A future Coalition government would slash the tobacco excise by 80 per cent, legalise and tax vapes and nicotine pouches, and bolster law enforcement to shut down the illicit trade.
Opposition Leader Angus Taylor on Thursday pledged to reduce the excise on a standard packet of 20 cigarettes from about $30 to just $6 if elected, declaring the dramatic price reduction would smash the thriving black market.
A 20 pack of cigarettes typically costs between $40 and $50. With the Coalition's proposed cut the price would drop to about $16-$26, assuming the tobacco retailers passed on the full tax reduction.
More than half of the tobacco consumed in Australia last year was bought illegally, with the illicit market share jumping to 80 per cent when vapes and nicotine pouches are included.
Public health authorities have long used a tobacco excise to reduce smoking by making cigarettes more expensive, and they have consistently warned dropping the tax risked reversing this.
The Coalition has also vowed to legalise, regulate and tax vapes and nicotine pouches for adults.
Australians aged over 18 can purchase legal vapes through pharmacies, while pouches are banned.
Under the Coalition's plan, vapes would have a "low rate" of excise of 50 cents per millilitre of e-liquid, while pouches would be taxed at 2.5 cents per milligram of nicotine.
A $60 million three-year national public awareness and education campaign would "expose the organised crime" behind illegal tobacco and vapes and warn people of the dangers of smoking.
A further $200 million would be spent on a nationwide law enforcement "surge" to support more raids, arrests, border seizures and the closure of illegal tobacco shops.
The surge in illegal sales has cost the federal budget tens of billions of dollars in lost excise revenue, with the Coalition's policy assuming this trend would reverse if legal cigarette prices were lowered to attract customers away from illicit alternatives.
Modelling of the Coalition's policy package by the Parliamentary Budget Office (PBO) found it would increase tax revenue by about $8 billion over the first four years — about double current forecasts.
Last month, One Nation unveiled a plan to slash the excise by 75 per cent, while Labor has argued there is no evidence a dramatic cut would end the illicit trade.
Taylor says excise cut will shut down black market
Mr Taylor argued the Coalition's policy would attack the source of the black market by taking away the profits enjoyed by organised criminals selling illicit tobacco and vapes.
"Organised crime is waging a campaign of economic terrorism on Australians," he said.
Mr Taylor said Australians were getting the "worst of all worlds" with higher tobacco consumption, crime and the loss of billions of dollars in revenue.
"Tobacco consumption has gone up around 30 per cent since the end of 2021, while taxes have kept rising, clearly showing that the government's current approach has failed," he said.
University of Sydney public health professor Becky Freeman described the policy as a "terrible idea".
Dr Freeman, who made a submission to the Liberal-led Senate inquiry into illicit tobacco and has appeared as an expert witness, said the idea was in line with the "tired drumbeat of the tobacco industry".
"It is absolutely not going to reduce smoking rates in this country, which is what we need to focus on," she said.
Dr Freeman agreed that illicit tobacco had exploded in use and was a national crisis, but disagreed with the proposed solutions.
"If we were to lower the price of regulated products, the criminals can just lower their prices as well and it'll just be a race to the bottom for the cheapest cigarettes available," she said.
Mr Taylor disagreed with the suggestion illegal cigarettes would still be cheaper than legal ones under his plan.
"We don't agree with that. We're going to drive up the cost by putting $200 million into joint federal and state law enforcement," he told ABC News.
"We're going to bring down the tax and we're going to smash the business model."
Smoking data differs from Coalition claims
In June, the Australian Bureau of Statistics (ABS) estimated nicotine consumption had risen by about 30 per cent in the past four years, but this increase included the growing use of vapes and other nicotine products.
The ABS cautioned the estimates were experimental, and while its analysis suggested higher legal cigarette prices enabled the illicit market, it did not establish the excise caused overall tobacco consumption to increase.
Shadow Health Minister Anne Ruston said there could be "no doubt" the Coalition wanted to see smoking and vaping rates decrease.
"Under Labor's current policy settings that simply isn't happening," she said.
But the latest National Drug Strategy Health Survey found daily smoking among Australians aged 14 and over fell from 8.3 per cent in 2022-23 to a record low 5.6 per cent in 2025.
The survey, conducted by the Australian Institute of Health and Welfare (AIHW), found daily vaping was broadly unchanged at 3.6 per cent.
The AIHW specifically asked people about their smoking behaviour, while the ABS consumption estimates tried to capture the quantity of all nicotine consumed.
Question remains over black market prices
A legal packet of 20 cigarettes costs between $40 and $50, of which the excise makes up as much as $30.
Illicit cigarettes retail for between $15 and $20.
The Coalition said the PBO had estimated an 80 per cent excise cut was "sufficient" to bring the prices of legal and illegal cigarettes into "alignment", making it harder for the black market to compete.
It is not clear whether that calculation assumed black market prices would remain the same or drop to continue to undercut legal sales.
Nationals leader Matt Canavan said the current excise rate had created a "massive profit margin for organised crime".
"Cutting the excise will take billions of dollars out of the hands of criminal gangs, bring the market back under Australian law and give our police a fighting chance to shut down those who remain," he said.
The Coalition's excise cut would be reviewed after two years.
