Australia's government faces a big challenge as cutting tobacco excise may not bring smokers back to legal cigarettes. Instead, it could deepen the budget deficit caused by a rise in illegal tobacco sales. New research from the e61 Institute shows that despite higher excise rates pushing cigarette prices up by 50% since 2019, illegal sales now make up about a quarter of all cigarette sales. This has halved excise revenue, from $16.3 billion in 2019-20 to $7.8 billion today. Treasurer Jim Chalmers revealed an extra $12.7 billion in unexpected spending next week, including $6.3 billion in disaster relief. He said the "biggest job ... has been making room for unavoidable pressures and payments without a substantial deterioration in the bottom line." High tobacco taxes aimed at reducing smoking also helped fund government programs. However, the price gap between legal cigarettes costing around $50 a pack and illegal ones at $13 encourages the black market. NSW Premier Chris Minns called tobacco excise the "leading reason" for the boom in illegal smoking and crime. He demands a review of the excise rate. But Chalmers rejects lowering it. Health experts back stronger enforcement instead. Economists Josh Clyne and Lachlan Vass of the e61 Institute write, "While revenue may be a secondary policy goal, it is still consequential." They note that if tobacco revenue met budget targets, the government would be $3.8 billion better off in 2024-25. This could fund a $100 increase in fortnightly jobseeker payments, helping offset tobacco tax's regressive effects. The challenge is that lowering excise now may not increase revenue, as illegal trade is entrenched and buying illegal cigarettes may be "normalised." The economists estimate revenue impacts of a tax cut could range from a $2.1 billion loss to a $3.2 billion gain, depending on how smokers and sellers react. They stress the need for a "holistic approach to combating illicit tobacco," including more enforcement and public education. This requires a broad coalition, including public health advocates willing to accept lower tobacco prices. Without such unity, tobacco policies' goals could fail.