A gap wide enough for organised crime
New Zealand Customs seized 8.3 million cigarettes in the first four months of 2026 – nearly 70,000 a day. That is on pace to blow past the 11.1 million seized across all of 2025, itself up from 9.2 million the year before. The line on the graph is not just rising, it is steepening.
The driver is not mysterious. Legal packets retail for $40-$50, while black market packets sell for $12-$13 – less than the excise duty alone. New Zealand has indexed tobacco excise to inflation every year since 1989, and on 1 January 2026 the duty rose again, from $271.89 to $279.95 per 1,000 sticks. No single hike was dramatic. Compounded over three decades, they have created a price gap so lucrative that filling it is worth serious criminal investment.
The first big raid tells the story
On 1 July 2026 a new illicit tobacco Action Group – a joint Customs, Police and Health NZ taskforce stood up in May – ran its first major operation. Operation Clarify involved 21 raids across Auckland, Rotorua and Waikato, netting 1.38 million cigarettes, $170,000 in cash and five arrests, representing more than $2 million in evaded excise. Most product came from Asia. Most raided premises were dairies. Customs Assistant Comptroller Terry Brown noted there was “potentially a gang association” among those arrested.
That detail is the whole point. When Retail NZ estimates one in three cigarettes smoked here is now illegal, costing the government $817 million in lost excise and GST last year, the margins involved are big enough to bankroll extortion, money laundering and violence. Brown has confirmed that bad actors from Australia’s tobacco black market are actively looking to set up here.
What Australia already knows
Australia is the cautionary tale, and it is not reassuring. It has the highest tobacco excise in the world and now an estimated 80 percent illegal tobacco market. Its excise revenue has collapsed from $16.3 billion to $4.1 billion in six years – not because Australians quit, but because almost nobody buys legal cigarettes any more.
Rohan Pike, who built and led the Australian Border Force’s Tobacco Strike Team, told Newsroom that “all of the regulations that Australia has brought in … are null and void, because there is virtually no one buying the legal product any more”. Dairies and small retailers have shut, unable to compete with illegal operators. Shops near tobacconists cannot get insurance because of firebombings. Gangs have brought extortion and murder. Pike predicts the legal market will be extinct within two to three years.
A 2026 addiction-research paper summarised by the University of Auckland concluded that “Australia has in effect lost control of its tobacco and nicotine market”. In March 2026, organised-crime advisor Steve Symon warned New Zealand risked following the same path within 12 to 18 months.
The product itself is a business risk
This is not benign grey-market arbitrage. RNZ laboratory testing at the University of Auckland found black market cigarettes on sale in Auckland carried far higher toxic metal loads than legal product – one brand with roughly 40 percent more lead, another with uranium levels more than double the tested legal samples. No health warnings, no Quitline numbers, no accountability. For legitimate retailers, that is the competition.
Where the fight actually is
Customs Minister Casey Costello has moved to review the levy, citing the price differential as the core driver. Pike wants the excise rate cut, possibly by half. Public health academics push back hard: University of Otago’s Professor Janet Hoek argues illicit markets “develop and thrive when there is weak enforcement, established criminal networks, and high profits to be made”, and that suppliers could simply undercut any legal price cut.
Both sides have evidence, and the honest answer is that neither enforcement nor taxation alone closes the gap. The University of Auckland’s Professor Ruth Bonita calls the black market “a rational, although unwelcome, response to rising prices”, prescribing enforcement, balanced taxation and harm reduction through cheaper vapes together.
For business, the lesson is blunt. A tax that keeps rising past the point where behaviour changes does not disappear – it migrates. It undercuts compliant dairies, threatens commercial insurance and tenancy exposure, and hands organised crime a revenue base. New Zealand has one advantage Australia squandered: it kept vapes legal and accessible. The question is whether the levy review acts before the seizure graph does what Australia’s revenue did.
Sources
- Beating back the illicit tobacco trade (2026-07-07)
- Cigarette-smuggling surge: 8.3 million seized by Customs this year (2026-07-07)
- Five arrested, 1.38 million illegal cigarettes seized in raids (2026-07-01)
- More than a million cigarettes seized, five arrested in black market crackdown (2026-07-01)
- RNZ investigation finds uranium, lead in black-market tobacco (2026-07-01)
- Fears NZ’s tobacco black market will get as bad as Australia’s (2026-03-16)
- Learning from Australia about demand for illicit cigarettes (2026-05-19)
- Cutting excise tax is not going to solve illicit tobacco: here’s why (2026-06-23)
- Excise and Excise-equivalent Duties Table (Tobacco Products Indexation) Amendment Order 2025 (2025-11-27)