NSW Premier Chris Minns said the "massive" excise on legal cigarettes was fuelling illicit tobacco, in his latest broadside on the federal government policy.
"It feels sometimes like we're standing on a beach trying to stop the tide from coming in," he told ABC Radio on Wednesday.
Various studies have exposed the proliferation of black market tobacco in recent years.
The Australian Bureau of Statistics estimated 80 per cent of all tobacco consumed in 2025 was illicit, up from 12 per cent in 2017.
"I just think we need a rethink on the excise. It's just too high," Mr Minns said.
"Before people jump on me and say that means that you're pro-smoking, I'm not. I can't stand the tobacco companies, but this is just a policy that's not working."
His federal counterparts have steadfastly refused to countenance lowering the tobacco excise, which adds $30 to a standard 20-pack of cigarettes and creates a vast price differential driving the profitability of illicit alternatives.
Julian Hill, the federal assistant minister for customs, has previously said the government's focus was on law enforcement, pointing to increases in cigarette and vape seizures at the border and within the country.
Rohan Pike, a former Australian Federal Police and Australian Border Force officer, said record seizures represented only a fraction of what was being smuggled in and consumed.
"There is no shortage of illicit product on the ground. Seizure numbers are a distraction from the core problem, which is the policy," he told the National Press Club in Canberra.
International evidence showed enforcement efforts were futile without lowering the excise, he said.
"Why does Sweden have the lowest smoking rate in the world? Their excise rate is $6 per pack compared to our $30," Mr Pike said.
The impact of the black market went beyond foregone tax revenue and worse health outcomes, said Liberal MP Mary Aldred, who chairs the coalition's Anti-Illicit Tobacco Taskforce.
Communities in her regional Victorian electorate of Monash were suffering from an explosion in firebombings and organised crime, she said in an address alongside Mr Pike and public health expert Nick Coatsworth.
"This will become to be seen as the greatest public policy failing in a generation," she said.
"Australians are entitled to an honest national conversation, not a government with its head in the sand."
Dr Coatsworth said governments needed to adopt a harm minimisation approach, similar to heroin safe-injecting rooms, by allowing nicotine addicts to access less harmful alternatives such as regulated vapes and nicotine pouches.
"No one seriously sits there and says that safe injecting rooms are safe," he said.
"They are safer than injecting with a dirty needle in the back of a squat, where no one's going to find you if you OD and resuscitate you."
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