Europe’s Push for Steep Tobacco Tax Hikes

European policymakers are considering the first major increase in tobacco excise duties in over a decade. The European Commission is proposing a staggering 139% increase in the minimum tax on cigarettes, from €90 to €215 per 1,000 units, and an unprecedented 1,092% increase on cigars, raising the rate from €12 to €143 per kilogram. Additional tax hikes are also being proposed for other tobacco products. The goal is twofold: to reduce smoking rates and generate billions in annual revenue for the European Union (EU).

However, not all EU countries support this aggressive approach. Nations like Italy, Greece, and Romania have expressed concerns, fearing that rapidly escalating taxes could lead to unintended consequences. Their caution is well-founded, as the EU grapples with balancing public health objectives against economic realities. The looming question is whether these policies will backfire.

The Surge in Illicit Tobacco Trade

The rise in tobacco taxes across Europe has already had a significant impact on the illicit tobacco market. A recent report revealed that illegal cigarette consumption in the EU soared to 38.9 billion cigarettes in 2024, an increase that marks the highest level of illicit consumption in nearly a decade. This black market surge has cost governments an estimated €14.9 billion in lost tax revenue.

France is the epicenter of this issue. Over the years, France has implemented some of the EU’s highest tobacco taxes, and the illicit tobacco market has responded in kind. In 2024, nearly 40% of all cigarettes consumed in France were illegal. That’s roughly 18.7 billion cigarettes, amounting to a €9.4 billion loss in potential tax revenue. The illicit trade in France has grown dramatically, with illegal cigarettes now making up a larger portion of the market than ever before. France’s experience is a stark reminder that high taxes may push smokers to cheaper black-market alternatives, undermining the very public health goals they aim to achieve.

In the Netherlands, a similar pattern has emerged. After raising tobacco duties, the country saw its illicit cigarette consumption double in just one year. In 2024, the Netherlands consumed over a billion more illegal cigarettes than the year before. The surge in illicit tobacco has pushed the Netherlands into the “high-risk” category for smuggling, showing that even countries with strong enforcement measures are not immune to the unintended consequences of high taxation.

Unintended Consequences: Health and Crime

High tobacco taxes were designed to curb smoking, but they have had a paradoxical effect. Instead of deterring smokers, these taxes have driven many to the illegal market. This unintended consequence undermines the public health goals of these policies. Worse still, the illicit tobacco trade feeds organized crime. Europol has long warned that cigarette smuggling often goes hand-in-hand with other illegal activities, such as drug trafficking and money laundering. In some countries, the boom in black market tobacco has been accompanied by a rise in violence, including warehouse firebombings and robberies linked to smuggling rings.

Australia’s Cautionary Tale

Europe would do well to look beyond its borders as well when considering steep tobacco tax hikes. Australia serves as the perfect cautionary tale. Over the past decade, Australia implemented annual excise hikes, pushing the cost of a pack of 20 cigarettes to around A$40. Initially, the policy succeeded in reducing smoking rates, but it also spurred a massive black market. By 2024, Australia’s tobacco tax receipts were expected to drop to A$7.4 billion, a dramatic decline from the A$16.3 billion collected in 2019–2020. This sharp decline in tax revenue occurred not because Australians stopped smoking, but because more and more shifted to cheaper, illicit alternatives.

Rethinking the Balance: Toward Sustainable Tobacco Policy

Europe stands at a critical juncture. On one path lies the continued escalation of tobacco taxes, an approach that may yield immediate fiscal gains but risks exacerbating the black market. On the other path is a more balanced strategy. Policymakers must understand that aggressive taxation alone is not a silver bullet and a more balanced approach is necessary when addressing all tobacco products.

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