The federal budget bottom line has been dealt an almost $7 billion blow in tobacco tax revenue, as black market cigarettes sales boom.

Australians turning to cheaper illegal tobacco or switching to vapes has seen the expected tobacco tax take plummet, with Treasury forecasting $6.9 billion will be slashed between now and 2029.

Meanwhile, the federal government has pledged to bolster efforts to clamp down on the rapidly growing trade in a bid to stop the problem worsening further.

Sales of illegal cigarettes imported from overseas have boomed in recent years, at the same as black market vapes flooded into Australia.

Every purchase of legal cigarettes comes with a hefty excise worth about $35 on a pack of 25.

The excise — which has been steadily climbing — has seen cigarette taxes become a lucrative source of revenue for the federal government, pouring billions into its coffers each year.

But the increasing tax burden has also made the significantly cheaper illegal cigarettes a more attractive option.

That’s because they don’t carry the tax cost and with every packet sold the government misses out on that revenue.

“There is a big hit to tobacco excise, and there is no use pretending otherwise,” Treasurer Jim Chalmers said. 

“There are two reasons that tobacco excise comes off. One of them is a really good reason and one is a really bad reason.

“More people giving up is a good thing. More people avoiding it is a bad thing, and that’s why we’re investing in compliance and enforcement to try and turn that around.”

A rapid decline in tobacco take

Treasury officials have been forced to quickly revise down their forecasts for tobacco taxes by enormous amounts.

Last year’s budget forecast the government would collect $11.5 billion in revenue from tobacco just in the 2025-26 financial year.

Less than a year later, that figure has been dialled down to just over $7 billion — a difference of $4.5 billion, reflecting a massive decrease in sales of legal cigarettes.

The change has been attributed to illegal tobacco, rather than a decline in smoking rates.

This isn’t the first time the government has acknowledged tobacco revenue is rapidly declining.

Last year’s budget wiped $12.5 billion off the forecast over five years and the mid-year update knocked another $10.7 billion off the four-year forecast.

New funding for tobacco enforcement

The budget includes hundreds of millions of dollars in new funding aimed at trying to stem the volume of illegal cigarettes entering the country.

Police and customs efforts will be bolstered by $157 million to be spent over the next two years, and almost $50 million will go to the Australian Federal Police to target organised crime groups dealing in illegal tobacco and vapes. 

Another $40 million will go to state and territory governments to help their efforts and $7 million has been earmarked to find new ways to spot illegal tobacco at the border.

Mr Chalmers said that without those efforts the hit to the budget would be even greater.

“We’re certainly providing the resources that we can to try and turn this around,” he said.

“We’re obviously aware that there is an issue here. It’s a big hit in the budget. But it would be worse than what we are budgeting for, were we not investing further resources in enforcing the law.”

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