Report to
Apararangi Tautoko Auahi Kore
and the
Smokefree Coalition
The Impact on
Maori and Low-Income Families/ Whanau
of Tobacco Tax Increases:
A Brief Review
Dr Nick Wilson, public health physician
George Thomson, public policy researcher, Department of Public Health, Wellington
School of Medicine
February 2000
Report to the Smokefree Coalition 2
Contents
Executive Summary
4
Recommendations to government
6
1
2
3
4
5
6
7
Acknowledgments
7
Introduction
7
1.1
The background
7
1.2
The objectives for this study
8
1.3
Methodology for the literature review
9
The Framework for Considering the Evidence
10
2.1
Types of impact
10
2.2
Information deficits
10
2.3
Theoretical frameworks
11
The Evidence on Changes in Prevalence and Consumption
14
3.1
International evidence – tobacco tax/prices and low-income groups
14
3.2
International evidence – tobacco tax/prices and indigenous or ethnic groups
15
3.3
New Zealand evidence – prevalence and consumption changes
16
The Evidence for Health Benefits
18
4.1
Introduction
18
4.2
International evidence – tax rises & the health of low-income & ethnic groups
18
4.3
New Zealand evidence
19
4.4
Summary of health benefits
19
The potential welfare impact on families/whanau
20
5.1
The context of household spending
20
5.2
Comparing tobacco and other spending
21
5.3
Welfare impacts for Maori and low-income families/whanau
25
5.4
The welfare implications of the use of nicotine replacement therapy
26
5.5
Potential impact on the use of alcohol and other substances
26
5.6
Criminalisation associated with smuggling
27
The context for policy-making involving tobacco tax rises
28
6.1
The impact for the wider society
28
6.2
The fiscal context for government and the community
29
6.3
Summary of the advantages and disadvantages for the wider society
29
Discussion of the health and welfare impacts
31
Report to the Smokefree Coalition 3
8
7.1
Principal findings
31
7.2
Strengths and weaknesses of the state of evidence
32
The implications for public policy
8.2
9
The implications for future research
Recommendations to government
33
37
38
Bibliography
39
References
50
Report to the Smokefree Coalition 4
Executive Summary
Aim
To review the international and New Zealand literature on the effects of increases in
tobacco taxation, both beneficial and adverse, and particularly the effects on Maori
and low-income families/whanau.
Methods
Literature searches were undertaken using Medline, Econlit and Index New Zealand.
These were supplemented by searches for New Zealand unpublished literature, the
examination of key texts and a hand search of journals.
Main findings
There are large potential health and welfare benefits from tobacco tax rises for Maori
and low-income families/whanau, if smokers quit or reduce their smoking. Policy
makers need to match tobacco tax increases with other interventions. These are to
ensure that there is no increased hardship for families/whanau, where smokers do not
reduce their smoking at least in proportion to the price increase.
Immediate impact on smokers: There is strong evidence internationally and from
New Zealand data that increasing tobacco tax enhances quitting and reduces
consumption among smokers. There is some international evidence to suggest that this
impact is greatest for low-income smokers.
Youth uptake: There is reasonable evidence internationally that increasing tobacco
tax reduces the uptake of smoking by young people. However, there are no New
Zealand data on this issue.
Health impact on smokers and those around them: The dominant evidence is that
most smokers are nicotine dependent, suffer severe health outcomes (half of long-term
smokers die as a result of their smoking), and their smoking harms others (fetuses,
children, and adult non-smokers). Taxation increases reduce this health impact for
those that quit or reduce smoking. However, unless there are compensating measures
by government to reduce the levels of deprivation for low-income smokers, there are
suggestions that those with multiple indicators of deprivation may be less likely to
quit than those with limited deprivation. This has particular implications for those
groups most likely to be severely deprived, such as Maori and single parents (nearly
all of whom are women).
Financial hardship: There is the risk of increased hardship where smokers do not
quit or reduce sufficiently to compensate for the increased cost of tobacco. There will
be financial benefits where smokers quit or reduce sufficiently. Work in Britain has
suggested that where there are not compensating measures by government to reduce
the deprivation of low-income smokers, tax increases are likely to increase hardship
for some. However, the limited New Zealand data to date do not support this for the
Report to the Smokefree Coalition 5
aggregate group of lone parent families (due to compensatory reductions in tobacco
use).
The average spending in 1996-7 on tobacco by lone parent smokers has been
estimated at $17 per week (4% of the total spending of their household). A 30%
tobacco price increase could have caused about a $5 per week increase in tobacco
spending for those (relatively few) lone parent smokers who did not quit or reduce
smoking. Lone parent families are used by us as a proxy to measure the impact of
tobacco taxation for all deprived groups.
The potential for any resulting hardship may be avoided by nicotine dependent
individuals regularly using nicotine replacement therapy (NRT), which is cheaper for
the equivalent dosage than smoking a packet of 20 cigarettes a day.
Other potential adverse effects: Increases in tobacco tax may potentially alter usage
rates of other drugs (alcohol, cannabis) but the data on such effects is limited. High
tobacco taxes are related to increased tobacco smuggling internationally but this may
be less likely to occur in New Zealand due to its isolation.
Methodological complexity: There are many methodological and conceptual issues
that complicate any detailed considerations of the health, social and economic aspects
of smoking and the use of tobacco taxation to control tobacco.
Policy options: To ensure that there is no increased hardship for families/whanau,
where smokers do not reduce their smoking at least in proportion to the price increase,
policy makers can consider the following immediate measures:
Enhancing motivation and the means to quit:
 Expanding mass media campaigns.
 Fully subsidising NRT for low-income groups and allowing NRT to be sold in
supermarkets.
 Expanding Quitline services and part-subsidising smoking cessation counseling
for low-income groups.
Reducing the social determinants of smoking and countering any financial impact:
 Enhancing benefit payments and other transfers (eg, housing help) for low-income
groups.
 Reducing income tax for low-income groups.
 Making appropriate changes in other taxes (eg, GST and rates).
Longer-term measures, which will improve the ability to quit or reduce smoking, and
thus reduce the possible financial and other hardship for low-income smokers include
the:
 Increased regulation for smokefree environments.
 Full disclosure and control of cigarette constituents and combustion products.
 Further control of tobacco marketing (eg, plain packaging, restrictions on the point
of sale).
Report to the Smokefree Coalition 6
The options to ensure that there are the long-term resources to put particular
interventions into place include the use of dedicated tobacco taxes.
The context for policy making: This includes the likely societal benefits from taxrelated reductions in smoking. Amongst those are the reduction of the adverse effect
of smoking on workforce productivity, reducing a range of workplace costs (eg,
cleaning, ventilation), reducing the risk of fires and reducing the tobacco-related cost
burden to the health sector.
Conclusions
There is insufficient evidence at present to quantify the potential adverse effects of
financial hardship of increasing tobacco taxation on Maori and low-income New
Zealand families. Any such burden appears unlikely to be large, relative to the
substantial gains in health of smokers and their families when such tax increases cause
even modest reductions in the amount smoked. Any possible welfare burden needs to
be weighted against the strong evidence that increasing tobacco taxation discourages
the uptake of smoking by young people, and thus decreases the future burden for
Maori and low-income families.
