Measuring tobacco consumption is dirty work, but somebody has to do it. The antiseptic image of the government statistician has been flushed away with a new method for establishing the prevalence of smoking. The Australian Bureau of Statistics has switched from relying on self-reported survey data to Wastewater-Based Epidemiology, a technique known in layman’s terms as taking the piss.

Most of the nicotine absorbed by smokers passes through the lungs and into the liver, where it is metabolised into compounds that are excreted in urine. By hanging out at sewage plants and measuring the concentration of nicotine metabolites in wastewater, the ABS has confirmed that nicotine consumption is far higher than the tobacco excise collections suggest.

That should surprise no one other than our witless Treasurer. It turns out that the prohibitive pricing of cigarettes has the same effect as the prohibition of alcohol in America in the 1920s. The black market has thrived, illicit cigarettes are cheaper, and nicotine consumption has soared by almost 40 per cent between 2017 and 2025. The ABS attributes most of that increase to the consumption of illicit cigarettes, which rose from 12 per cent of total consumption in 2017 to 80 per cent in 2025.

Policymaking with dual purposes is rarely a good idea, especially if the objectives are mutually exclusive. When Chris Bowen locked in four consecutive 12.5-per-cent hikes in tobacco imposts during his 83-day tenure as treasurer in the dying days of the Rudd government, he was presumably more interested in raising revenue than reducing smoking. The Coalition extended the increases until 2020. After that, the excise increased with automatic twice-yearly indexation, but that wasn’t enough for Treasurer Chalmers, who introduced an additional five-per-cent increase for each of three years.

The addiction of governments to tobacco excise was best explained by Sir Humphrey Appleby in the TV series Yes Minister. Smokers are national benefactors. Taxes on cigarettes pay for a third of the National Health Service, but they die before they consume their share of its services. ‘We’re saving many more lives than we otherwise could because of those smokers who voluntarily lay down their lives for their friends,’ he explains, ‘so long as they live.’

The trouble with this form of highway robbery is that there is no way to escape the logic behind the Laffer Curve, which holds that beyond a certain point, higher tax rates yield lower revenues. Thus, a tax of 100 per cent raises precisely the same revenue as a tax of zero per cent: nothing. If a government gets too greedy, there is no ‘laffering’ all the way to the bank. This is confirmed by the latest budget forecasts. Tobacco revenue this financial year is forecast at a mere $4.1 billion, compared to $16 billion six years ago. Treasury predicts it will fall further to $2.4 billion by 2030.

So, what have governments addicted to sin taxes achieved since the turn of the century? In real terms, the excise on a packet of cigarettes – currently around $34 – will yield less than a quarter of the revenue by the end of the decade than it did in 2000, when the government was content to collect a mere $4 to $5 a pack.

Taking up smoking is a risky health proposition, but what is certain is that paying full price for cigarettes harms your personal finances. With the legal price of a packet of smokes at $45 to $50 and a black-market price of $15 (marginally less than they were paying a quarter of a century ago, once we account for inflation) that’s a difference of about $12,775 per year for a pack-a-day smoker.

Not only do the immutable laws of supply and demand apply to the tobacco trade, regardless of whether the market is black, white or a fetching shade of pink, they apply to policing. Governments spare no expense catching speeding drivers, motivated by lucrative fines that fill state coffers, but once tobacco taxes create a multibillion-dollar black market, enforcement struggles to keep pace.

As a result, the greatest beneficiaries of the government’s tax grab are gangsters. The invisible hand works with an illicit durrie between its fingers.

With a price differential of about $35 between taxed and untaxed cigarettes, the illicit tobacco market is estimated to be worth $5 to $10 billion annually, making it one of Australia’s most lucrative organised crime sectors. Criminal organisations step in to supply untaxed cigarettes, and because the profits are so large, disputes are increasingly settled through intimidation, extortion and violence.

In Victoria, the tobacco wars between organised crime groups fighting for control of the illicit tobacco market have spawned more than 100 firebombings, scores of shootings and extortion attempts, and a 150-per-cent surge in violent robberies. Police have linked more than 125 arson attacks to the illicit tobacco trade.

So, what have we learned?

Sin taxes don’t pay. Crime does. If only the Treasurer knew.