Australia’s Treasury is actively considering potential changes to the nation’s tobacco excise regime as political and industry pressure intensifies for a pause in further increases.

The review comes amid mounting concerns that steep, repeated tax hikes have fuelled a surge in illicit tobacco sales and eroded government revenue.

For more than a decade, Australia has pursued one of the world’s most aggressive tobacco taxation strategies, combining annual indexation with periodic above-inflation increases.

The policy was designed to reduce smoking rates and improve public health outcomes.

While smoking prevalence has continued to decline over the long term, recent data indicate that legal tobacco sales volumes have fallen more sharply than forecast, contributing to a significant shortfall in projected excise revenue.

Retailers and some cross-bench parliamentarians argue that the rapid escalation in prices — with a packet of cigarettes now among the most expensive globally — has accelerated the expansion of the black market.

Law enforcement agencies have reported increased seizures of illegal tobacco and the dismantling of organised distribution networks across several states.

These developments have intensified calls for a temporary freeze on further excise rises to stabilise the legal market and protect tax receipts.

Treasury officials are understood to be examining the balance between public health objectives and the fiscal impact of declining legal consumption.

The current excise system automatically adjusts twice yearly in line with inflation, in addition to previous scheduled increases that were legislated in earlier budgets.

With revenue collections tracking below expectations, policymakers are assessing whether adjustments to indexation settings or the broader structure of the tax could better align with evolving market conditions.

Public health advocates caution against weakening a policy framework they credit with contributing to Australia’s world-leading reduction in smoking rates.

They argue that maintaining high prices remains one of the most effective tools to deter uptake, particularly among young people.

However, some economists note that when price disparities between legal and illegal products widen substantially, unintended market distortions can follow.

The government has not yet announced a formal decision, but the matter is expected to feature prominently in upcoming fiscal discussions.

Any shift in policy would mark a significant recalibration of a tax strategy long regarded as a cornerstone of Australia’s tobacco control approach, with implications for public health funding, law enforcement resources and federal budget forecasts.