For those Maori and low-income smokers who do not reduce consumption, there is a
range of policy options for government to counter any hardship produced. There are
also a number of policy options to increase the effectiveness of tax increases in
reducing smoking prevalence and consumption.
Increasing tobacco tax is probably the most powerful single tobacco control
instrument available to policy makers. There is therefore a need to decrease the
unwanted effects from tobacco tax increases, rather than limit the use of this
option.
Recommendations to government
1) Research funding: That government funds further research work on the impact of
tobacco taxation which could use the full depth of a number of rich existing data
sources (eg, Household Economic Survey unit data, Census unit data). This work
should include research surrounding any future significant tobacco taxation
increases and the impact of this on Maori and low-income families/whanau.
2) Increasing tobacco taxation: That all government agencies work towards further
increasing tobacco taxation in New Zealand (ideally one very large price increase
every two years). These increases should be accompanied by interventions to
minimise the potential financial hardship to some Maori and low-income
families/whanau and to decrease the social determinants of smoking. These
interventions include stronger mass media campaigns, continued free access to the
Quitline, fully-subsidised nicotine replacement therapy for low-income smokers,
and increased welfare benefits or reductions to the income tax burden for lowincome groups.
Report to the Smokefree Coalition 7
3) Plugging taxation loopholes: That government acts to ban all tobacco sales from
duty-free stores based in New Zealand.
Acknowledgments
The authors acknowledge helpful comments and encouragement from a number of
colleagues involved in a working group established by Apararangi Tautoko Auahi
Kore (ATAK) and the Smokefree Coalition. These people included Barbara Langford,
Anaru Waa, Shane Bradbrook, Ashley Bloomfield, Matthew Allen, John Stribling,
Keriata Stewart, Tony Ruakere, Murray Shadbolt and Peter Fraser. This work was
funded by Apararangi Tautoko Auahi Kore and the Smokefree Coalition.
Competing interests: The authors are involved in tobacco control related work for
other health sector agencies but these are not in the area of tobacco taxation.
1
Introduction
1.1
The background
Smoking and poverty: Smoking in New Zealand is concentrated in poorer families
and amongst Maori and Pacific Islanders. There has been a clear income and
deprivation gradient for smoking rates (higher in low-income groups) identified for
some time in New Zealand (Pearce et al 19851; Jackson et al 19902; Kawachi et al
19913; Pearce and Bethwaite 19974; Whitlock et al 19975; Ministry of Health 1999a6).
The latter Ministry publication (Taking the Pulse) indicated that in 1996-97 the most
deprived quartile by NZDep96 score had 40% more current smokers than the next
quartile (36.9% compared to 26%). The most deprived quartile had 138% more
smokers than the least deprived quartile (36.9% compared to 15.5%).
The 1996 census data also indicated that the most deprived areas had the highest
smoking rates (Wilson and Borman 19987) and that smoking rates are highest among
those with no qualifications, those on low incomes and those who are unemployed
(Borman et al 19998). Low-income groups also have higher exposure to secondhand
smoke (Whitlock et al 19989).
Ethnicity and smoking: The impact of smoking on Maori health has been
significantly greater than for non-Maori, with an estimated 31% of Maori deaths in
1989-93 being attributable to tobacco use (Laugesen and Clements 199810: 5). Maori
appear to be far more likely than Pakeha to not just be in households with smokers,
but to be in low-income households with smokers (Crampton et al, in press11;
Whitlock et al 199812).
Report to the Smokefree Coalition 8
Crampton et al report that for the same level of deprivation (as measured by
NZDep96), significantly more Maori smoke than Pakeha. Tobacco control and the
impact of tobacco taxation is thus a Treaty of Waitangi issue. Two particular
principles of the Treaty (as defined by both the Waitangi Tribunal and the Court of
Appeal) are involved.
These are:
 The exchange of the right to make laws for the obligation to protect Maori
interests.
 The Maori interest should be actively protected by the Crown (Peterson and
Verboeket 198813).
Tobacco taxation: Tobacco taxation has been recognised internationally as being one
of the most effective means of decreasing tobacco consumption and the consequent
adverse health impact of its use (Chollat-Traqet 199614; Townsend 199615; Meier and
Licari 199716). New Zealand work is similarly suggestive of such a benefit in reducing
consumption (Laugesen and Meads 199117; Laugesen 199718) and there are also some
limited data to suggest that some decisions to quit by Maori are related to high
tobacco prices (Klemp et al 199819; Glover 199920).
Nevertheless, there is concern about the potential adverse impact on low-income
smokers and their families when smokers do not quit or cut down in response to
increases in tobacco taxation (eg, in the UK setting, Marsh 199721). Such a concern
has also been articulated in New Zealand (eg, Treasury 1997b22) but so far little
evidence has been presented by the parties involved in New Zealand upon which to
inform evidence-based policy making in this area. As a result, Apararangi Tautoko
Auahi Kore (ATAK) and the Smokefree Coalition requested a literature review on the
topic of tobacco taxation and its impact on Maori and low-income families/whanau.
This will be the first part of a larger project organised by Apararangi Tautoko Auahi
Kore and the Smokefree Coalition that will include the analysis of relevant New
Zealand economic data.
1.2
The objectives for this study

To review the international and New Zealand literature on the beneficial and
adverse effects of increases in tobacco taxation/tobacco prices, particularly those
effects on people with low incomes.

To review the international and New Zealand literature on the response of
indigenous people and particular ethnic groups to tobacco tax increases/price
increases and the subsequent effects.

To give a brief discussion of the possible implications of the findings for policy
development and for New Zealand-specific research.
Report to the Smokefree Coalition 9
1.3
Methodology for the literature review
Medline: Medline searches for the years 1966 to October 1999 were conducted, using
combinations of the search words “tobacco / smoking” “price/income”, “ethnic”,
“Maori”, “indigenous”, “gender”, “female”, “women”, “solo parent”, “Zealand” and
“tax”.
Econlit: The electronic database for economic literature “Econlit” was searched with
the same search terms.
The Cochrane Library: Searches of the Cochrane Database of Systematic Reviews
(version 2, 1999) were conducted for relevant economic material.
New Zealand literature: In addition to Medline and Econlit referenced material, a
search of Index New Zealand was undertaken, along with a searches of the literature
held by key libraries (Ministry of Health and Wellington School of Medicine).
Relevant grey literature was identified by an examination of New Zealand Smokefree
e-News. Documents from Treasury and the Ministry of Health (based on Official
Information Act requests) were also examined for relevant material.
Other: Key texts examined included the recent World Bank report on the economic
aspects of tobacco (199923) and the texts by Marsh and McKay (199424) and Abedian
et al (199825). Hand searches of the following journals were performed for the period
following January 1990: Tobacco Control, Journal of Health Economics and Health
Economics. Electronic searches of the web-site indexed versions of the various
journals were undertaken using the words “tax” and “tobacco/smoking” (the British
Medical Journal, the New England Journal of Medicine and the Lancet). Other
material was identified by examining the references in review articles and other key
articles obtained. However, the scope of the review was restricted by the budget
available, and so limited effort was spent on investigating sources of relevant
unpublished material in New Zealand.
