Tobacco policy is back at the forefront of the policy debate. The Coalition, One Nation and some State leaders are calling for cuts to the tobacco excise to combat the rise of the illicit trade. However, the federal Government is sticking to its guns, citing health concerns.
Amid the debate there is confusion around the current rate of smoking in Australia. Some claim smoking has increased due to the rise of the illicit market, while others say smoking rates continue to fall, partly due to record high excise rates.
Understanding whether smoking rates are increasing or decreasing is key to properly identifying the policy problem the government is facing, including the public health related trade-offs that may be involved with cutting the excise to fight illicit tobacco.
What does the data say?
Historically, tobacco excise revenue was a reliable proxy for trends in smoking behaviour because the illicit market, while still present, was relatively stable. However, with the rapid rise of the illicit market, other measures of tobacco consumption have become more important, including surveys and wastewater testing.
The Australian Bureau of Statistics (ABS) recently released experimental estimates of tobacco consumption using such wastewater analysis (in conjunction with government and private sector data). That data suggests the total consumption of nicotine (the addictive stimulant in tobacco products) in Australia has increased by 30 per cent from 2020 to 2025.
But an aggregate increase in nicotine consumption does not necessarily mean smoking rates are up. Broadly, we can think of total nicotine consumption in Australia to be the product of the number of people in Australia multiplied by the share who smoke multiplied by how much each of those people smoke. What they smoke also matters, as different nicotine products can have different intensities.
Some of these factors, like the number of people in Australia, we can adjust for, while others, like different intensities of nicotine, are more difficult to control for. Focusing on tobacco consumption (i.e. excluding vapes) and adjusting for population growth, the ABS estimates imply cigarette consumption per person has been roughly flat since 2017, though on an increasing trend in recent years.
This sits against the backdrop of sharp declines in tobacco excise revenue. Part of this is due to an increasing illicit market. The ABS data estimates the illicit market grew from around 10 to 76 per cent of cigarette consumption from 2017 to 2025. This is broadly consistent with ATO and Illicit Tobacco and E-Cigarette Commissioner estimates on illicit market activity in previous years.
Why do some people say smoking rates in Australia are decreasing?
The triennial National Drug Strategy Household Survey (NDSHS) is often used as the ‘go to’ source for tobacco use. The data released to date from the 2025 NDSHS estimates that smoking rates for people aged 14 and over in Australia have continued to decrease in recent years, from 14.9 per cent in 2016 to 7.8 per cent in 2025.
This appears to stand in stark contrast to the ABS wastewater estimates.
One factor behind this discrepancy could be changes in how much each smoker smokes. It’s possible that the proportion of people smoking could be decreasing while those who continue smoking consume more. But the survey data suggests that among smokers, the average number of cigarettes a day has also been decreasing – from 15.6 in 2001 to 13.4 in 2016 to 11.2 most recently.
Another possibility is that the NDSHS figures understate true rates and amounts of smoking. Survey data has many benefits, but one potential concern when measuring an illicit or socially frowned upon behaviour is social desirability bias – where survey respondents underreport what they do.
The ABS notes on its own household expenditure survey that alcohol and tobacco consumption tend to be underreported, and this is for legal consumption – we would expect illicit consumption to be further affected. This issue is also flagged in previous NDSHS data quality statements.
A related issue is coverage, with the survey potentially not adequately capturing people who engage in illicit tobacco use. The NDSHS survey asks respondents about their illicit tobacco use, with the 2025 edition reporting that only 34 per cent of those who currently smoke used illicit tobacco recently. This is far lower than implied by the ABS estimates and others, and will affect smoking estimates as those who engage in illicit tobacco use, on average, smoke more cigarettes than those who do not.
Using the NDSHS data on cigarette smoking rates and average amounts smoked, we can roughly estimate (with some assumptions) what it suggests for nicotine consumption, putting it on a comparable base with ABS wastewater nicotine estimates.
These estimates indicate that cigarette consumption reported in the NDSHS has moved roughly in line with legal tobacco use over recent years, suggesting that it may not be fully capturing illicit use. This close correlation could just be coincidental, or could suggest something about people who engage in illicit behaviour then being less likely to report their behaviour truthfully. In any case, policymakers should be careful when interpreting results from this data, and similar surveys on smoking behaviour, and what it means for aggregate smoking trends.
What does this mean for policy?
It’s important to note these estimates are just that – estimates. They vary with different assumptions, and wastewater detection approaches to estimating consumption are not themselves perfect, though the divergence in the direction of the trend implied by the ABS and NDSHS figures holds across different assumptions. But what they do highlight is the importance of having a clear picture of the policy problem we’re facing in order to weigh the different options at our disposal.
There are no easy options when it comes to tobacco policy in Australia at the moment; trade-offs are inevitable. The hesitation to enact policy that benefits ‘Big Tobacco’ entrenches the benefits to ‘Big Crime’. Cutting the excise and decreasing the price of cigarettes will likely increase smoking for those currently in the legal market. But those in the illicit market already face a much lower price.
Policy success will be reclaiming the market from criminal organisations and decreasing tobacco consumption (legal and illicit combined) over time. Excise revenue is second order. It will require a broad coalition, including public health advocates, coming together and being realistic about the current state of smoking and the trade-offs that exist.
Lachlan is a Research Manager at the e61 Institute. He leads work at the intersection of economics, data, and public policy, with a current focus on immigration, productivity, and firm dynamics.
Lachlan’s work experience spans the private and public sectors, both in Australia and internationally, across a range of policy areas, including social policy, financial markets, trade, and labour markets.
Lachlan holds a Honours in Economics from the University of Melbourne. He is currently undertaking a PhD (Economics) at the Australian National University.