8 billion of evaded excise revenue annually. To give an idea of what this means, at the high end of the estimate, the lost revenue would have been almost enough to cover the $12.7 billion cost of the federal government's share of annual state school funding. This is big business and that is why people are fighting over it. At street level. Black market tobacco is now ubiquitous. It comes mostly in the form of illegal imported cigarettes and loose tobacco, known in Australia as chop chop. The appeal to smokers is obvious. An illegal pack of 20 cigarettes costs less than $20, about half the price of a legal pack. Estimates vary, but the volume of illicit tobacco sold in Australia each year may be equivalent to as many as 8 billion cigarettes. Most of it is imported. The Australian Border Force reports that since 2019-20 the estimated number of illegal cigarettes seized by customs authorities has risen from around 600 million cigarettes to more than 2.8 billion, an increase of around 470%. Distribution of illegal tobacco has also grown rapidly. While there is no national register of tobacconist shops, they seem to have proliferated. An analysis of the Australian government body ASICS Business Register found that the number of smoking and vaping related business names had increased from 1,086 in 2016 to 1,467 in 2024. Not all of these businesses, it is safe to say, stick to selling legal tobacco products. Also, that count is likely to be a massive underestimate. Until recently, Australia's major states have not had licensing schemes for tobacco sellers, and tobacco is sold in a wide range of shops, including supermarkets and news agencies. Since introducing a licensing scheme in July last year, Victoria has received more than 4,100 applications for licenses and has issued 2,000 of them. The expansion of these ostensibly legitimate businesses in line with the growth of illicit tobacco is relevant to understanding both the real demand for tobacco and the possible role of regulatory enforcement in tamping down the crime. It is notable, too, that many of the major players in the black market are Middle Eastern gangs that operate out of Melbourne and Sydney. Their overseas connections and their embeddedness within immigrant communities contribute to their power in the black market and their resilience in the face of increased policing. One such gang was allegedly headed by a man named Kaz Hamad, who was deported to Iraq in 2023 and who allegedly coordinated with his crew in Australia, partly through an encrypted group chat called Crime Family Group. Most alarmingly, Australian intelligence recently linked Hamad to the destruction of a synagogue in Melbourne, an attack he allegedly ordered as part of a deal with the Iranian Revolutionary Guard Corps, which was protecting his organised crime network and which was listed last year by the government as a state sponsor of terror. That listing seems to have cost Hamad his protection, and he has reportedly been disappeared by Iraqi authorities. Meanwhile, an alleged Hamad lieutenant named Majid al Abadi, known to spend tens of thousands of dollars on fine dining and designer clothes, was arrested and charged with various crimes, including firebombings. Remarkably, though perhaps less so in Melbourne, the latest report on him suggests that he is on bail awaiting trial. Similarly, the alleged head of a rival Middle Eastern gang, Nazir Hadara, was released on bail in 2024, despite the magistrate acknowledging that he posed a risk to the safety of the community and police showing that he had accrued $4 million of assets without ever holding a job. In granting him bail on strict conditions, the magistrate cited presumption of innocence and the fact that his trial could be several years away. The tobacco wars, though, are not primarily about the gangs. The gangs are opportunists responding to perverse incentives created by bad policy. Before there were tobacco wars, there was the government's war on tobacco. Australia has long had a policy of suppressing demand for tobacco in the name of public health. Since the 1970s, federal and state governments have added health warnings to cigarette packs, banned cigarette ads from print, radio and television, replaced tobacco sponsorship of sport with government funding through health related quangos run multiple national awareness campaigns, ended smoking in pubs, clubs and anywhere indoors save one's own home and forced cigarettes to be sold in plain packaging to reduce their appeal. But ever since the 1 off 25% increase in the tobacco excise and customs Duty introduced in 2010, at the same time as the plain packaging laws, taxation has been the government's main lever for deterring people from using tobacco. Between 2013 and 2016 and then again between 2017 and 2020, the government increased the tobacco excise by 12.5% annually, thus raising the excise on a standard cigarette from $0.35 to $1.10. This was followed by three annual increases of 5% between 2023 and 2025, by which year it was estimated that taxes made up 83% of the price of a pack of 20 budget brand cigarettes, that is $31.51 of the advertised price of $37.95. Taken together, these policies have had some success in reducing tobacco use. Surveys in the mid-70s found that 45% of men in 1974 and 33% of women in 1976 were smokers. Three yearly surveys since the early 1990s have shown that while 25% of persons aged 14 and older were regular smokers in 1993, this number had declined to just 8% in 2023. Across that same period, the share of the population who had never smoked rose from 49% to 65%. Whether this was the decades of scare campaigns or the more recent sharp increases in taxation, there is evidence to suggest that the