What Effect Will A Tobacco Tax Hike Have In New Zealand?

In New Zealand’s annual budget, the government decided to continue with its annual tobacco tax hike by 10% till 2020. In a quest to be smokefree by 2025, defined as having smoking rates of less than 5%, the new plan will result in cigarette prices that will eventually be the highest in the world. The country will raise its tobacco taxes by nearly half in the coming four years. Even now the price of a pack of Marlboro, the world’s number one selling brand and part of Philip Morris International’s (NYSE:PM) portfolio, is relatively high, at 20 New Zealand dollars.

After the full effect of tax hikes takes place, the price of a pack will increase to 29 New Zealand dollars, about USD 23 at current exchange rates.

Officials at the New Zealand Health Ministry consider raising taxes as the “single most powerful tool to reduce smoking.” Given the success of past increases in excise taxes, the ministry believes such a move will save lives. It will also bring in an extra NZD 425M in tax for the government during the period. Such a move will effect 15% of the adult population who smoke every day: ~550,000 people. However, this smoking rate rises to 35% for Maori and 22% for Pacific people. The most substantial reduction in current smoking rates since 2006-2007 was for youth, 6% of whom smoked in 2014-2015 compared to 16% in 2006-2007. It is well established that young people are particularly sensitive to higher cigarette prices, and the 10% tax hikes have been most effective in deterring their smoking.

According to a study that forecast the reduction in smoking rates as a result of the tax hike in New Zealand, it was found that increasing tobacco tax by 10% each year until 2020 will see the smoking prevalence reduce to 21.4% for Maori, and to 8.9% for non-Maori by 2020, as compared to 22.7% and 9.3% if the taxation program is not continued beyond January 2016. Furthermore, such additional rounds of tax increases also have the potential to reduce the ethnic gap in smoking prevalence in the country by nearly 1 percentage point in 2020.

Have more questions on Philip Morris? See the links below:

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