Report to the Smokefree Coalition 10
2
The Framework for Considering the Evidence
2.1
Types of impact
The areas that were identified where there are potential major impacts for Maori and
low-income families/whanau, as a result of increased tobacco taxation, included
changes in consumption and prevalence, with the consequent changes in:
 health status;
 family welfare due to the financial impact (positive or negative depending on the
extent of consumption and prevalence changes); and
 long term social effects on the family/whanau that stem from a lower uptake by
children and youth, and the long term social effects of health changes.
Beyond the evidence of impact, we found that there were other relevant issues, which
included information deficits and the theoretical frameworks for the impact
calculations.
2.2
Information deficits
A discussion of the beneficial and adverse effects of tobacco tax increases requires
information on the:
 Extent of the consumption and prevalence changes for different income, age,
gender and ethnicity groups in response to price changes.
 Health and welfare impact and the subsequent costs of tobacco use for smokers,
smokers’ families, non-smokers and the community.
 Extent to which smoking gives any benefit (however defined) to smokers. There
appears to have been very little work in this area (Kabra 199826:77).
Health information
In 1995 Zimring and Nelson stated that the “magnitude of the harm done to nonsmokers is not known with any degree of precision” with estimates on a key cost from
second hand smoke varying by a factor of 20 (Zimring and Nelson 199527). The
indications are that as the knowledge about the extent of the health costs from
smoking continues to increase, the extent of present under-measurement of the
negative externalities is further demonstrated. For instance the estimate of 6% of
United States medical care spending being smoking related may be very significantly
short of the reality (Warner 199828). The World Bank uses a range of 6-15% of
medical costs being smoking caused in high-income countries (Jha and Chaloupka
199929).
In particular, information on the health impact from passive smoking is rapidly
expanding (eg, Hankey 199930, You et al 199931, Bonita et al 199932) while there is a
subsequent lag in the translation of the knowledge of these impacts into costs. Despite
the growing information on health impact, little information is available on the costs
of passive smoking to low-income and Maori non-smokers in New Zealand.
A further complication is that the use of epidemiological evidence on the relationship
between tobacco consumption changes and health changes is made more difficult by
Report to the Smokefree Coalition 11
the length of time for some health changes to take effect (Moore 199533:6, Kabra
199834:78).
Welfare costs
There is a lack of research overseas and in New Zealand on the causation of social
differences in smoking, and the welfare and social impact on low-income smokers and
their families (Marsh and McKay, 199435:2). In New Zealand and elsewhere, part of
the reason is the lack of survey material that has sufficient numbers within the affected
groups to get reliable analysis (Marsh and McKay 1994:21).
2.3
Theoretical frameworks
Even where there is sufficient data for accurate calculations of impact, there is a
considerable debate about the appropriate ways to make the calculations – the
theoretical frameworks to use. For instance the calculations for the amount by which
demand for tobacco varies with price (elasticity) vary with the methods used (Cohen
and Henderson 199636). A consensus review of the economic approaches to tobacco
taxation, by a range of economists, can be found in Warner et al (199537) and a variety
of individual approaches are gathered in Abedian et al (199838). Some arguments for
minimal tobacco taxes can be found in Albon (199939).
Costing methods
The calculation of the costs of tobacco use is particularly subject to controversy. For
instance the use of the measures used for civil damage litigation, which include using
monetary figures for pain and suffering (Zimring and Nelson 199540), would give
different total costs from the approach used by the New Zealand Treasury, that
emphasises only some medical expenses (Treasury 1997b41).
The debate about defining and costing benefits and costs includes the question of what
particular costs are accepted as ‘external’ costs. External costs are those affecting the
community rather than just the smoking individual (Warner 199842). That concept
exists within the theoretical economic framework that depends on the individual
sovereign consumer, a framework that may have disadvantages for a discussion of
tobacco costs and benefits (Kabra 199843). The use of that framework can be
considered a value judgement (Buck et al 199944). Many of the issues within defining
and costing the impact of tobacco are covered by the New Zealand authors Ashton and
St John (198545) and Easton (199746). Authors writing elsewhere on tobacco use costs
include Barnum (199447) for the World Bank and Collins and Lapsley (199648) for the
Australian government.
In particular, the cost of life is debated – its inclusion for both passive smoking and
active smoking victims and the amount of cost (Kabra 199849, Warner 199850). The
environmental accounting concept of existence value (the value that we will pay to
ensure the existence of something) may help economists in this area, especially for the
value placed on smoker’s lives by the community – putting an external value on
human life (Chaloupka 1998). The World Bank (Barnum 199451) includes the value of
life when costing tobacco use.
Report to the Smokefree Coalition 12
Another part of the debate is about the extent to which the purported smaller spending
on pensions for smokers and possibly shorter period of medical spending on smokers
is outweighed by smoking costs (Hodgson 199252, Barendregt et al 199753, Kaiserman
199754).
The costs about which there is debate on their inclusion as external costs include:
 The loss of real output not borne by the smoker – for instance 50 million
working days/yr in the United Kingdom (Townsend 199655),
 Sickness benefits,
 Dependant’s benefits,
 The effects of sickness on the wider family/whanau,
 The additional load on life and medical insurance by undetected and past
smokers,
 The loss in tax revenue from lost life years,
 The cost of life-years lost by smokers to their families and the community and
the way to calculate this (Markandya and Pearce56, Chaloupka 199857).
There is a further dimension to the discussion about private or external costs. Collins
and Lapsley (199858) argue that if smokers are not simultaneously fully informed,
rational, and required to bear the total costs of their tobacco use, then any of the
resultant costs are social costs, not private costs.
One theoretical approach calculates the personal ‘utility cost’ to smokers of a rise in
tobacco prices, as the theoretical ‘consumer surplus’ is eroded (Cohen and
Henderson59). The ‘consumer surplus’ is the difference between the price of a pack of
cigarettes, and the higher price that a smoker would be willing to pay if it was
necessary to pay more to get the cigarettes. The theory suggests that this difference is
a ‘benefit’ which the smoker enjoys, and which would be eroded by a price rise
(Banwick et al60). However, the theory requires rational consumers.
The relevance of the costing arguments
The point of detailing the information above is that any literature discussing the
impacts of tobacco tax will be affected by the approach used. If some costs are
excluded, the impact found will be different.
Benefit concepts
Some investigation has been done on the particular processes by which nicotine
dependence influences demand for tobacco, both from the economist’s viewpoint with
‘rational addiction’ models (Becker and Murphy 198861, Chaloupka 199162, Douglas
199863, Suranovic et al 199964) and the psychologist’s (Parrott 1995b65, 199866).
However, there does not appear to have been any investigation of any particular
differences in benefit for low-income people. Neither does there appear to have been
any exploration by economists of the view of some psychologists that smoking may
give little or no benefit for the smokers.
The ‘rational addiction’ economic models do not actually suggest that those who are
nicotine dependent are rational, rather they are used to investigate how such
Report to the Smokefree Coalition 13
dependence affects the smokers view of the costs of smoking and quitting (Warner
199867).
The theories of smoking and deprivation
There are debates about the causes of higher smoking uptake and/or lower quit rates
for poorer people. The higher rate of smoking by parents, siblings and older peers will
affect the uptake of smoking by the children of poor families. However, Graham
(199868) argues that the educational and job expectations of youth are more important.
So young people from poorer families who succeed in school, or who have better job
prospects, are less likely to take up smoking.
The relevance for the impact of tobacco taxes lies in the possible need for measures to
complement tax rises which will address the causes of differential smoking uptake.
