Recommended Approach
The Treasury favours a sequence of regular modest, and well-signalled increases in tobacco excise. This is likely to contribute most to a long-term and sustainable strategy to reduce smoking rates.
Option one is therefore preferred - a sequence of four 10% increases in addition to the annual CPI-based adjustment, implemented on 1 January 2013-2016.
The Government could consider legislating for fewer than four annual step increases in tobacco excise at this time, to enable further evaluation to inform future decisions. However, achieving the Government's 2025 smoke-free target is likely to require significant increases in excise as part of a strategy to achieve this, and signalling these increases well in advance reduces uncertainty for tobacco suppliers.
Regular, pre-signalled excise increases are more likely to be coordinated with well designed education and support programmes for smokers, and give low-income smokers more time and opportunity to adjust financially.
In taxing a group of consumers that are addicted and disproportionately drawn from Maori and lower-socio economic communities, the Government should ensure that programmes to educate and support smokers to make successful quit attempts are adequately resourced, well implemented, and effectively designed and targeted to reach high-risk groups.
The Ministry of Health favours the highest possible increase in tobacco excise in order to give the strongest incentive for smokers to quit, and also agrees that a regular sequence of increases in tobacco excise provides an ongoing drive for smoking cessation, especially if the annual rises can be supported with reinforcing public awareness campaigns and cessation support service advertising.
Option three, a of 30% on Budget night and then 10% plus CPI in outyears, would provide the greatest incentive for smokers to quit.
