Up in smoke: The unforeseen consequences of Australia's vape war.

The release of the federal budget this week has thrust Australia’s illicit nicotine trade back into the national spotlight, with the Treasury projecting a $14 billion collapse in tobacco excise revenue by 2030.

It takes less than five minutes to buy a vape in the Sydney CBD. No prescription needed, no questions asked.

Metres from the University of Technology Sydney main campus, the very product the government has spent over $737 million attempting to eliminate remains readily available.

The sale is also illegal.

It is a small scene within a broader national dilemma. Since 2024, Australia has introduced some of the strictest vaping laws in the world. Retail sales of vapes were banned outside pharmacies, with legal access limited to products intended for smoking cessation or management.

Intended to curb the prevalence of smuggled products, early Treasury forecasts anticipated these measures, partnered with substantial excise increases, would elevate tobacco tax receipts beyond $17 billion in the upcoming years. 

Instead, latest budget papers have revealed this financial year anticipates a mere $8.8 billion in excise revenues, a 42 percent decrease from prior forecasts made during the 2021-22 budget cycle.

In reality, this shock revelation has been brewing under the guise of ‘success’ attributed to decreasing legal tobacco sales. As of May 2025, only 40,000 Special Access Scheme notifications had been lodged with the Therapeutic Goods Administration (TGA). This translates to fewer than 170 non-prescription vapes sold throughout pharmacies nationwide each day.

Whilst federal health bodies framed this as a triumph, experts say the model lacked consideration of the substitution effect: the outsourcing of readily accessible, cheaper products via the black market.

Former Australian Federal Police and Border Force officer Rohan Pike, who investigated illicit tobacco markets and now advises nicotine industry organisations, said the dominance of the black market was no surprise.

"Well, it’s over 95 per cent of the vape market that is now illicit," he said. "Which is extremely high."

According to the Illicit Tobacco and E-Cigarette (ITEC) Commissioners 2024-25 Report, this market alone is now worth approximately $1.6 billion. 

"Think about the absurdity of this," Pike said. "The government banned legal vapes in Australia, assuming people would comply. Instead, they just handed the black market a lucrative business deal."

In Australia, tobacco excise now sits at around $30 per pack, pushing the retail price of cigarettes to roughly $45, with regulated pharmacy vapes sitting at a similar rate. The predictable shift of smokers to the black market reveals a clear consequence of the current policy structure. 

Current vape user Quentin Kane says he can source products on the illicit market for a third of the price. "It is ridiculously easy," he explained. "Why would I look anywhere else?"

Pike suggests that this general awareness of the pervasiveness of the illicit market was obvious to all but the policy-makers themselves.

"The policy is based on this fallacy that if you ramp up tax rates, people either quit or pay," he said. "But the existence of this third alternative (the black market) undermines everything they do."

This comes as critics resurfaced research conducted by independent pollster Spectre Strategy late last year. Findings revealed that nearly half (47 percent) surveyed believed the federal government should cut tobacco excise to curb the illicit trade. Polling also found that awareness of the trade is widespread, with eight in 10 believing it is expanding. 

As legal nicotine markets contract, criminal networks have moved to fill the vacuum left behind by tightening regulation. Pike suggests that the ultimate disclosure of budget failures might spur the government into action regarding the increase of organised crime across the country. 

"If we had a more sensible approach, then we might get a good outcome," Pike said, "as opposed to the perfect outcome that they’re looking for and not going to achieve."

The government is now allocating $14 million to bolster law enforcement efforts aimed at countering the tobacco black market. Pike believes these efforts are misplaced. 

"The government is stuck in this rut. It is a sort of ever-spiralling circle downwards of regulation where the people setting the regulations have this prohibitionist mindset that everyone should stop vaping. Their policies are just not realistic, they’re just really naive." 

As the demand for illicit nicotine products grows in accordance with restrictions, policy officials are obliged to consider the behavioural realities continuing to sustain the market underground.