Tobacco excise receipts are forecast to fall sharply over the coming years even as the tax imposed on legal tobacco products continues to rise.

The 2026–27 Budget forecasts tobacco excise receipts declining from $4.13 billion in 2025–26 to $2.14 billion by 2029–30, representing a fall of almost half over four years.

The decline reflects continued weakness in tobacco excise collections and expectations of lower volumes of legally sold excisable tobacco.

The Budget Numbers Behind the Decline

The 2026–27 Budget sets out a steady downward trajectory for tobacco excise receipts.

Receipts are estimated at:

  • $4.13 billion in 2025–26
  • $3.56 billion in 2026–27
  • $3.02 billion in 2027–28
  • $2.53 billion in 2028–29
  • $2.14 billion in 2029–30

Between 2025–26 and 2029–30, annual receipts are therefore forecast to decline by approximately $1.99 billion.

That represents a fall of about 48%.

The 2025–26 estimate was also substantially lower than previously anticipated, showing that collections weakened more quickly than earlier forecasts assumed.

These amounts remain Budget estimates rather than final receipts.

Why Revenue Can Fall While Excise Rates Rise

Tobacco excise revenue depends on two main factors: the tax rate and the volume of legal tobacco products on which that tax is paid.

The rate per cigarette can continue increasing while total receipts fall if legally taxed sales decline quickly enough.

That is the central issue behind the current forecasts.

Lower legal volumes can reflect several factors, including declining smoking rates, reduced consumption and movement away from products on which Australian tobacco excise is collected.

The result is that a higher tax rate per unit does not necessarily translate into higher overall revenue.

Tobacco Excise Continues to Be Indexed

Tobacco excise is generally indexed twice each year, in March and September.

Unlike fuel and most alcohol excise, tobacco indexation is linked to movements in average weekly ordinary time earnings.

From 1 September 2026, the excise rate for cigarettes weighing 0.8 grams or less increased to $1.55274 per stick.

The corresponding rate for other tobacco products is $2,587.90 per kilogram.

The September adjustment followed an indexation factor of 1.016.

What the Current Rate Means for a Pack

At an excise rate of $1.55274 per cigarette, the excise component of a standard pack can be substantial.

For a pack of 20 cigarettes:

20 × $1.55274 = approximately $31.05.

For a pack of 25:

25 × $1.55274 = approximately $38.82.

These figures represent excise alone.

The final retail price can also reflect GST, manufacturing costs, distribution expenses and retail margins.

GST is generally calculated on a price that already incorporates excise, meaning the tax structure can have a significant effect on the final retail cost.

A Hypothetical Annual Example

Consider a hypothetical consumer purchasing one pack of 20 cigarettes every day.

At approximately $31.05 of excise per pack, annual excise embedded in those purchases would be:

$31.05 × 365 = approximately $11,333.

This does not represent the person's total annual spending on cigarettes because the retail price also includes other costs and taxes.

The example demonstrates how significant the excise component can become for regular purchasers of legally supplied tobacco.

Why Legal Sales Volumes Matter

Excise is collected only where the relevant product enters the legal taxable supply chain.

If legal tobacco sales decline, the tax base shrinks.

This means a substantial reduction in legal volumes can outweigh the effect of increasing the per-unit excise rate.

For Budget forecasting, assumptions about the amount of excisable tobacco sold are therefore just as important as assumptions about future indexation.

Continued weakness in legal volumes is one reason projected receipts decline in every year through 2029–30.

Illicit Tobacco Creates a Separate Revenue Problem

Illicit tobacco does not generate the same excise revenue as legally supplied tobacco.

This creates a direct revenue issue where consumption moves from legitimate taxable products to illicit alternatives.

Illegal tobacco can include domestically grown or manufactured products as well as unlawfully imported cigarettes and loose tobacco.

Enforcement activity has identified substantial quantities of illicit tobacco products.

However, seizure figures should not be treated as a complete measure of the illicit market because they show only products detected by authorities.

