A pack of 25 cigarettes now costs just under $50 with tax up to 80 percent of the cost. File photo. Photo: 123RF
Excise tax on tobacco might be lifting, but the amount collected has dropped, sparking a warning that smokers might be turning to the blackmarket for their cigarettes.
Excise tax on tobacco increased again in January, to $1812.61 per kilogram of tobacco on manufactured cigarettes. That is compared to $393.03 in 2009.
A pack of 25 cigarettes now costs just under $50. Depending on the brand, tax can make up 80 percent of the cost, including excise and GST.
A pack of Winfield 20s selling for $38.50 includes $25.44 excise.
A report produced by FTI consulting commissioned by Imperial Tobacco New Zealand (ITNZ) and British American Tobacco New Zealand (BATNZ) said that in February last year, New Zealand that the second-highest cigarette price in the Asia-Pacific region, behind Australia.
Cambodia and Vietnam charged less than $3 for a pack.
Excise tax on tobacco has steadily increased over the years, helping to drive down smoking rates. But those rates have been relatively flat lately, at just under 7 percent of the population.
And despite the tax rise, tobacco tax revenue has fallen.
It was $1.47 billion in 2024. That was down from $1.66b the year before and $1.86b in the 2022 year. It was $2.17b in 2020.
At the same time, seizures of cigarettes at the border have increased.
Some of the drop will be due to increased use of vapes and people quitting, but some may also have switched to blackmarket consumption.
Customs data shows that in the year to the end of September there were 7,032,374 individual cigarettes and cigars stopped at the border, up from 5,733,597 in the year to September 2022.
The FTI report found consumption of illicit tobacco in New Zealand increased 37 percent in 2023, even as overall consumption declined.
Total consumption fell by 4 percent in 2023 compared to 2022 but legal consumption fell by 12 percent. Almost a quarter of all tobacco consumed in this country was illicit.
In Auckland, a third of cigarettes were "non domestic" in 2023.
"The relatively high price of cigarettes in New Zealand is driving consumers to consider cheaper alternatives to legal tobacco products, particularly in the current economic environment with cost-of-living pressures. The significant increase in consumption of illicit tobacco is being fuelled by significant growth in consumption of contraband tobacco," FTI Consulting said.
In Australia, it was revealed last week that tobacco excise revenue had dropped to its lowest level in 15 years.
At the same time, adult smoking rates have largely flatlined and the blackmarket there was said to be booming.
Illegal, untaxed cigarettes were widely available, ABC reported, selling for half the price under the counter.
Associate Health Minister Casey Costello said she met the Australian Police, Border Force and other officials there in March to talk about the issues they faced with organised criminal groups and black-market tobacco and vapes.
"It's a very serious problem and one that we don't want to see here.
"There is black-market activity here - it is always a risk if you have a product that has appeal to a market of consumers and there is money to be made from it by criminal groups. However, at present our Customs and Police are on top of the problem, stopping importation of illegal tobacco at the border as well as the manufacture of illegal cigarettes onshore.
"We have to stay on top of this issue, though, which means continuing to address both supply and demand - so continuing to drive our smoking rates down as well as stopping illegal supply.
"Making cigarettes more expensive through excise rate increases has played a role in reducing smoking rates and quit smoking providers tell me that saving money is a useful message to smokers from younger demographics. However, most of those who still smoke are older and addicted to smoking, so the price of cigarettes doesn't necessarily affect their behaviour."
NZ Initiative chief economist Eric Crampton said it was hard to get a clear estimate on the size of the illicit tobacco market.
"If you see a lot of Double Happiness packs - not sold on the legal market here, that's either people who've brought them in via duty-free, or contraband."
He said the black market was not likely to be as significant in New Zealand as in Australia because Australia had more limits on access to vapes. Here, disposable vapes that are roughly equivalent to a pack of cigarettes sell for about $25.
"New Zealand has maintained a far more defensible approach based in harm reduction. It is easy for smokers to shift to vaping. They do not need to get a prescription. They can just go and buy vapes at places where it is convenient. Tobacco is subject to very high excise but vaping is not subject to excise. The price difference combined with ready access to vapes encourages switching. And New Zealand has been far more successful in encouraging shifting to vaping than Australia has been."
Ben Youdan, director at anti-smoking group ASH, said tax had been a very effective tool to discourage smoking. But he said the pressure was really going on some smokers.
"Globally, it remains a really important tool for reducing smoking.
"In New Zealand, successive tax increases have no doubt been a contributor to reduced smoking over the years. Having said that, we now have some of the least affordable cigarettes relative to income in the world," he said.
"Despite this, most people who still smoke now live in the lowest-earning households and are typically older. So, whilst high tax has certainly had a big impact, for those who are really struggling to stop smoking, we do have a tension with quite a significant financial burden. For example, someone on the median wage has to work a 40-hour week for five weeks just to afford to smoke half a pack a day [for a year]."
He said it could be that the country was at the point where the power of addiction was winning out over the financial burden for some remaining smokers.
"For this reason we need good alternate strategies, including making safer alternatives such as vaping more affordable for adult smokers, and ensuring illicit tobacco is not incentivised.
"Tax is one of the most effective public health tools to change behaviour, but we are at a point where it is so high that I also think we need to be much more vigilant about the wider social consequences rather that using it as a blunt tool as we have in the past."
Deloitte partner Allan Bullot said when any tax was designed with behavioural modification in mind, consideration needs to be given to the second and third order effects.
"Generally a lot of excise tax, particularly smoking, is borne by the lower-income portion of society. That leads to it becoming a very, very regressive tax in certain instances. As a society we've decided we want fewer people smoking - tax is a tool we are using to try to drive it but we need to be careful we don't create a problem by taking too much income away. It's inelastic demand for some people, they feel they have to have it."
He said because some people felt they had to smoke, it created a strong incentive to opt for illegal options if the price got too high.
"It's complex, about using the right tools at the right point and continually evaluating whether they are doing what they are supposed to do.
"Tax policy in New Zealand, in many respects we rely on voluntary compliance and we have high voluntary compliance, we're the envy of other jurisdictions around the world for the way people do it. Taxes have to be seen to be fair and fairly administered and not becoming extreme."
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