The debate is part of the wider one between those who see smoking as an individual
matter, with policies targeted at the individual, and those who see smoking uptake and
non-quitting as part of social disadvantage for families and whole strata of people.
While the correlation between inequality, deprivation and lower smoking quit rates by
adults has been shown in detail by a number of authors (Marsh and McKay 199469,
Graham 199470, Graham and Der 199971), the possible causal mechanisms appeared to
have been discussed largely by psychologists. The explanations include:
 That smoking alleviates stress, (Warburton 198572 Warburton et al 199173,
Schachter 197874) and poorer smokers counterbalance increased stress with
increased smoking.
 That smokers are already stressed by nicotine dependence, and that increased
stress means that the nicotine dependence is even more difficult to cope with,
and so increased smoking may occur (Cohen and Liechtenstein 199075,
Pomerleau 199076, Parrott 1995a77). The obverse to this is that in the long run,
quitting smoking reduces stress.
Both arguments support the idea that social interventions to reduce involuntary stress
for deprived smokers (housing, income, and creche facilities) can make quitting
easier.
Report to the Smokefree Coalition 14
3
The Evidence on Changes in Prevalence and Consumption
3.1
International evidence – tobacco tax/prices and low-income groups
3.1.1 Context
The effect of tobacco tax increases may be different for low-income groups when
there are different contexts. The context variables may include the price of other
products, the level and impact of health education (Leu 198478, Glantz 199379, Meier
and Licari 199780, MMWR 199681, Hu 199582) and the degree of social inequality
(Marsh 199783, Kennedy et al 199684). For instance if the price of nicotine
replacement products is low enough, they are a cheaper alternative than tobacco.
3.1.2 Effects
A number of articles report significant prevalence and consumption effects for people
in low-income households from tobacco tax increases, in Massachusetts (Biener
1998),85 all regions in the United States (Farrelly and Bray 1998a86 1998b87; Meier
and Licari 199788) and in the United Kingdom (Townsend et al. 199489; Townsend
199690). In these studies, low-income smokers were much more likely to quit and/or
decrease consumption than others. However, one British study reported little
difference for low-income smokers (Borren and Sutton 199291).
Within the discussion on the effects of price change on low-income people is the
question of the regressive or progressive effect – do tobacco tax rises adversely or
positively affect poor smokers more than rich smokers? Warner et al (199592) suggest
a possibly progressive effect from such increases where the price elasticity for lowincome people is high. This effect occurs when low-income smokers cut their
spending on tobacco more than the amount by which their previous spending would
have risen with the increase.
The World Bank, when reviewing the effects of tobacco tax rises, indicated that this
progressive effect has been found in studies in high income countries, but further
research is needed (Jha and Chaloupka 199993). Some of the evidence for a possible
regressive effect in Britain, for those with very high and multiple levels of
deprivation, is shown in Marsh and McKay (199494). This highly deprived group
(smokers and non-smokers) appears to be a small percentage of the population (and
composed largely of women). The implications are touched on in section five below.
The effects for youth
In the Massachusetts study (Biener 1998), youth from low-income families were more
likely than youth from richer families to cut tobacco consumption, but not to quit. If
teenagers in general are seen as a low-income group, then the evidence is significant
that some groups (such as British teenage girls) are very sensitive to price (Townsend
et al 199495).
Report to the Smokefree Coalition 15
Two earlier United States studies showed that those smokers under 17 and those 2025 were markedly more likely to reduce consumption, compared to those over 35
years (Grossman 198996). A later study (Grossman and Chaloupka 199797) showed
that significant increases in quitting by youth from tax increases, and that that such
changes may affect decisions to start regular smoking (they found that a 10% increase
in price resulted in a 7% decrease in teenage smoking prevalence). Another US study
again showed a significant price impact on smoking prevalence by 13-16 year olds,
with boys markedly more sensitive to price than girls (Lewit et al 199798).
A review of a number of studies indicated that for both quitting and consumption
reduction, tax increases have been shown to affect youth two to three times as much as
adults (Warner 199899). Indeed, a group of economists convened in 1995 by the
United States Office on Smoking and Health concluded that the value in discouraging
children from becoming addicted to nicotine was potentially the most powerful
argument for increased tobacco taxation (Warner et al 1995100).
3.1.3 Compensating behaviour
While the quantity purchased may decline, smokers may compensate by choosing
cigarettes higher in nicotine, by inhaling deeper, or by inhaling more often (and letting
less of the tobacco burn without inhalation). Thus the health effect may not be directly
related to the quantity purchased. In jurisdictions where tobacco is taxed by such
variables as cigarette or pack units, smokers can react to price increases by a move to
longer or bigger cigarettes.
One of principal publications on compensating smoking (Evans and Farrelly 1998101)
suggests that compensating behaviour largely reduced the health benefits of tax
increases, especially for young adults aged 18-24 years. However, the relevance of this
United States research for New Zealand may be affected by the tobacco taxation
system differences between the countries.
3.2
International evidence – tobacco tax/prices and indigenous or ethnic
groups
The literature search identified very little relevant material in this area. The only
specific study of tax effects for a largely indigenous community is Chapman and
Richardson’s study of New Guinea (1990102). This found significantly larger changes
for price changes compared to higher-income countries. Some of the policy
implications for lower-income regions and countries are discussed by Warner
(1990103).
Farrelly and Bray (1998a104 1998b105) report that Hispanic and Black (non-Hispanic)
smokers in the United States were more likely than others to reduce or quit smoking
after cigarette price increases, after controlling for income and education. Blacks were
more likely than Hispanics to quit rather than reduce smoking. Chaloupka and
Liccardo Pacula (1999106) report that young black men in the United States are
significantly more responsive to changes in price, compared to whites. A survey of
Report to the Smokefree Coalition 16
Hispanics in New Mexico suggested that income was a significant variable for
continued smoking, with those on low incomes having a higher rate (Samet et al
1992107).
A San Francisco study by Perez-Stable et al (1998108) suggests that Latino smokers
were more likely to quit than other groups for a range of family-related reasons.
Quitting due to the price effect of tobacco tax rises might also be family related for
some ethnic groups.
3.3
New Zealand evidence – prevalence and consumption changes
3.3.1 Context
The context for the effects of tobacco tax changes in New Zealand includes the
amounts spent by low-income households on other areas such as housing and food,
and the costs of nicotine replacement products.
Some of the evidence on context effects is shown in section 5.1 below.
3.3.2 Prevalence and consumption elasticity and low-income groups in New
Zealand
The background of studies of the New Zealand general population
Salter (1981)109 analysed the situation in New Zealand from 1961 to 1979, during a
period when the real price of cigarettes fell by over 30%. She found that estimated
quarterly short-run price elasticity was -0.21, annual price elasticity was -0.15 and
annual real income elasticity was 0.37. The annual price elasticity meant that the
general effect for the whole population of smokers of a tobacco price rise or fall of
10%, was a fall or rise in consumption of 1.5% (controlling for other factors such as
advertising). So despite health education, as real income went up, and the real price of
cigarettes fell, the demand for cigarettes rose.
Laugesen and Meads (1991110) investigated price in relation to other factors affecting
demand for tobacco, using weekly sales data in 1988 and 1989. Significant long-run
effects on demand from price were found. James (1995111) reviewed nine New
Zealand studies of tobacco demand from Salter (1981) to three reports in 1991. He
found a range of long run price elasticities reported for the general population of
smokers, from -0.41 to -0.52.