policies have not only broken the habit of smoking but also prevented its uptake. However, the current tobacco wars reveal that tobacco taxation has now overshot the mark. As economics professor Sinclair Davidson, an adjunct fellow at the Institute of Public affairs, explains, tobacco taxation appeals to governments because it taxes a good for which the demand is relatively inelastic, meaning demand does not change much based on price. While also pricing in the external costs of people's consumption of that good, in the case of tobacco, healthcare costs. But these two aims are in tension. One treats the tax as a revenue stream, the other treats it as a control on consumption. The more effective the tax is in reducing consumption, the less reliable it is as a revenue stream. The hope for governments is that revenue declines because people stop consuming the good, thereby reducing the need to offset the external costs of their consumption. But this hope forgets that to the extent that demand is inelastic, high taxes create an incentive for substitution, buying a different good that meets the same need, and that this might include, as in Australia, with tobacco, people turning to the black market for cheaper alternatives that evade the tax. In that scenario, tax revenue collapses as consumers move to the black market and money flows to the organised crime networks that supply the market and gatekeep the distribution of the cheaper alternatives. In sum, the Australian government has created the tobacco black market, at least as it exists today, by pursuing its public health goal past the point of common sense. Broadly, there are two directions, not mutually exclusive, from which to tackle this changing tax settings and enhancing enforcement. These are also the options for reform noted in the terms of reference for an ongoing inquiry in the Australian Senate due to report on 13 August. Many submitters favour a mix of policy changes, including greater enforcement and coordination across the jurisdictions, along with a recalibration of the excise. But others, including the ITech commissioner and various health quangos, recommend the government focus on enforcement. Still, it seems obvious to many people that reducing the tobacco excise would make legal tobacco more competitive. The Premier of New South Wales, Chris Minns, has repeatedly broken with his Labor Party colleagues in the federal government and called for a cut to the excise, arguing that no matter how many illegal tobacco sellers his state shuts down, it won't stop because legal tobacco is so expensive that the illegal product is too tempting for these crooks. Opposition parties have also made this call. Pauline Hanson, leader of the populist One Nation Party, recently pledged to cut the excise by 50% and reduce the retail price of tobacco products by around 35%. While the liberal Party spokeswoman on the issue, Mary Aldred, has argued that dropping the excise alone won't address this issue, but it will take the sugar off the table and drop a large part of the incentive, end of quote. This view seemed to gain force. Last month, the Australian Bureau of Statistics, the abs, reported that nicotine consumption in Australia, including cigarettes but also vapes and other products, has dramatically increased. Based On a study of wastewater samples, estimated nicotine use rose by 40% between 2017 and 2025. Put together with a decline in household spending on legal products. The inference drawn is that the black market in cigarettes and illegal vapes has not only smashed the tobacco excise as a source of revenue, but also dramatically underc the premise of the tax. Nothing, one might think could illustrate more clearly the trade off that the opponents of the excise increases had warned the government about. But reducing the excise tax is not a consensus view, nor is it the government's. The counter argument is that the gap between the prices of legal and illegal tobacco is simply too large for a cut in the excise to make any difference. On the day the ABS report was released, Assistant Customs Minister Julian Hill rejected the argument that cutting the excise was the appropriate response to its findings. He had previously claimed in a speech given in March that there is no reasonable level of excise reduction that would make any material difference to the ubiquitous illicit supply chains and distribution networks operated by serious and organised crime. End of quote. Hill chose to focus on actions to raise the cost of doing business for criminals and lauded the work of the Australian Border Force in increasing seizures and the ITech commissioner, who has led the way in coordinating law reform across the states and territories. The government has spent $345 million on this since January 2024. Put simply, the government's position is that gangs are now so well established that whatever the excise, they will be able to compete with legal products on price and availability unless they are disrupted by enforcement. However, viewed as an enforcement problem, the tobacco war suggests another economic frame, namely the classic work of Gary Becker. Becker's essential insight is that the efficient level of crime is not zero. When one accounts for the costs of detection, enforcement and punishment, including all the systems that support those functions, there will come a point at which the marginal cost of achieving a further reduction in crime exceeds the economic benefits of doing so. The problem is especially acute when the law is used to suppress consumption of high demand, relatively inelastic goods like tobacco. In those cases, higher taxes and tougher regulation of the legal market may reduce some consumption, but