Research released by one of Australia’s biggest retailers reveals the massive scale of revenue being lost to the booming illicit tobacco industry.

The report into the illicit tobacco landscape by Oxford Economics Australia, commissioned by Ritchies IGA, has identified that over a decade, $67 billion could have been delivered into the economy as excise.

Instead, the high costs associated with legal tobacco are driving smokers towards untaxed, unregulated illicit products.

Forecasts show $5.5 billion in tobacco excise is expected to be collected in 2025-26, down from $16.3 billion in 2019-20.

Based on the current trajectory of growth in the illicit market, federal excise in 2028-29 could plummet to $1.5 billion.

“On the current trajectory, by the end of this decade, nine in every 10 cigarettes smoked in this country will be imported, supplied and sold not by a legal retailer, but by a crime gang,” Fred Harrison, CEO and Ritchies director said.

“We all know that the consequences for our health system, police and communities are dire, but what this report shows is that so too is the budget impact.

“For the amount lost on tobacco excise, we could keep capital gains tax discount in place without hurting mum and dad investors while the government looks for ways to rein in savings.”

The research shows that cutting excise to 2019 levels would support significant gains from the illicit market when paired with stronger enforcement.

It models a far more stable revenue profile if the 2019 excise rate was reinstated and would deliver $3.1 billion boost to revenue over the forward estimates, reaching $4.65 billion by 2028-29.

Modelling also reveals a 46.8pc drop in demand of consumption of illicit tobacco on 2026 levels, and a drop in the illicit market share of more than 25pc - from 64pc to 37.1pc.

“We have the mad situation at the moment where the government is floating new house and death taxes, but not plugging the taxation hole which is being created by illegal tobacco,” Mr Harrison said.

“There can be two truths here.

"Either the government is so flush with cash that it needs no new taxation revenue and can leave $67 billion in tobacco taxes on the table, or it’s not.

“Based on this research, the answer to every proposed new tax floated in the lead up to the 2026 budget should be ‘what about fixing the illegal tobacco crisis first?’

“This has gone from a policy and health issue, to a financial, moral and legal one.”

Independent federal MP for Indi, Helen Haines, said she would look closely at any federal legislation aiming to reduce the tobacco excise.

“The public health harms of tobacco are well known and the excise has been an important public health measure to reduce smoking levels," Dr Haines said.

"But that efficacy has been impacted by the proliferation of illicit tobacco.

"The recent implementation of a licensing scheme in Victoria has put the state response on a stronger footing, and it would be remiss of me not to note the significant role Tania Maxwell played during her time on the crossbench to make this happen.

"It’s another example of the influence the crossbench can have at state and federal levels in shaping policy.

"The federal government would need to introduce legislative change to reduce the tobacco excise and I would assess this very carefully, as I do with every piece of legislation, to make sure we find the right balance.”