Illegal Tobacco and Nicotine Policy: Lessons from Australia and Sweden
Australia has in recent years experienced a rapidly growing illegal cigarette market, a development that coincides with extremely high taxes and very strict regulation of nicotine products.
Key Takeaways
- Australia’s high cigarette taxes and limited alternatives have fuelled illegal tobacco trade.
- Haypp argues that taxes work best alongside access to lower-risk nicotine products.
- Illegal markets weaken regulation, age verification, and consumer safety protections.
- Sweden has reduced smoking through risk-proportionate regulation and alternative nicotine products.
The Illegal Tobacco Crisis in Australia
In a submission to the Australian authorities, Haypp Group has highlighted how this combination risks undermining both public health and market control, and why comparisons with countries such as Sweden are relevant, where a different tobacco policy approach has been developed.
The illegal tobacco crisis in Australia is characterised by extensive smuggling and the sale of cigarettes outside the regulated system. A key explanation presented in Haypp Group’s submission is the combination of:
- Very high excise duties on cigarettes
- Limited access to legal, less harmful nicotine alternatives
When the price of legal cigarettes rises sharply and alternative products are not legally available, consumers risk turning to the illegal market rather than quitting nicotine use altogether.
Limitations of a One Sided Tax Policy
Tobacco taxes are a well‑established public health policy tool, but their effectiveness depends on context. Experience shows that tax increases work best when combined with the possibility of switching to less harmful alternatives.
In Australia, demand for nicotine remains high, while access to regulated alternatives is limited. The submission points out that this creates a situation in which:
- Consumption does not necessarily decrease
- The state’s control over the market is weakened
- Age verification and product safety become harder to enforce
This illustrates how a one‑sided tax policy can lead to unintended consequences for both public health and regulatory compliance.
A One-Sided Approach
Markus Lindblad, Head of Legal & External Affairs at Haypp, comments:
“Australia has chosen a one‑sided tightening that has, in reality, only resulted in a dramatic increase in smuggling. Sweden, on the other hand, also has high taxes and clear regulation, but has allowed snus, nicotine pouches and vapes.
The difference is enormous: Sweden is now the Western world’s first officially smoke‑free country, while Australia is still standing still.”
The illegal tobacco crisis in Australia highlights the importance of viewing tobacco policy as a coherent system. Taxes, regulation and access to alternatives influence one another.
Experience from Sweden shows that risk‑proportionate regulation and access to less harmful nicotine products can contribute to both reduced smoking and stronger market control.
For policymakers, this means that effective public health policy often requires more than restrictions alone – it also requires realistic and functioning alternatives.
Sweden’s Experience of Tobacco Taxation and Market Control
Sweden has previously experienced similar problems to those Australia is now facing. In the late 1990s, sharp increases in cigarette taxes led to reduced legal sales, increased smuggling and falling tax revenues. At the same time, the reduction in smoking was limited.
In response, policy was adjusted. Taxes were lowered, and tobacco policy gradually developed towards a model in which different nicotine products are regulated and taxed according to their relative health risks.
This shift is today seen as an important explanation for Sweden’s low smoking rates and high level of market control.
Risk Proportionate Regulation of Nicotine Products
Risk‑proportionate regulation means that products are treated according to their actual harmfulness. In practice, this means that:
- Cigarettes, which pose the highest health risk, are taxed most heavily
- Less harmful alternatives, such as snus, nicotine pouches and e‑cigarettes, face a lower tax and regulatory burden
The aim is to create economic and practical incentives for smokers to switch to alternatives with significantly lower risk, rather than driving consumption into the illegal market.
Access to Nicotine Alternatives as a Public Health Tool
The submission emphasises that demand for nicotine has been, and remains, relatively stable over time. When policy fails to take this into account, regulation risks becoming ineffective. Without legal alternatives, high taxes can lead to:
- Increased illegal trade
- Reduced ability to enforce supervision
- Weaker consumer protection for adult users and increased availability for minors
By contrast, experience from Sweden and New Zealand shows that access to regulated alternatives can strengthen the impact of high cigarette taxes and contribute to real reductions in smoking.
Summary
Haypp Group’s submission shows that the illegal tobacco crisis is not an isolated problem. It is the result of a system in which high taxes, strict regulation and a lack of functioning alternatives reinforce one another.
Experience from Sweden demonstrates how risk‑proportionate regulation and access to less harmful nicotine products can contribute to both reduced smoking and stronger market control.