Domestic Illicit Tobacco Enforcement

Illicit tobacco enforcement has targeted unauthorised domestic production and distribution.

Commercial tobacco growing is tightly controlled, and unauthorised cultivation or manufacture can attract significant penalties.

Seizures can involve tobacco plants, loose-leaf tobacco, manufactured cigarettes and production equipment.

The scale of enforcement activity highlights the difference between legally taxed tobacco and products that move outside the excise system.

Each unit diverted into an illicit supply chain represents potential excise that is not collected.

Imported Illicit Tobacco Is Another Channel

Unauthorised tobacco can also enter Australia through international supply chains.

Border enforcement therefore forms another important part of the response.

Large seizures can involve cigarettes, loose tobacco and other tobacco products concealed in freight, mail or passenger movements.

The domestic and imported markets need to be distinguished.

Domestic enforcement relates to unlawful production and distribution inside Australia, while border enforcement focuses on products entering the country.

Both can affect legal tobacco volumes and excise collections.

Why Seizures Do Not Measure the Entire Market

Large seizure figures can demonstrate that illicit supply exists, but they cannot establish the precise size of the total market.

Authorities generally cannot directly observe products that are successfully distributed without detection.

For that reason, estimates of illicit tobacco consumption can vary substantially depending on the methodology used.

Budget forecasts therefore focus on actual and expected excise collections rather than assuming that every decline in legal sales can be attributed to one cause.

Enforcement Laws Were Strengthened in August

Australia's illicit tobacco enforcement framework was strengthened in 2026 through the Combatting Illicit Tobacco Act 2026.

The legislation received Royal Assent on 26 August 2026.

It increases penalties for offences involving the importing, possession, buying, selling, supply, production and manufacture of illicit tobacco.

The legislation also expands investigative and proceeds-of-crime mechanisms available in connection with serious illicit tobacco offending.

Most of the principal amendments commenced shortly after Royal Assent, although different commencement dates apply to particular provisions.

What the New Enforcement Framework Covers

The legislation amends several Commonwealth laws dealing with customs, excise, taxation, telecommunications interception and proceeds of crime.

Its measures include stronger penalties for illicit tobacco offences and expanded enforcement powers.

Some provisions also support investigations into organised illicit tobacco activity.

The objective is to increase the legal and financial consequences of participating in illicit supply chains.

This approach focuses on enforcement rather than reducing the tobacco excise rate.

Why Falling Revenue Matters for the Budget

Tobacco excise was historically a substantial source of Commonwealth revenue.

When expected collections fall, the Budget receives less revenue than previously projected.

A downward revision can therefore affect the fiscal position even where lower tobacco consumption may have separate public-health implications.

The 2026–27 Budget incorporates substantially weaker tobacco receipts into its forward estimates.

By 2029–30, annual revenue of $2.14 billion would be around $2 billion lower than the estimated 2025–26 level.

Higher Rates Do Not Guarantee Higher Revenue

The tobacco figures provide a useful example of the difference between a tax rate and a tax base.

A government can increase the amount of tax imposed on each legal unit sold.

But if the number of taxable units falls sufficiently, total revenue can still decline.

For tobacco, both effects are currently operating at the same time: indexed excise rates continue rising while forecast taxable volumes continue falling.

That is why the Budget projects lower receipts despite continuing indexation.

What to Watch Next

The next scheduled tobacco excise indexation occurs in March 2027.

Future adjustments will again increase the tax per unit if the relevant indexation measure rises.

The more important Budget question will be whether legal tobacco volumes continue falling at a rate that outweighs those increases.

Future fiscal updates will also show whether tobacco excise forecasts are revised again.

Enforcement outcomes under the Combatting Illicit Tobacco Act 2026 will provide another area to watch as the strengthened regime becomes established.

Ultimately, the trajectory of tobacco excise receipts will depend on both the tax imposed on legal products and the amount of tobacco that continues to be sold through the taxable market.