those things may also make illegal trade in such goods more profitable for criminals. For example, the gangs now operating in Australia by increasing the gap in price between legal and illegal products. And in turn, this will give them more reason to compete through violence and extortion. To the extent demand persists, tougher regulation may make for tougher criminals with deeper pockets and greater incentive to be violent, raising again the cost of policing them and reducing the marginal gain of suppressing their business. So, just as it makes no sense to tax a good to the point that people exit the regulated market, it often makes no sense to keep increasing enforcement and chasing every criminal or every illegal cigarette. Unless, of course, the gain to be had from doing so overwhelms this logic. Many might think that it does for a crime like murder. It is, after all, uncomfortable to ask what the efficient murder rate might be. But does anyone care about tobacco that much? Rampant crime, rising nicotine use and falling tax revenues. Yet it seems that nothing will sway the government from escalating its war on tobacco. In their calculation, then, any regression towards accepting and normalising nicotine must be even more costly than the current crisis. The National Tobacco Strategy 2023-2030 lays out the rationale. It points out the often severe health consequences of tobacco use, noting that in 2018 it was the deadliest behavioural risk factor and that on average, smokers die 10 years earlier than non smokers. The strategy calls this the tobacco epidemic and it commits the government to not only reducing the rate of daily smoking to 5% of the population by 2030, but also to eventually eliminating tobacco use in Australia, despite many of these costs being linked to smoking. Specifically, the strategy also makes a point of rejecting alternative delivery devices for nicotine, as cigarettes were memorably described in the film the Insider about tobacco companies efforts to hide evidence about nicotine's addictiveness. Like vapes, the government's position is that there may be some direct harms caused by vaping, but just as importantly, they are also attractive to young people, linked with people taking up smoking and often used alongside cigarettes. Basically, they are part of the same complex of behaviours that the government wants to suppress. There is something odd about the strength of this commitment. While it is presented as a concern for public health, there is in fact nothing irreducibly public about smoking, much less nicotine use. More broadly, a truly public matter is something that can only be addressed collectively through the state, national defence, say, or a pandemic, or perhaps a swarm of killer bees or killer gangs. But the aggregate effects of even arguably undesirable or suboptimal individual choices do not really qualify. Yes, the healthcare costs of smoking are defrayed across society by government run healthcare services and subsidised private health insurance. But these are separate policy choices made by government and could always be changed. Rather than approaching the question as one of public choice, the government is acting as if its hand is being forced. The simplest explanation for this is that eliminating tobacco is above all a moral imperative that the government is imposing on what is otherwise an empirical and prudential problem of identifying and managing patterns and costs of persistent tobacco and nicotine use across society. But this sort of approach is on trend. As the economist and IPA Senior Fellow Adam Creighton writes, moral grandstanding has become the driving force behind Australian policy making rather than traditional cost benefit analysis. From the costly and futile pursuit of net zero that has seen electricity prices skyrocket, to the reckless spending on social programs and public works that has driven up inflation and led to a series of crushing interest rate rises, to the program of mass immigration that has created a housing crisis and a collapse of social cohesion, through to the attempts to radically revise the constitution and governance itself to grant race based privileges to indigenous people, efforts that have created only resentment. There is a long list of examples of Australian governments trying to engineer social outcomes but only making things worse. Prudence, by contrast, involves reflecting on all the circumstances and how they shape the available options. Central to this is understanding the history that brought about the present moment. History not only informs the path forward, but it also provides a guide to what is desirable in the case at hand. One question that has been overlooked is why demand for tobacco is relatively inelastic. It seems this is assumed away as merely a function of the addictiveness of nicotine, but this is not the whole of it. For instance, the first item of Cancer Council Victoria's timeline of tobacco in Australia states the Prior to white invasion, native nicotine containing plants, pituri, are harvested, prepared, traded and chewed by indigenous peoples across much of Australia. The Australian plants used were not the same variety as in the Americas, but Nicotiana Gossei's leaves were chewed just as tobacco was. Leaving aside the ridiculous but typical language and that the item is not about tobacco, there is something worth noting here. All societies tend to develop habits around the use of substances. There are straight lines from the pre European use of patchouli in Australia and say, indigenous Andeans chewing coca leaves to the present day use of nicotine and caffeine. These substances, it might be said, are among the traditional vices of