Smokers in New Zealand are particularly vulnerable to the inflation because the price of cigarettes has been increasing much more rapidly than earnings and the CPI. Māori households are worst affected as the New Zealand Health Survey showed that, in 2016/17, 35% of Māori adults were current smokers, while 15.7% of all adults smoked.
Cigarette and tobacco prices have been subject to annual increase in excise duties since 2010 as a measure to prevent smoking – see graph below. However the addictive nature of the habit – very inelastic demand – makes it very difficult to quit. The majority of smokers would like to stop smoking, and each year about half try to quit permanently. Yet, only about 6 percent of smokers are able to quit in a given year. Most smokers will need to make multiple attempts before they are able to quit permanently.
Rather than taxing the product a more realistic solution could be to prevent people from smoking i.e. focusing on the demand side rather than the supply side of taxing cigarettes. I blogged on this last year when discussing the war on drugs. War on drugs: Supply or Demand – that is the question
Demand-Side interventions seem to be a better option and they are also a lot cheaper. Weighing up reducing supply by destroying coca crops in remote areas against drug education in schools and you find the latter is a much more plausible option – see graph below. A dollar spent on drug education in U.S. schools cuts cocaine consumption by twice as much as spending that dollar on reducing supply in South America
Status Quo as the NZ Government makes too much money.
However the Government does make a lot of money from the excise tax – $1,710 million last year which was up $1,068 million from 2010: an increase of 60%. Only 61.7 million was spent on the national control programme in 2014/15 which equated to just 4.1% of the tobacco excise duty collected that year.
Source: BERL NZ