Australians are consuming more nicotine than they were eight years ago but are spending less, new data from the Australian Bureau of Statistics shows, as 80% of the cigarettes smoked by the nation last year were cheaper illegal products.

The analysis released by the Australian Bureau of Statistics (ABS) on Wednesday showed the amount of nicotine consumed around the country soared by 40% between 2017 and 2025, despite population growth rising by just 14%.

The ABS said the growth was driven by illegal tobacco and increases in e-cigarettes and other products. In 2017, only 12% of the total tobacco consumed was from illicit sources. By 2025, that had risen to 80%.

More Australians accessing cheaper illegal products has resulted in the dollar value of household spending on cigarettes dropping to levels similar to those seen in 2016, the ABS analysis found. It said the cost of legal cigarettes had tripled since then, but the price of illegal tobacco products had remained relatively constant.

The release of the figures marked the first time the ABS has provided estimates on illegal tobacco consumption, after it began developing methods to assess how the economic impact of the trade “would be conceptually treated” in Australia’s national accounts.

It noted that the estimates, which were assisted by nicotine metabolite concentrations detected in wastewater samples, were experimental and the method and data sources could change.

The New South Wales health minister, Ryan Park, told Guardian Australia the data was “unsurprising” and pointed to a “growing disparity between the cost in legal and illicit tobacco, created by the federal government’s tobacco excise”.

“As we face one of the toughest cost-of-living challenges in living memory I can only see excise-free products become more and more attractive,” he said.

“This public health failure has seen states and territories have to dedicate further resources in licensing, enforcement and in dealing with the healthcare challenges that result from it.”

Last year, the amount of money going to government coffers from high taxes on legal tobacco dropped to the lowest level in 14 years, creating a $6.9bn hole in the federal budget as the illegal tobacco market boomed.

There have been disagreements among some public health and criminology experts over whether the excise should be lowered to reduce criminal incentive or remain as is with increased law enforcement.

The NSW premier, Chris Minns, has called for an overhaul of the tobacco excise, saying it was no longer working “as a matter of tax or health policy”.

In May, his government introduced a new penalty for the landlords of shops selling illegal tobacco. It was the latest in a suite of reforms to respond to the illegal tobacco trade, including a new offence for the possession of a commercial quantity of illicit tobacco with a maximum penalty of more than $1.5m and 7 years in prison, or both.

In Victoria, anyone found selling illicit tobacco under tough new penalties faces fines of up to $370,000 or up to 15 years in jail.