Government sets aside $216 million to pay for tax cuts on heated tobacco products

The government has agreed to set aside $216 million to pay for tax cuts on heated tobacco products (HTPs).

Royal Bank of New Zealand Earlier this month, it was reported Associate Health Minister Casey Costello, who is also Customs Minister, has cut excise duty on heated tobacco products (HTPs) by 50 per cent.

Costello’s office has not publicly disclosed how much the move will cost the government, but a cabinet document shows The Ministry of Health released a low-key announcement on its websiteThe data showed that the Cabinet agreed in May to set aside $216 million as a contingency fund to make up for the projected revenue losses.

Excise tax cuts are a big win for tobacco giant Philip Morris Lobbying in the pastIts IQOS product dominates the New Zealand HTP market.

Cabinet documents signed by New Zealand First MP Richard Costello show it is not even clear whether the tax cuts will benefit consumers.

“It is unclear to what extent reductions in excise duty on tobacco products can be passed on to consumers through lower retail prices, as the product currently enjoys a monopoly in New Zealand,” the newspaper noted.

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

The minister did say in a statement that she wants the industry to reduce the cost of its products.

“That means I expect the reduction in excise taxes will be passed on to consumers, which is what officials have told us and what we will be watching,” she said.

She also said she didn’t think the costs to the government would be “anywhere near what the model predicts” because taxes collected by the HTP in 2022 would only be $3.62 million and $5.97 million in 2023.

“Officials noted that there is significant uncertainty in the modeling and fiscal impact because it is based on rapid growth in HTP use in Japan, where e-cigarettes are not yet available.”

Philip Morris did not respond to Radio New Zealand’s inquiries.

Media and tobacco researchers have focused on the company’s links to New Zealand First since the party backed down in its coalition agreement with National and repealed recent changes to tobacco laws.

Two senior corporate communications positions at Philip Morris are held by people who previously held senior roles at New Zealand First.

David Broome was New Zealand First’s chief of staff between 2014 and 2017 and is currently external relations manager for Philip Morris.

Apirana Dawson was director of operations and research in Winston Peters’ office from 2013 to 2017 and led the party’s campaigns in 2014 and 2017. Since January 2021, she has been director of external affairs and communications at Philip Morris.

Dawson attended the swearing-in of government ministers last year as a guest of New Zealand First cabinet minister Shane Jones, who told Stuff he had “learned” about the party’s tobacco policy from Dawson.

Neither Bloom nor Dawson responded to repeated requests for comment from ABC New Zealand.

Costello said she has no ties to the tobacco industry and has not spoken with tobacco lobbyists about policy development.

Earlier this year, Costello repealed a law that would have cut the number of tobacco retailers from 6,000 to 600, removed 95% of nicotine from cigarettes and banned sales to people born after 2009 in an effort to create a smoke-free generation.

The Government said it remained committed to its 2025 smoke-free target of a daily smoking rate of less than 5 per cent in New Zealand. The current daily smoking rate is 6.8 per cent, down from 16.4 per cent in 2012.

Paper notes ‘limited’ research on safety and effectiveness

Costello has previously said she wants to give people more options to quit smoking and believes lowering the price of heated tobacco products could encourage more people to use them.

But ahead of the GST cut, health ministry officials warned the minister not to relax regulations on HTPs.

“There is no evidence to support their use as a smoking cessation tool,” officials wrote to Costello. “We do not recommend relaxing the promotion of HTPs. This could exacerbate concerns about youth use and addiction to nicotine products.”

Even Costello’s cabinet paper acknowledged there was no strong evidence that heated tobacco products were safe.

“Given the relatively short time that heat-not-burn tobacco products have been on the market, there is currently no clear evidence that they are significantly less harmful than cigarettes,” the study said.

But in a statement to ABC New Zealand, Costello said heated tobacco products had a “similar risk profile” to e-cigarettes.

The cabinet paper said modelling by the Department of Health showed 7,200 smokers could switch to heated tobacco products over the next two years if encouraged by price cuts.

“Lowering excise taxes on heated tobacco products could increase their appeal to smokers who have unsuccessfully switched to e-cigarettes, as removing the excise taxes could make these products even more affordable than they are now.”

But it warned that non-smokers could also be attracted.

“As we have seen with e-cigarettes, we need to keep a close eye on the potential uptake of heated tobacco products among non-smokers, including young people, as prices fall.”

The paper says much of the existing evidence that heated tobacco products can help people quit smoking is anecdotal.

“Due to the relatively short time that heated tobacco products have been on the market, there is limited research on their use as a cessation or transition tool,” the paper said. “However, overall, feedback from smokers and cessation services about providing smokers with more options to transition away from smoking suggests that this initiative would support New Zealand’s goal of becoming smoke-free.”

The excise tax cut will be trialled for a year to see if it helps people quit smoking.

“The review will also provide us with an opportunity to identify whether non-smokers, particularly young people, are using heated tobacco products so that we can respond quickly if necessary,” the Cabinet paper said.

The newspaper also noted that the move to cut consumption tax did not meet the standard cabinet requirements for such proposals as no regulatory impact statement was provided.

Instead, the regulatory and health ministries will conduct a “post-implementation review” of the GST exemptions after a year.