The effect for low-income groups
Morrison Cooper (1989112) reported that tobacco taxation in New Zealand was
regressive. This Tobacco Institute publication did not report on the effect of tax
increases.
Laugesen (1997113), using lone parents as an example of a low-income group, found
that tax increases during 1984-8 were not regressive for this group as a whole. As a
Report to the Smokefree Coalition 17
group they decreased their consumption at a rate sufficient to counter the price
increases, and to ensure that they did not pay a greater percentage of their income on
tobacco. He calculated that a 40% tobacco price increase meant 12% of smoking lone
parents quit, 26% reduced consumption, and 62% continued to smoke at the same
rate.
This study appears to have been the only one on the prevalence and consumption
effects of tobacco tax increases on different New Zealand socio-economic groups.
3.3.3 The prevalence and consumption effects for Maori
We have found only two studies which give any indication of the prevalence and
consumption effects of tobacco tax rises for Maori. Klemp et al (1998114) found some
indications that price was a stronger factor for giving up for Maori than health
education. However, the small sample size for this study means that this finding is
fairly tentative. The evidence from Holdaway (1999115) is discussed in section 5.1.
Some indication was found from this small non-random survey that price rises might
prompt some low-income Maori smokers to quit.
Report to the Smokefree Coalition 18
4
The Evidence for Health Benefits
4.1
Introduction
A general discussion on the health impact of tobacco taxes is covered in Moore
(1995116). His finding for the United States is that:
“tobacco tax increases in the previous year cause a significant decrease in the
mortality rates.”
Using US data for 1954-1988, his calculations show a 1% decrease in lung cancer,
cardiovascular disease and asthma mortality for a 10% increase in tobacco tax. Some
of the range of the health impact of tobacco use is detailed by Bartecchi et al
(1994117).
Research on identifying tobacco-related health impacts (Doll 1998118) would suggest
that reductions in tobacco consumption should reduce the occurrence of the
approximately 40 medical conditions. While the decline in ischaemic heart disease
and stroke tends to occur relatively rapidly, other conditions such as lung cancer may
not decline for decades after a decline in smoking.
Some of the detail of some smoking-related illness amongst Maori is described by
Bullen and Beaglehole (1997119). The particular benefits from tax increases, for
households with pregnant women and/or children, are stressed by Aligne and Stoddard
(1997120) and Adams and Young (1999121). Much of these avoided costs are in the
short term, so even when policy makers decide to heavily discount future benefits, the
advantages of protecting mothers and children from tobacco smoke remain.
4.2
International evidence – tax rises & the health of low-income & ethnic
groups
4.2.1 The context for the health impact
The general relationship between poverty and smoking is described by Smeeth and
Fowler (1998122), writing about the British situation:
“Smoking increases socio-economic health inequalities in two ways. Higher
rates of smoking among those with the lowest incomes mean that the burden
of disease due to smoking is highest in these groups. In 1991 adults in threequarters of the families receiving income support smoked, and one seventh of
their disposable income was spent on cigarettes. By exacerbating the poverty
of those on the lowest incomes, the health effects of smoking go way beyond
the direct effects of tobacco fumes.”
In the situation before a tax rise, the health effects of smoking go beyond the direct
effects of tobacco smoke, by exacerbating the poverty of those smokers on the lowest
incomes and the households in which they live (Lynch et al 1997123).
Report to the Smokefree Coalition 19
4.2.2 The health impact
Because they are more likely to quit with price rises; poorer smokers appear to gain
greater health benefits from tobacco tax rises compared to richer smokers, who
generally gain more from health education (Warner et al 1995124, Townsend 1996 125).
Warner (1987126) argues that the higher prevalence of smoking by and related health
impact on blacks in the United States means that they would benefit more from a
tobacco-free situation than whites. There is a lower use of nicotine patches among
African Americans and Hispanics in the United States, at only one third of the rates in
whites (Pierce et al 1995127). This may be another reason favouring the role of tobacco
tax, as part of the health policy package to address smoking in this population.
4.3
New Zealand evidence
The literature search identified no New Zealand-specific literature that directly related
tobacco taxation to population health benefits in the way that Moore (1995) has done
for the United States, as mentioned above in section 4.1. The evidence of the changes
in New Zealand tobacco use related to tax rises, as shown in section 3.3.2 above, can
be used to calculate health gains. A principal example is Laugesen and Clement’s
study on smoking mortality amongst Maori (1998128).
Other work does suggest that during the decline in tobacco consumption over the last
15 years there have been ongoing reductions in tobacco-related diseases including
ischaemic heart disease (IHD) and stroke (MoH 1997129; PHC 1994130). Sudden infant
death syndrome (SIDS) has also declined in recent years and tobacco exposure is an
important risk factor in the New Zealand setting (Mitchell et al 1997131). Declines in
IHD and stroke have also occurred among Maori. These favourable disease trends
may be partly due to reduced tobacco-exposure (due to interventions that include
taxation) but other factors such as dietary change (for IHD) and changes in sleeping
position (SIDS) are probably also important.
4.4
Summary of health benefits
A summary of some of the major potential health benefits from a tobacco tax rise that
reduced consumption significantly include:
 Reduced incidence of health problems among infants whose mothers smoked
during pregnancy (eg, low-birth-weight, birth complications, perinatal death,
behavioural problems in childhood).
 Reduced incidence of diseases in children that are associated with exposure to
second hand smoke (glue ear, respiratory infections, SIDS, asthma),
 Reduced incidence of diseases among smokers themselves (particularly ischaemic
heart disease, stroke, chronic respiratory disease and lung cancer).
 Probable mental and physical health benefits to families/whanau due to lower
financial strain (where smokers quit, or reduce consumption at a greater rate than
the tax increase effect).
Report to the Smokefree Coalition 20
5
The potential welfare impact on families/whanau
Some studies from Britain suggest that tobacco taxation may contribute to the poverty
experienced by smokers who do not quit (Marsh and McKay 1994132, Dorsett and
Marsh 1998133). Spenser (1996134) reported that for Australia in 1993-94, 16% of
weekly income was spent on tobacco by the lowest quintile (by income) of households
with smokers. She found that such households spent 280% more on alcohol than nonsmoking households did, and “considerably less on clothing and medical” services.
Lone parent households with smokers spent the same proportion of household income
on tobacco (4-5%) as other types of households with smokers.
The New Zealand evidence is very limited, but the data on lone mothers in the 1980s
(Laugesen 1997135) has suggested that this group decreased their consumption as a
group at a rate sufficient to counter the price increases.
5.1
The context of household spending
The possible financial hardship from increasing tobacco taxation can be crudely
considered by examining the cost of smoking as part of total household spending.
The proportion of spending – New Zealand data from 1985
Ashton and St John (1985)136 discussed the relative effects of tobacco taxation in New
Zealand for income groups. They used the (then) Department of Statistics Household
Survey of Expenditure Patterns to estimate the expenditure by different income groups
and family types.
