The tobacco excise was revised lower by $8 billion in the five years to 2029/30 in Tuesday's budget.
In 2025/26, the forecast tax take fell to $4.1 billion - $1.3 billion lower than projected just five months earlier in the mid-year budget update.
Revenue from the excise has been in freefall since 2019, even though the impost has continued to rise.
Lower smoking rates have played a part, but the main driver has been the explosion in black market sales, which the government estimates make up more than half of the total tobacco market.
Compared to 2019, illicit sales are burning a $12 billion black hole in the budget.
"It's another concerning downgrade, and something that I think people would have expected some policy action to try and rectify," e61 researcher Lachlan Vass told AAP.
At $1.50 per cigarette, the excise was creating a $30 per pack incentive for organised criminals to sell black market tobacco.
Without lowering the excise to remove that incentive, enforcement alone would not be enough to kill the illegal trade, Mr Vass said.
But Treasurer Jim Chalmers said he was not convinced that cutting the excise, "as Big Tobacco would like us to do", would make a difference.
"We want that number of tax taken on cigarettes to go down because more people are giving up the darts, not because of organised crime," he told 2GB radio.
"We're spending a lot of money, time and effort trying to crack down on this illegal industry."
The government has spent over $200 million trying to beef up compliance and enforcement, including $156.7 million in the previous budget, but only $14 million extra was pledged on Tuesday to boost transport, storage and disposal of seized tobacco and vapes.
A cut to the excise alone would be unlikely to dislodge the black market's dominance now that distribution networks have become entrenched, Mr Vass said.Â
But he said a return to 2019 levels at a minimum, along with increased enforcement, would be needed to make an impact.
Shadow Treasurer Tim Wilson said the government had given a "complete license for organised crime, bikie gangs and criminals" to run the tobacco industry but refused to back a cut to the excise.
"The big question is how much would you have to cut it to actually stop the behaviour, because I see numbers which I think are too conservative," he told 2GB.
