In a small town deep in a verdant valley, something doesn’t quite add up.
The shops have been popping up along the main street in the past 12 months, nestled among the Victorian-era buildings, bakeries and pubs.
Locals have noticed them but few are willing to talk about them publicly.
“Most people don’t want to put a target on their back,” says Mat Evans, who runs a wholesaling business on the New South Wales South Coast.
When asked why, he hesitates and says it’s because of the wave of firebombings just across the border.
Mr Evans is now the only wholesaler supplying cigarettes to service stations, stores and hotels across the region. The others have either bailed out or gone broke.
There’s smoke but business isn’t exactly firing: as more and more tobacconists have popped up, his profits have been drying up.
“There’s businesses that used to order from me every week, some are now ordering every second or third week,” Mr Evans says.
“There are two businesses that have completely stopped. It’s not worth it, they can’t compete with the illegal tobacco in town.”
Under-the-counter cigarettes are being imported illegally in vast quantities and are being sold tax-free, at stores across the country, for half the price of their legitimate versions.
The maths is up in smoke
In Bega, a town of 5,000 famous for its cheese, cigarettes have long been sold at the major supermarkets, petrol stations and standalone tobacconist.
But in recent times, another three stores selling tobacco have set up shop, all within a few hundred metres of each other. Cignall Bega denies it is selling illegal cigarettes and the ABC sought comment from the others.
It is a trend across the state: the number of stores selling tobacco has increased from 14,500 to 19,500 in the space of four years. These figures only include the retailers that have registered and do not account for stores that have closed.
Unlike other states, stores do not need a licence to sell tobacco in NSW, they simply need to notify the Health Department, which is responsible for enforcing the laws around buying and selling tobacco.
Fines considered a cost of doing business
Shops caught selling under-the-counter cigarettes are slapped with an on-the-spot fine of between $1,100 and $5,500, which Cobargo Hotel owner David Allen reckons is so low, it is hardly a deterrent for dodgy operators.
“It is so lucrative, the margins are so big that [the fines] are seen as a cost of doing business,” Mr Allen says.
“If people get breached, they lose the stock, they pay the fine and they continue on. To me, that says a lot.”
It is almost like a game of whack-a-mole. When shops are breached, Bega Mayor Russell Fitzpatrick says they often shut down and reopen a few days later once they have restocked.
“We really need some regulation around it. We need to have licences,” Mr Fitzpatrick says.
Mat Evans says there is no vetting process to obtain a Tobacco Retailer Notification (TRN) number in NSW. It took him about 15 minutes online.
“You don’t even need a legitimate business, you can just make one up,” he says.
By contrast, David Allen says he has to get a police check, pass a fit-and-proper test and pay licensing fees to run a TAB and sell alcohol at his South Coast establishment.
“There’s a lot of regulation, as there should be. Why should tobacco be any different?” he asks.
States with licensing regimes have far fewer tobacco stores operating — South Australia has 1,650 licensed tobacco retailers while Western Australia has 3,155.
Queensland’s licensing regime will start in September and so far, 4,200 stores have applied.
In Victoria — the epicentre of the tobacco wars — the state government cannot say how many tobacconists are operating, referring the ABC to individual councils. But it has vowed to introduce a licensing regime by year’s end.
Experts say it is not before time. More than 70 stores selling tobacco have been firebombed in the past 18 months, as rival gangs vie for control of what has become a very lucrative market.
Tobacco tax ‘prohibition-by-creep’
The black market has been growing for some time and Deakin University criminologist James Martin says Australia’s “excessively high cigarette taxes” are to blame.
Smokers are switching to under-the-counter cigarettes, he says, because they are easy to find and so much cheaper than the legitimate versions.
“When we’re seeing smoking rates flatlining in this country, when we’re seeing the increase in the black market, these are signs that the policy isn’t working,” Dr Martin says.
Tax has been the cornerstone of efforts to drive down smoking rates in Australia from about 25 per cent of adults in the early 2000s, to around 10 per cent today. Tobacco is, after all, a harmful substance and governments around the world regulate access to it.
But in Australia, the excise is now worth about $1.30 per cigarette stick (nearly 80 per cent of the total cost) and it has pushed the price of a packet of 25 cigarettes over the $50 mark.
Under-the-counter cigarettes sell for around $25 a pack and are being imported in huge quantities, mainly from Asia and the Middle East.
In 2018, 400 million cigarette sticks were seized at the border. Last year, that figure blew out to 1.7 billion.
Black market punches multi-billion-dollar hole in federal budget
Some estimates suggest as many as one in three, or one in four, tobacco products consumed in Australia are now purchased through the black market, and it is blowing a multi-billion-dollar hole in the federal budget.
Treasury originally forecast the federal government would raise $15 billion in tobacco taxes last financial year but that has been revised down to just $10 billion, leaving a $5 billion shortfall.
“That is not being driven predominantly by people quitting smoking, but rather by people switching to the black market,” Dr Martin says.
The government is increasing, not decreasing, the tax as part of a new campaign to drive down smoking rates to 5 per cent by 2030.
Dr Martin has questioned that approach and called for an end to what he has labelled “prohibition-by-creep”.
“I think the tobacco tax is well past its point of effectiveness,” he says.
“We know that smokers are disproportionately concentrated in lower-socio-economic groups, who can least afford those kinds of increases … so the black market is a logical alternative.”
It is a question David Allen is also asking as he watches cigarette sales at his hotel fall by 30 per cent in a year, despite smoking rates remaining largely unchanged.
“It’s hugely frustrating and I’ve spoken to politicians both Liberal and Labor about it. It’s a lot of blame-shifting and in the end, nothing gets done,” he says.
Mat Evans is not particularly hopeful but he is tired of trying to compete with a black market that is operating, he says, with impunity and in plain sight.
“I’m getting screwed over because I’m doing the right thing. If I wasn’t doing the right thing, I’d be a millionaire by now,” he says.