They found that for the third to bottom decile (by disposable income) of families with
two adults and three children, over 4.5% of aggregate household disposable income
went on tobacco (ie, for all households). This compared with less than 1.5% for the
top two disposable income quintiles. For household with one adult and one or more
children, the aggregate proportion of household spending on tobacco went from 1.7%
for the second lowest income decile to 2.6% for the fourth lowest decile.
As only some households had smokers, those households would have spent a greater
proportion of disposable income on tobacco than the average (probably around three
times given that about a third of the adults in those groups smoked).
New Zealand data from 1994
Laugesen (1998137) found that the average (all non-smoking and smokers) household
spending on tobacco in 1994 was 1.6% of the total spending, while households with
smokers spent an average 6.7% of total spending. For lone parents the average
household spending on tobacco was also 1.6%, and he estimated that for households
with smokers the spending on tobacco was 4%. That compared with 20% spent on
food (assuming lone parent smokers spent the same amount on food as non-smokers).
Report to the Smokefree Coalition 21
The Palmerston North survey
A 1994 small non-random survey of low-income people in the Palmerston North area
indicated that a third of the Maori smokers used over 20 cigarettes a day. This was
estimated to cost 14% of an income of $250 a week. While 57% of the Maori smokers
said they had attempted to quit at some stage, only 16% said that this had been due to
the cost alone. Over a third of the Maori smokers said that “smoking was their only
luxury” (Holdaway 1999138).
The Ministry of Health 1996-97 health survey
Data from this survey has been used to create the table below. There is some
indication from these data that Maori are smoking less than Pakeha – but this is not at
a statistically significant level. Of note however, is that those with no qualifications
were significantly less likely to be light smokers than those with higher education.
Table 1 Reported number of cigarettes smoked among smokers by sociodemographic variables (percentages adjusted for cluster sampling) (based on
Ministry of Health 1999a139)
Key sociodemographic variable
Ethnicity
Maori
European/ Pakeha
NZDep96
1 (least deprived)
2
3
4 (most deprived)
Family income
0-$20,000
$20,001-$30,000
$30,001-$50,000
$50,001 +
Education
No qualifications
School or post school
only
School & post school
only
5.2
1-10
cigs per
day (%)
11-20
cigs per
day (%)
21+ cigs
per day
(%)
Comment
47.3
40.3
40.8
46.0
11.8
13.7
Maori smokers appear to have a
lower tobacco consumption than
Pakeha (but not at a statistically
significant level)
48.5
38.0
43.1
45.5
41.1
45.5
45.1
42.0
10.4
16.5
11.8
12.6
No statistically significant
differences.
44.8
40.3
49.0
42.5
41.8
45.2
40.1
44.4
13.4
14.5
10.8
13.1
No statistically significant
differences.
38.2
39.8
45.9
47.7
15.9
12.5
52.7
38.1
9.2
Those with no qualifications were
significantly less likely to be a
light smoker (1-10 / day) than
those with the highest level of
qualifications.
Comparing tobacco and other spending
Data from the 1996-97 Household Economic Survey (Statistics New Zealand 1997140)
are detailed in the tables below. To get the approximate spending by particular groups,
we have combined aggregate data and the percentage of households reporting
Report to the Smokefree Coalition 22
particular spending. So for instance while the average weekly spending on tobacco by
lone parents was $6.70, the average spending by smoking lone parents was
approximately $13. Lone parent families are used here by us as a proxy to measure the
impact of tobacco taxation for all deprived groups.
We stress that this is an approximation, to begin to give some context to the impact of
tobacco tax rises. It should be noted that the percentage of households given for each
decile or group is generally rounded to the nearest 10% due to the small sample for
most of the groups, and that there is some under-reporting of tobacco and other
spending, where these items are reported at all. To compensate for at least some of the
under-reporting of tobacco spending, we have added 20% to the reported amounts.
5.2.1 Comparisons between spending areas
Two questions have been asked for each type of household:
1. What is the comparable effect of a small (5%) increase in housing costs compared
to increases in tobacco prices, where households are not able to cut down on either
of the costs? So a 5% ($7) increase in average housing costs for a household type
might be more than a 30% ($5) increase in average tobacco costs for a household
with smokers.
2. What is the equivalent part of the food budget to the extra amount spent due to a
30% increase in tobacco prices, where the amount of tobacco used is not reduced?
For instance the average extra amount spent on tobacco by a household with
smokers who do not reduce might be $5, equal to 10% of the average food budget
for a type of household.
These estimates are to try and see the effect of tax rises on food available for
children, in the worst case of no reduction of smoking by adults. However, as the
extra money needed for tobacco will usually be taken from a range of discretionary
spending areas (transport, apparel, alcohol, household operation, leisure) and the
range will not necessarily include food, any such worst case effect is will nearly
always be much smaller or absent.
Table 2 - Average weekly expenditure by household income decile, year to March
1997 (Statistics New Zealand 1997141 with 20% added to reported tobacco
spending)
Spending
area
Tobacco
products
Alcohol
Housing
Income decile*
$13,100 to $18,499
$53,900 to $68,199
Under $13,100
Expenditure - all
income
groups ($)
Average
spending ($)
%‡
Average if
consumed
($) †
Average
spending ($)
%‡
Average if
consumed
($) †
Average
spending ($)
%‡
Average if
consumed
($) †
5.8
30
19
5.9
30
20
13.1
30
44
9.5
9.0
129.6
40
22
130
4.8
130.6
30
16
130
22.1
94.0
70
32
95
15.2
Report to the Smokefree Coalition 23
Spending
area
Food
Health
services
Total net
expenditur
e
Income decile*
71.9
9.6
448.4
50
70
19
56.1
6.9
50
55
14
130.5
18.4
80
130
23
14.9
100
448
366.6
100
366
782.1
100
782
662.8
Notes:
*
†
‡
This covers the two lowest income deciles, and the eighth income decile for comparison. As the
lowest income group has some self-employed and a higher total spending than the second-lowest
group, the latter can be used for examining the context of tobacco tax rises on the worst-off.
The average spending for only the households reporting spending on that particular area (eg,
tobacco, alcohol). So for an income decile spending an average $4.80 for all households on an
item (eg, tobacco), and where 30% of all the household decile reported such spending, then the
average spending in those households was approximately $16 on tobacco. When making
comparisons within the tables it should be noted that the households spending money on tobacco
are not necessarily those spending on alcohol.
The approximate percentage of such households reporting expenditure in a particular area. This
may be affected by some households not reporting particular types of spending (eg, alcohol). For
housing and food virtually all households report some spending.
Comparison of possible spending increases on tobacco to housing and food costs
 Generally the cost of housing only needs to move by 5% ($6.55) to create a larger
effect for low-income households with smokers than a 30% ($6) rise of tobacco
prices, for households who were not able to cut down on those costs.
 A 30% rise in tobacco prices for average low-income households who were not
able to cut down tobacco spending, would have been approximately $6, or about
11% of the spending on food by the second lowest income decile.
