The Australian government has significantly increased excise duty on cigarettes. As this Guardian article notes: "Over the past decade, the excise rate per cigarette has tripled from 46c to $1.40. The excise now accounts for $28 of the average $40 price for a packet of 20 cigarettes."

This has had mixed effects - "excise revenues peaked at $16.3bn in 2019-20" as the article notes. However, since then revenues have dramatically fallen: "$7.4bn in this financial year – the lowest since 2012-13 – and will continue to fall to $6.7bn by the end of the decade". And although rates of smoking have halved since 2005, to what extent can this be attributed to the effects of the tax?

The suggestion is that the current level of tax might have reduced economic welfare to the extent that its generated government failure, and a worse outcome than would be generated by the free market.

The reality is that current rates of taxation have driven a significant number of smokers into the shadow economy, meaning that neither have the high duties helped reduce smoking nor have they raised sufficient tax revenues whilst simultaneously increasing the opportunity cost of monitoring, policing and using the legal system combatting the shadow economy.