Australia, alcohol being the other one of note. To some extent demand for these substances is inelastic but just as importantly perennial because their use is ingrained in the culture of the place. For example, consider how these behaviours are reflected in art and stories or the role they have played in settlement patterns and economic development. The functions they perform are easy enough to discern stimulants to get through the day, depressants to relax in turn. It is easy to see from this point of view why a policy of elimination will fail, why over regulating and taxing such substances too heavily would simply funnel people into illegal markets for substitute goods. When the government decides to eliminate a traditional vice like tobacco, it is not just trying to corral the people of today, but to recast their history as well. This historical lens helps clarify why support for these substances does not necessarily commit one to some sort of doctrinaire libertarianism. First, not all substances have this history or functionality. It is reasonable for nicotine to be legal and cocaine illegal, for alcohol to be legal and heroin not. Second, because nicotine in tobacco especially and the other traditional substances have been used for so long, the trade offs involved in their use have already been worked out and largely accepted by society. For public health care, for example, the costs these vices impose are already priced in. To some extent it is understood that the public is underwriting these vices, but this is considered better than eliminating them or privatising healthcare. Indeed, settled trade offs like this are a large part of what it means to have a culture. This, incidentally, is probably why elimination is being pursued through technocratic meddling rather than an outright ban, which would be more honest. In some sense, the Wowzers know their policy is an overreach. It is not the place of government to rewrite historical patterns of behavior, or at least these must be counted among the factors that influence policymaking, and not only as costs or roadblocks to progress, but also as time tested sites of order that might not be worth destabilising. Admittedly, the point ought not to be pushed too far because the harms of tobacco use are real, but there is reason for tolerance of some substances even as others are prohibited. All that said, the government is not wrong to strengthen enforcement. Instead, it is wrong to address the problem in a piecemeal way, as though it might be able to merely wish away the perverse effects of its taxation driven public health campaign. For this reason, the federal government, which imposes the tobacco excise, should assume control of enforcement across the board. As Davidson points out, the present arrangement allows the federal government to displace the costs of its misjudged taxation policy onto the states and territories that are largely responsible for policing. Several submissions to the Senate inquiry also call for greater federal involvement across the pre border border and post border environments. A natural next step would be to centralise tobacco enforcement, whether inside an existing agency, for example the Australian Federal Police or perhaps more riskily by creating, as one senior opposition politician has argued, a new agency akin to the Bureau of Alcohol, Tobacco, Firearms and Explosives in the United States. Australia's federal government already controls the borders and plays a key role in policing other forms of contraband such as drugs and pornography, and it has accepted, through the establishment of ITech, a role in coordinating enforcement across the country. Moreover, various agencies across the federal government are active players in inland enforcement, criminal intelligence and anti money laundering efforts, and the regulation of the cultivation, sale and taxation of tobacco. Beyond improved coordination, bringing together these functions will allow for greater accountability, highly salient given the death and destruction the government's policies have caused so far. But it should not be assumed that better intelligence, interdiction and policing will by themselves solve the problem. The criminal gangs are resilient and demand for their product is rising There are various factors upstream of the crime problem. One of these, only gestured at in this essay, is the changing demographic composition of the country, which has resulted in increasingly separate immigrant communities within which some crime gangs operate, though the role of homegrown gangs like bikies should not be overlooked, and has also brought in more smokers, perhaps driving up aggregate demand and destabilising the historical trade off described above. All this raises the cost of enforcement and makes finding a bakarian equilibrium more difficult. The most important upstream factor, though, is the tobacco excise. By refusing to make legal tobacco products more price competitive, the government is tying one hand behind the police's back. This is nothing more than ideological stubbornness. The government should abandon its moralistic quest to eliminate tobacco and accept that some measure of nicotine use is perennial and likely in some way, and at least for some people, to be functional. This need not mean giving up reasonable regulation and public health awareness messaging, or that protecting the integrity of public health care is unimportant. It means only to remove the ideological blinkers that have the government missing the obvious that ending the tobacco wars will require ending the war on tobacco that was the tobacco wars by Andrew Bushnell Read to you by me, William Lang for Quillette Narrated thanks for listening.