The data, released by the Australian Bureau of Statistics on Wednesday, painted a much more sobering picture of the scale of the problem compared to the government's hand-picked Illicit Tobacco and E-cigarette Commissioner.
In her 2025 annual report, commissioner Amber Shuhyta estimated illicit tobacco comprised 50-60 per cent of the total market.
Between 2017 and 2025, the black market share of total nicotine consumption climbed from 12 per cent to 80 per cent, the ABS said.
The quantity of total nicotine consumed increased by 40 per cent, while the population only increased by 14 per cent over the same period.
Legal tobacco consumption fell to less than a third of the 2017 level.
Economists argue decisions by successive governments to ratchet up the tobacco excise - which increase 112 per cent between 2017 and 2025 - has created a massive profit incentive for organised criminals to develop a thriving black market.
Assistant Customs Minister Julian Hill said while the ABS's new data was experimental, its conclusions broadly reflected the illicit tobacco commissioner's report.
The ABS used wastewater sampling to analyse quantities of nicotine excreted through the sewerage system and compared it to changes in over-the-counter sales from supermarket scanner and tax data.
But this method also captures usage of other products, such as nicotine pouches and quit-aid products like patches and gum.
Mr Hill said increased enforcement measures before, at and after the border were having an effect on the illicit tobacco trade.
"While the government has always acknowledged that the illicit trade might grow before it declines, there is very early evidence suggesting that in states such as Queensland, with strong closure powers and landlord penalties, nicotine users return to the legal market when the sleazy illegal shops have been forced shut," he said in a statement.
More than 2.6 billion cigarettes were seized in the last financial year - a 320 per cent increase on the number seized four years ago.
Estimates released in May's federal budget revealed the tobacco black market wiped $6 billion from tax revenue in the five months since the previous fiscal update in December.
The excise was forecast to fall to just over $2 billion a year by 2030 after raking in more than $16 billion in 2020.
Shadow treasurer Tim Wilson has previously said the government was repeating the mistakes of prohibition-era America.
"It fundamentally turns lawful citizens into engaging in unlawful behaviour," he said in May.
"The big question for everybody is: what would you need to cut excise (to) and whether there's a political will to do it to actually get people to pack up and move out."
Mr Hill accused the opposition of hypocrisy after raising the tobacco excise by 121 per cent during its time in office.
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