[sien]

True about second-hand smoke. It was exaggerated.

The big externality for tobacco smoking is the health costs of those who smoke and die and get very sick from it, both early and with health costs.

Even in the US the public wound up footing the bill for the public health costs. At a certain point taxes on cigarettes do cover the health costs. That point may have been reached in Australia. It depends on what people include and how big they make the damages.

[skissane]

Another externality is that a lot of non-smokers dislike breathing in second-hand smoke, apart from whatever negative health impacts it may have–yet inevitably they end up doing so due to smoking in public places, smoking neighbours, etc.

It is hard to measure the value of this externality. But in the abstract it must have some value: suppose there was a magic spell which made all secondhand smoke go away, and using it had no negative side effects – how much would the average non-smoker be willing to pay for this spell? Personally I'd be willing to pay at least $1/day, and let us assume the average adult non-smoker puts the same value on it as I do. Then, by rough estimation, I'd say there are about 16 million adult non-smokers in Australia, which implies the cost of this externality in Australia is around $5.8 billion a year. That dwarfs in comparison to the health costs, but it isn't nothing either.