Table 3 - Average weekly expenditure by ethnic group of householder, year to
March 1997 (Statistics New Zealand 1997142 with 20% added to reported
tobacco spending)
Spending
area
Tobacco
products
Alcohol
Housing
Food
Health
services
Total net
expenditur
e
Maori
Pakeha/ NZ
European
Aver%‡
Average
spending ($)
%‡
Average if
consumed
($)‡
13.7
50
27
9.3
10.7
132.0
91.7
6.9
40
50
27
132
90
14
546.5
100
546
Pacific Island *
All ethnic
groups†
Average if
consumed
($)‡
Average
spending ($)
%‡
Average if
consumed
($)‡
29
32
9.6
60
16
9.5
16.7
117.6
110.3
16.6
57
3.2
137.8
95.6
4.2
30
30
10
138
95
14
15.2
71
29
118
110
23
662.1
100
662
514.3
100
514
662.8
age
spending ($)
Average
spend-ing ($)
14.9
Report to the Smokefree Coalition 24
Notes:
*
The sample sizes are so small that these figures are only indicative.
†
Includes all other ethnic groups eg, Asian people.
‡
See explanatory footnotes to Table 2.
Comparison of possible spending increases on tobacco to housing and food costs
 Generally the cost of housing only needs to move by 5% ($6.60) to create a larger
effect for Maori households with smokers than a 20% ($5.40) rise of tobacco
prices, for households who were not able to cut down on those costs.
 A 30% rise in tobacco prices would, for average Maori households with smokers
who were not able to cut down, have caused a spending rise of approximately $8,
or about 9% of the spending on food by the Maori households.
Table 4 - Average weekly expenditure by household type, year to March 1997
(Statistics New Zealand 1997143 with 20% added to reported tobacco
spending)
Spending
area
1 adult, 1 or more
children
Average % *
Average if
spending ($)
Tobacco
products
Alcohol
Housing
Food
Health
services
Total net
expenditure
consumed
($) *
2 adults, 3 or more
children
Average
% * Average if
spending ($)
All
types
consumed
($) *
Average
spending
($)
8.0
50
17
8.8
33
26
9.5
3.0
161.1
70.4
4.2
17
8.2
233.2
151
13.3
50
67
14
230
150
20
15.2
33
18
160
70
13
446.7
100
446
831.4
100
831
662.8
14.9
Note:
*
See explanatory footnotes to Table 2.
Comparison of possible spending increases on tobacco to housing and food costs
 Generally the cost of housing only needs to move by 5% ($8) to create a larger
effect for households with lone parent smokers than a 45% ($7.65) rise of tobacco
prices, for those who were not able to cut down on those costs.
 A 30% rise in tobacco prices would on average, for lone parents who were not
able to cut down, have been approximately $5, or about 7% of the spending on
food by the lone parent households.
5.2.2 Using the data from the tables
Users of these data need to be aware of the approximations involved. They need also
to be aware that the data masks both the worst cases and possible ameliorating effects.
Report to the Smokefree Coalition 25
While the tables above show some consequences for some groups, they are not able to
reveal the effect of tobacco tax rises on the worst case situations – usually young lowincome heavy-smoking lone parents, with no qualifications, in rental property, who
are not able to give up or reduce smoking.
However, it is the nature of any spending changes which result from tobacco tax rises,
that will determine the impact on poverty. Reduced expenditure on healthy food,
education, housing and health services might all have adverse health impacts and
intensify the poverty trap. Reduced expenditure on alcohol may have health benefits,
and some spending reductions may be neutral.
5.2.3 Summary – Comparison of tobacco and other spending
For low-income groups, Maori and lone parent households:
 Generally the cost of housing only needs to move by 5% to create a larger effect
for households with smokers than a 20% rise of tobacco prices, for households
who were not able to cut down on those costs. Maori households appear to have
the most vulnerable ratio of housing and tobacco spending. Low-income and lone
parent households required a 30% and 45% rise in tobacco prices to approximate
the effect of a 5% housing cost rise.
 A 30% rise in tobacco prices for households, who were not able to cut down
tobacco spending, would have been, at most, about equal to 11% of the spending
on food. Low-income households appeared have the most vulnerable ratio of food
and tobacco spending.
5.3
Welfare impacts for Maori and low-income families/whanau
Insofar as tobacco tax increases may cause more quitting for low-income groups than
other groups, low-income groups may gain significant welfare benefits. There are
potential social implications of decreased mortality from major tobacco-related
diseases such as IHD. These include the increased social cohesiveness where older
people survive for part or all of their grandchildren’s childhood. This may have
special relevance for Maori, who at present lose a much larger proportion of their
kaumatua to premature death compared to Pakeha. Beyond the role of elders in any
society, kaumatua have a crucial role in sustaining Maori culture and Te Reo Maori.
Other unquantified potential benefits of reducing smoking prevalence for low-income
people are the reduced risks of lost income associated with illness and time off work
to care for children with ETS-related illnesses (asthma, respiratory infections, glue ear
etc). Becoming smokefree for some individuals may also have benefits in terms of
self-esteem and confidence – which may assist young people in obtaining and
retaining paid employment. For Maori, the auahi kore / smokefree identity may be part
of developing a stronger identity with Maori culture (in which traditionally no moodaltering drugs were used). However, such potential benefits are only supported by
anecdotal evidence and require further research to clarify their importance.
Report to the Smokefree Coalition 26
5.4
The welfare implications of the use of nicotine replacement
therapy
The availability of nicotine replacement therapy (NRT) potentially allows smokers
who continue to be dependent on nicotine to avoid the potential financial impact of
tobacco taxation increases. This is because routine use of nicotine gum or transdermal
nicotine patches obtained from a pharmacy are substantially cheaper than smoking a
packet of 20 cigarettes per day. While there is a higher up-front cost to NRT (at a
minimum of around $20 for a pack of gum and $30 for a pack of transdermal nicotine
patches) some smokers can manage this by sharing packs of NRT.
The cost to the consumer per day for the use of gum ranges from $4.80 to $6.45;
patches from $4.20 to $5.50; nasal spray from $3.20 to $4.55; and inhaler around $8
per day. These prices compare to $3.15 to $7.90 for 10 to 20 cigarettes per day. The
median cost of a nicotine patch ($4.80 per day) is approximately equivalent to the cost
of smoking 15 cigarettes per day (National Health Committee 1999144).
Other welfare benefits of using NRT flow from the way that it increases rates of
quitting (based on four extensive reviews: Silagy et al 1994145; Fiore et al 1994146;
Tang et al 1994147; Silagy et al 1997148). Therefore the use of NRT should reduce the
costs of health problems that are associated with tobacco use in the short-term (eg,
asthma exacerbations and respiratory infections). Similarly, NRT provides the weight
loss benefits that some smokers see as a benefit from smoking. Nevertheless, many
smokers are unlikely to find NRT a suitable substitute given that it does not fulfil
certain perceived “advantages” of smoking (eg, immediate relief of withdrawal
symptoms, and “looking cool / sexy”) and has potential disadvantages (eg, risks of
minor side effects such as rash).
5.5
Potential impact on the use of alcohol and other substances
Some smokers may respond to a tobacco tax increase by switching to other drugs such
as alcohol. There are no data on this issue for New Zealand but limited international
data does suggest interactions between the usage rates and prices of various drugs:
 Research in Spain suggests that increasing the taxation of alcohol reduces tobacco
consumption (Jimenez and Labeaga 1994149).
 Some US work suggests that cannabis use and frequent drinking are substitute
activities (Yamada et al 1996150; Chaloupka and Laixuthai 1994151).
