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Increase In Excise On Tobacco Products

Health Minister Annette King today hailed as a significant health measure the Government's decision to pass legislation under urgency to increase the excise on tobacco products.

Mrs King said the move, which will mean the excise on a packet of 20 cigarettes will rise by one dollar effective from midnight tonight, represented the Government's latest initiative to encourage New Zealanders to quit smoking.

"Tobacco taxation has been shown to be one of the most effective means of encouraging people to quit smoking, or at least to cut down," she said. "There are almost 5000 smoking-related deaths in New Zealand each year, and that doesn't count all those who live impaired lives after strokes or heart attacks or other illnesses, including various cancers.

"I was distressed to visit a hospital recently and to learn that babies whose parents smoke are likely to have a percentage of their lung capacity destroyed."

Mrs King said the excise on other tobacco products would increase by a comparable amount to the excise on a pack of 20 cigarettes. The increase was estimated to result in an increase in the price of a packet of 20 cigarettes of approximately 14 percent, and was expected to result in a national drop in tobacco consumption of around seven percent.

The new rate was expected to increase revenue by $20 million this financial, $110 million in 2000/01, $79 million in 2001/02 and $82 million in 2002/03. "This is money we need to spend on health, on Closing the Gaps and other social initiatives."

Factors likely to affect the price included the response of tobacco companies, particularly whether they adjusted margins to absorb or pass on the increase, she said. In past years, companies had added their own price increases.

The last increase in tobacco excise, other than the annual CPI adjustment in December each year, was in May 1998 when the Government increased the excise on a pack of 20 cigarettes by 56 cents including GST. This equated to about a 10 percent increase in the price of tobacco products and resulted in a fall in national consumption of tobacco products of approximately six percent.

Mrs King said other tobacco control initiatives under consideration by the Government included:
 new legislation to protect non-smokers from exposure to tobacco smoke at work, in restaurants and bars, and at schools and child care centres
 requiring the full disclosure, by tobacco companies, of the contents of tobacco products
 provision of assistance for smokers who want to quit.

The Government already funded a national Quit media campaign and a Quitline (0800 778 778) people could ring for help and support, and a series of pilot quit programmes for Maori women had also been run, Mrs King said. "The initial findings of these pilots are very favourable. The Government hopes to extend these programmes and to provide further quit-assistance for smokers. We are looking at options for doing this and I hope to make an announcement in the near future."

For more information contact John Harvey (04) 471 9305.

Background

What will the price of tobacco products increase by? Tobacco excise has been increased by 89 cents per packet of 20 cigarettes. Inclusive of GST, the excise increase on a packet of 20 cigarettes will be $1.00. Tobacco excise has been increased by $2.78 per 50 gram packet of tobacco. Inclusive of GST, the excise increase on the packet of tobacco will be $3.13. Price impact will depend on how tobacco companies adjust margins to absorb or pass on the increase.

What will be the impact on people on low incomes? People in lower-income groups are generally more responsive to increases in the price of tobacco products. Therefore, increases in the excise would improve the health of lower-income groups proportionately more than higher-income groups.

How much of the price of a packet of cigarettes is tax? That depends on the final price of the packet of cigarettes, as determined by the seller. If someone currently sells a pack of 20 cigarettes for $6.55, the percentage of the price that is tax (tobacco excise or duty, plus GST) would be 70.7%. After this increase in excise, the percentage of the price that is tax will rise to 74.6%. If someone currently sells a pack of 20 cigarettes for $7.30, the percentage of the price that is tax (tobacco excise or duty, plus GST) would be 64.6%. After this increase in excise, the percentage of the price that is tax will rise to 68.8%.

The World Health Organisation recommends countries tax tobacco to discourage tobacco consumption. As a rule of thumb, the WHO recommends that tax make up between two thirds and three quarters of the price of a packet of cigarettes (66% - 75%). Tax rates in some other countries include: United Kingdom (79.5 percent), France (76), Italy (73.5), New Zealand (after increase, 68 to 74, dependent on final price of packet as determined by seller), Australia (currently 68, when GST comes in 72), Japan (55.3) and USA (29.3).

Tobacco control strategies in New Zealand: New Zealand has implemented a comprehensive tobacco control programme, incorporating strategies under legislation (restricting the advertising, sale and use of tobacco products), taxation (increasing the price of tobacco products), health promotion (encouraging changes in attitude and behaviour), cessation services (helping smokers to quit).


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