Illegal tobacco sales in Australia are distorting national accounts, prompting ABS to adjust GDP calculations and track illicit nicotine consumption

The Australian Bureau of Statistics (ABS) has announced plans to better account for illegal tobacco and vaping sales, which experts say are significantly distorting the country’s national accounts.

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The move comes amid rising concerns about under-the-counter profits and lost tax revenue.

According to the Australian Taxation Office, Australia lost over A$3 billion in 2023–24 due to untaxed tobacco sales, a figure that has likely increased.

Illegal sales have grown as tobacco excise rates have steadily risen over the past decade, creating lucrative incentives for dodging taxes.

Unlike alcohol and gambling, which are strictly regulated through licensing and enforcement, nicotine products were until recently treated as ordinary grocery items.

This regulatory gap allowed illicit tobacconists to flourish, despite federal efforts to curb illegal imports and domestic cultivation.

State governments have now begun closing non-compliant tobacconists and threatening jail for landlords involved in illicit sales.

Nevertheless, police enforcement has been slow, leaving the incentive to evade taxes high.

Observers suggest further tax increases should be deferred until the imbalance is addressed.

The ABS said its existing 1.5% GDP adjustment for unrecorded economic activity is no longer sufficient.

Illicit tobacco now accounts for an estimated 25% of total sales, with supermarkets reporting tobacco sales have halved in the past year.

This underestimation could have led to GDP growth being understated by more than 0.5 percentage points in 2024–25.

The Bureau emphasised that accurate GDP calculations are vital for guiding fiscal and monetary policy, though it cautioned that GDP measures economic activity rather than social wellbeing.

The ABS is also adapting its methodology for other evolving sectors, including household electricity generation from rooftop solar, which it now classifies as small-scale business activity.

As Australia’s economy continues to shift, statisticians face increasing challenges in distinguishing between licit and illicit production, as well as between household and commercial activity.

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The ABS’s new measures aim to reflect a more accurate picture of national economic output.