Australia’s Illicit Cigarette Crisis is a Warning for the World and New Zealand is a Case Study for Smarter Regulation

The Swedish experience of harm reduction is well known, but what is happening in the rest of the world? As global institutions mark 20 years of the World Health Organization’s Framework Convention on Tobacco Control, countries are finding out the answer to an important question:

Does tobacco control work better when it embraces harm reduction or when it doubles down on prohibition?

Many nations are seeing that harm-reduction strategies can deliver rapid declines in smoking, while countries that rely on outdated WHO FCTC dogma are facing rising illicit markets, stagnating public-health outcomes, and growing criminal activity.

A clear example of this dichotomy can be found in Oceania.

Australia thought they were doing everything right by only allowing the sale of exorbitantly taxed cigarettes wrapped in plain packaging and health warnings. But as recent developments show, prohibitionist policies can go off course when regulation meets the real world. A January 2026 article in Bloomberg News described a wave of illicit cigarettes, violent crime, and declining tax revenues that are reshaping the national conversation and offering crucial lessons for all countries navigating the future of nicotine regulation.

Yet just across the Tasman Sea, New Zealand is demonstrating how risk-proportionate, harm-reduction-oriented regulation can drive smoking rates down without fuelling criminal markets.

This divergence shows that policy matters, and Australia’s experience is a cautionary tale the world should not ignore. Blind reliance on dated global policy mechanisms has consequences.

“Nicotine use doesn’t disappear because governments restrict it. What changes is whether people get it from regulated shelves or unregulated criminal networks—and that’s a choice policymakers must make,” says Markus Lindblad, Head of Communications at Pouch Patrol.

Australia’s Crackdown Has Backfired

Australia now faces a growing and increasingly violent illicit tobacco market. Specifically, authorities have seen a surge in illegal tobacco and vape products, driven by a consumer shift toward cheaper, unregulated alternatives.

Australian Border Force raids underscore this point. In Sydney, officers recently seized a machine capable of producing 3.6 million illicit cigarettes per day, along with counterfeit packaging and vaping components, all linked to organised crime syndicates.

This explosion in the underground market has unfolded alongside steep declines in legal cigarette sales and dramatically rising prices. Between 2022 and 2025, legal sales fell from 11 billion to 3.5 billion sticks, while illicit sales more than doubled to 6.6 billion and are projected to reach 8 billion in 2026 (corresponding to 80% of the market!).

The consequences include:

· Billions in lost tax revenue

· Hundreds of arson attacks linked to illegal nicotine products

· A thriving criminal ecosystem that now treats nicotine as one of its most lucrative commodities In economic terms, Australia is collecting less than half the tobacco excise revenue it did just a few years ago, despite maintaining some of the world’s highest cigarette prices.

Instead of a pathway to better public health, the country’s prohibition-leaning policy has created a business opportunity for organised crime.

Pouch Patrol’s Perspective: When Good Intentions Become Counterproductive

We have long argued that policies focused on restriction and punishment often ignore fundamental consumer behaviour. The Australian case illustrates this with painful clarity.

Australia’s combined approach of extreme tobacco taxes and near-total vape prohibition has increased harm by:

· Driving consumers to unregulated products

· Exposing Australians to poor-quality, potentially dangerous options

· Fuelling intimidation, violence, and criminal innovation

· Undermining the credibility of tobacco control policy

Public health policy must be grounded in reality, where people use nicotine. The choice isn’t whether they use it, but how.

New Zealand: A Comparator for Smart, Harm-Reduction-Driven Regulation

In contrast to Australia, New Zealand’s regulatory strategy has embraced a risk-proportionate, harm-reduction framework.

The country didn’t quite meet their ambitious Smokefree 2025 goal of 5% for the general population, but they are close at 6.8%. Key drivers of New Zealand’s success include:

1. Vaping as a Cheaper, Legal Alternative

The decline in smoking accelerated in the past 5 years, associated strongly with increased use of vaping products. Adult smoking has dropped most rapidly among people under 45, with nearly 80% of all decline since 2011.

2. Risk-Proportionate Regulation

Rather than blanket bans, New Zealand’s strategy emphasises:

· Tight controls on smoked tobacco

· Access pathways for reduced-harm nicotine products

· Supportive quit measures

· Regulatory flexibility as new evidence accumulates

3. A Health Equity Focus

New Zealand recognises that reaching its national goals means targeting interventions to populations disproportionately affected by smoking with tailored, pragmatic approaches rather than punitive ones.

Why These Diverging Paths Matter Globally

Australia and New Zealand offer two distinct models:

· Australia: high taxes, prohibitionist vape policy, declining legal sales, thriving illicit market, rising violence

· New Zealand: risk-proportionate regulation, declining smoking rates, stable tax flows, minimal illicit activity

For other countries—especially those considering tougher restrictions on nicotine products—the comparison is instructive.

Policies that ignore consumer demand don’t eliminate nicotine use. They simply push it into the shadows, where crime flourishes and consumers face unknown risks.

Conversely, policies that recognise relative risk enable people who smoke to transition to less harmful alternatives, reduce inequities, and protect public health while maintaining regulatory control.

A Path Forward: Lessons for Policymakers

1. Prohibition fuels crime: As Australia demonstrates, when legal nicotine becomes inaccessible, the black market fills the gap.

2. Price matters: Extreme taxation has unintended consequences when not paired with accessible, alternative harm-reduction products.

3. Consumers need safer alternatives: New Zealand’s success is rooted in offering realistic pathways away from smoking.

4. Regulation should be risk-proportionate: Not all nicotine products carry the same harms—and policy should reflect this.

5. Evidence, not ideology, must lead: As science evolves, so must regulatory frameworks.

Australia’s experience is part of a broader trend seen in multiple countries where restrictive, FCTC‑aligned approaches are collapsing under real‑world conditions. Illicit trade grows, tax revenue shrinks, violence escalates, and consumers turn to unregulated products.

Meanwhile, countries that allow regulated, alternative nicotine products are seeing falling smoking rates without criminal market growth. Their success underscores a truth the WHO FCTC continues to ignore: harm reduction is not a niche idea or a “Swedish exception.” It is a global public health opportunity.

If governments want better outcomes, they need to take a look at the growing body of evidence that harm reduction‑driven regulation works—not just in Sweden, not just in New Zealand, but wherever policymakers enact logical legislation designed for the 21st century.

For governments and regulatory bodies everywhere considering how to reduce smoking and protect public health, the message is clear:

If you want better outcomes, choose smarter regulation over harsher prohibition.