New Zealand Government Allocates $216 Million for Tobacco Tax Cut

According to RNZ on July 30th, the New Zealand government has agreed to set aside $216 million for the necessary expenses related to reducing taxes on heated tobacco products (HTP).

RNZ reported earlier this month that New Zealand's Deputy Minister of Health and Minister of Customs, Casey Costello, has implemented a 50% reduction in the excise tax on HTP. Costello's office did not disclose how much government funding this measure would cost, but a Cabinet document released on the Ministry of Health's website shows that the Cabinet agreed in May to reserve $216 million as an emergency fund to compensate for the anticipated loss of revenue.

The tobacco giant Philip Morris has previously lobbied for tax cuts on this, with its IQOS product dominating the HTP market in New Zealand.

A cabinet document signed by New Zealand First Party MP Casey Costello shows that it is unclear whether this tax cut will be passed on to consumers.

The document indicates that...

It is not yet clear whether the reduction of the HTP consumption tax will benefit consumers through lower retail prices, as the product currently holds a monopoly market in New Zealand.

Costello declined to be interviewed by RNZ, and her office did not respond to questions about whether the monopoly referred to Philip Morris.

The minister stated in a declaration that she expects the industry to decrease the costs of its products.

This means I hope that the reduction in consumption tax can be passed on to consumers, as officials have suggested will happen, and we will also monitor this.

She also stated that she does not expect government spending to "approach the modeled amount" because the tax revenue collected from the HTP in 2022 is only 3.62 million dollars, compared to 5.97 million dollars in 2023.

Officials point out that there is a great deal of uncertainty in the models and financial impact, as it is based on the rapid growth of HTP usage in Japan, where e-cigarettes are still unavailable for purchase.

Philip Morris did not respond to RNZ's questions.

Since the New Zealand First Party made concessions in their coalition agreement with the National Party, which included repealing recent tobacco laws, the media and tobacco researchers have been emphasizing the connection between the company and the New Zealand First Party.

Two senior corporate communication positions at Philip Morris were filled by individuals who had previously held senior positions in the New Zealand First party.

The minister stated that she has no connections to the industry and has not discussed policy-making with tobacco lobbyists.

Earlier this year, the minister canceled a law that would have reduced the number of tobacco retailers from 6000 to 600, removed 95% of nicotine from cigarettes, and set a goal of creating a smoke-free generation by prohibiting the sale of cigarettes to those born after 2009.

The New Zealand government has stated that it remains committed to achieving the smoke-free goal by 2025, which aims to have fewer than 5% of New Zealanders smoking daily. Currently, 6.8% of New Zealanders smoke daily, down from 16.4% in 2012.

Costello previously stated that she hopes to provide people with more options to quit smoking, and believes that lowering the price of HTPs can encourage more people to use them.

Health ministry officials warned the minister not to relax regulation on HTP before the consumption tax reduction.

There is no evidence to support the use of HTP as a smoking cessation tool, so we do not recommend relaxing the promotion of HTP. This could exacerbate existing issues of youth attraction to and addiction to nicotine products.

Even Costello's cabinet documents acknowledge that there is no strong evidence to suggest that HTP is safe.

Due to its relatively new market, there is still no clear evidence indicating that HTP significantly reduces harm compared to traditional cigarettes.

However, in her statement to RNZ, Costello stated that the risks of HTP are similar to those of e-cigarettes.

According to a Cabinet document, modeling from the Department of Health suggests that if prices were lowered, it is possible that 7,200 smokers could switch to HTP within two years.

Reducing the consumption tax on HTP may increase its attractiveness to smokers who have not successfully transitioned to e-cigarettes, as canceling the consumption tax may make these products cheaper than they currently are.

As we have seen in e-cigarette products, we need to closely monitor the potential use of HTP by non-smokers, especially adolescents, due to the lower prices.

Due to being relatively new, research on HTP as a smoking cessation or transition tool is limited. However, overall, feedback from smokers and quit smoking services indicates that providing more choices for smokers to transition away from tobacco supports New Zealand in achieving its smoke-free goal.

A one-year trial will be conducted to evaluate whether a reduction in consumption tax helps people quit smoking.

This review will also provide us with an opportunity to determine whether non-smokers, especially young people, are using heated tobacco products so that we can quickly respond when necessary.

The document also notes that the measure to reduce consumption tax does not meet the standards required by the Cabinet for such proposals, as it fails to provide a regulatory impact statement.

On the contrary, the regulatory department and the health department will conduct a "post-implementation review" of the reduction in consumption tax one year later.