As Gov. Kathy Hochul (D-NY) pushes a proposed tax hike on nicotine pouches, the New York Times reports that steep tobacco tax increases in Australia have fueled a thriving illicit cigarette market, a policy analysts say could inform the debate unfolding in New York.
“A series of steep tax hikes — eight in 10 years — were put in place to reduce the rate of smoking, which has steadily declined,” wrote New York Times reporter Victoria Kim. “But the high prices have also given rise to a thriving black market now estimated to be a multibillion-dollar industry that accounts for as much as half of all tobacco sales in the country.”
“The government has said that Australia faces an illegal tobacco ‘crisis,’” Kim wrote. “But it has refused to back down from the tax hikes or acknowledge the role they may have had in fanning the illicit trade, even as it loses billions in tax revenue.”
Kim wrote that criminal activity fueled by Australia’s cigarette taxes also has led to gang “turf wars” and violence “that has been called the ‘tobacco wars’ between criminal gangs vying for market share.
“The police have said there have been at least 100 cases of firebombings related to the turf war among organized groups, concentrated in Melbourne, Australia’s second largest city. One group has tallied more than 250 attacks,” wrote Kim. “In January 2025, a 27-year-old woman was killed after an arson attack on a house that the police said had resulted from attackers linked to the tobacco feud targeting the wrong address.”
James Martin, a criminologist and professor at Deakin University in Australia, told Kim, “It used to just be a health problem, and it’s now it’s a crime problem.”
Jeffrey A. Singer, a senior fellow at the Cato Institute, said Gov. Hochul’s proposed 75% excise tax on nicotine pouches could create similar unintended consequences.
“A proposed 75 percent excise tax on nicotine pouches risks undermining the very public health goals lawmakers aim to promote,” Singer wrote in an analysis published by the Cato Institute. “By significantly increasing pouch prices compared to cigarettes, the tax would diminish the financial incentive for smokers to switch to a much safer alternative—price differences are important, and reducing them predictably hinders harm-reducing substitution.”
“The tax would also encourage the growth of illegal and unregulated markets,” Singer added, warning that high taxes historically push consumers toward illicit channels and penalize smokers who adopt lower-risk alternatives.
Singer’s warning was echoed by Alison Ritchie, president of the New York Association of Convenience Stories, said the tax hike could “expand criminal activity” reported New York Public News.
Paul Zuber, executive vice president of the Business Council of New York State, also raised concerns over expanded criminal activity, saying, “If you increase it to the point of tobacco products… you’re also going to create a black market.”
Singer drew parallels between Australia’s experience and Gov. Hochul’s proposed nicotine pouch tax increase.
“Lawmakers confront the same predictable unintended consequences—black markets, crime, and consumers shifting to illicit products or other alternatives—yet continue to reenact the same tax-and-prohibition playbook, as if experience had taught them nothing,” he wrote.