This tentative international work may not be relevant to New Zealand. Nevertheless,
given that home-manufactured beer and spirits are not subject to tax in this country, it
is possible that the use of these products may increase if tobacco and alcohol taxes
continue to increase. This should be a potential concern given that alcohol misuse has
significant adverse health and welfare impacts for New Zealand as a whole and lowincome groups and Maori in particular (MoH 1999152).
Report to the Smokefree Coalition 27
We found no published data on interactions between cannabis usage and tobacco
prices, though such interactions are plausible given some data on interactions between
alcohol and cannabis usage (as detailed above). Nevertheless, any substantial increase
in the consumption of cannabis associated with high alcohol and tobacco prices may
be of concern for the health of low-income groups who may be disproportionately
high consumers of cannabis.
Interactions between tobacco prices and consumption levels of other drugs (opiates,
amphetamines, ecstasy etc) are also plausible – but no data are available. This is also
the case for caffeine (in the forms of coffee, tea and some soft drinks) which is the
most commonly used mood altering substance in New Zealand. Nevertheless, there is
some literature on the interactions between caffeine and nicotine dependency (eg,
Hepple and Robson 1996153).
5.6
Criminalisation associated with smuggling
The international literature suggests that high tobacco taxes is associated with tobacco
smuggling (eg, in Europe – Joossens and Raw 1998154). Tobacco smuggling is related
to the degree of corruption in a country (World Bank 1999155) and it may support
gangs and other criminal activities such as money laundering. In New Zealand, all
tobacco farming has ceased and no evidence was found that tobacco is smuggled into
New Zealand on a commercial scale. Indeed, such smuggling is probably unlikely
since the geographical isolation of New Zealand and its relatively vigilant Customs
service makes smuggling of large volumes of tobacco very expensive and risky.
As tobacco taxation may increase among all developing and developed nations (as
recommended by the World Bank in the same document) it is plausible that the
financial rewards for inter-country smuggling may even decline in the future. The
World Bank also notes that there are a range of anti smuggling measures (improved
pack labelling and use of serial numbers, licensing of the relevant distribution
agencies, increasing penalties, increasing surveillance and computerised tracking
systems). The Bank suggests that as experience grows with these measures, “the
prospects for better controls in all affected countries are likely to improve”.
The purchase of tobacco products over the Internet and the postage of these to New
Zealand might become a more common way to evade high tobacco taxes if these are
increased. However, such mail can be detected by Customs officials using dogs
trained to smell drugs. The legal loophole of duty-free tobacco is more of an
advantage to high-income smokers who are more likely to travel internationally than
other smokers. Indeed, the presence of the duty-free supply has a potential to be
increasingly important as the tobacco tax is raised.
Report to the Smokefree Coalition 28
6
The context for policy-making involving tobacco tax rises
6.1
The impact for the wider society
It is possible to identify the range of likely benefits for the wider community that
would result from tobacco tax caused reductions in smoking prevalence and tobacco
consumption levels. The present costs from tobacco for the wider community, in so
far as they slow real economic growth, restrict the options for government in changing
policy. This restriction may impact on Maori and low-income families/whanau.
Benefits to the workforce: Benefits would arise from reducing the adverse effect of
smoking on workforce productivity since:
 Smokers in middle age and in the workforce are more likely to die than nonsmokers. The cost of the reduced labour force from smoking in New Zealand has
been estimated at $400 million in 1990 (Easton 1997156).
 Smokers have higher absenteeism rates (due to tobacco-related illness in
themselves and their children) (Batenburg and Reinken 1990157). One estimate for
the lost productivity in New Zealand from smoking-related morbidity is $90
million in 1990 (Easton 1997).
 The productivity of smokers is generally impaired due to the need for regular
smoking breaks and due to higher illness rates among those still attending work
(eg, respiratory infections). One estimate based on New Zealand data suggests a
cost of $45 million per year (Easton 1997). There is also some evidence that
nicotine impairs people’s ability to carry out complex manual tasks with precision
(Contreras-Vidal J. Reported in: New Scientist 1999: (27 November): 25).
 The productivity of non-smokers exposed to secondhand smoke can be impaired
due to nuisance effects or adverse health effects (increased risk of asthma attacks
and respiratory infections).
Reduced smoking in workplaces (ie, those not covered by the smokefree environments
legislation) would also have potential benefits to business in terms of reducing the
following:
 cleaning costs,
 computer malfunction costs (computers are damaged by ETS),
 fire insurance costs,
 costs associated with extra levels of ventilation,
 wastage of personnel time spent in resolving disputes between smokers and nonsmokers.
These workforce productivity and lower cost benefits are likely to benefit employers
and the wider economy, but they may also flow on to low-income employees in some
situations (eg, by providing more jobs).
Reduced risk of fires: Reductions in smoking would reduce the risk of house fires and
forest fires that cause property damage and also threaten life. In New Zealand the cost
of tobacco-related fires is estimated to cost around $15 million a year (Easton 1997).
This particular benefit is likely to be relevant to Maori and low-income
Report to the Smokefree Coalition 29
families/whanau without smoke alarms whose homes and lives are at increased risk
from smoking-related fires.
Reduced cost burden on the health sector: Reduced smoking would tend to reduce
lifetime medical expenditures – at least according to some US data (Hodgson 1992158).
Another estimate for the cost of smoking to the New Zealand Public Health Service
was of $185 million in 1989 (Phillips et al 1992159). However, this study did not
consider the health sector costs avoided among smokers associated with dying at
much younger ages than non-smokers.
The World Bank estimate that 6-15% of medical costs are smoking related in higherincome countries (Jha and Chaloupka 1999160). Using this range, New Zealand may
have spent $480-$1200 million of the 1997-8 total health spending ($7994 million) on
such costs (Ministry of Health 1999b161).
Reduced societal cost of tobacco usage: Reduced smoking would tend to reduce the
total cost of tobacco usage to society. This may be a considerable benefit given that
one New Zealand study puts the overall social cost of smoking in New Zealand at
3.2% of total human capital and 1.7% of GDP (Easton 1997). The costs of smoking in
this study (using a value of a human life at two million dollars) totaled $22.5 billion
for the 1990 year (relative to a scenario of no smoking) with tangible costs being $1.2
billion. While there is some debate over what monetary value such analyses should
put on human life, this analysis used the most officially recognised value in New
Zealand at present ie, the one based on work by the Land Transport Safety Authority
(Miller and Guria 1991162). Some economists may argue over other methodological
aspects of this work by Easton, but it does give some indication of the huge scale of
the adverse impact of tobacco use in New Zealand.
6.2
The fiscal context for government and the community
The total identifiable amount spent by government on tobacco control has been less
than $13 million annually (Laugesen 1999163, Ministry of Health 1998164). This
compares to the annual government revenue from tobacco sales of around $800-850
million during 1997-98 (Treasury 1997b165), and the estimated tangible costs in 1990
of tobacco use in New Zealand, of $1220 million (Easton 1997166).
6.3
Summary of the advantages and disadvantages for the wider
society
This section summarises the main advantages and disadvantages of further increases
in tobacco taxation in the New Zealand policy-making setting:
Advantages of increased tobacco tax:
 Reduced probability of the uptake of smoking by young people.
 Reduced smoking prevalence and level of smoking (reduced harm to smokers).
 Reduced harm to non-smokers from passive smoking (fetuses, children, and nonsmoking adults).
Report to the Smokefree Coalition 30


Probable cost savings to society from reducing the adverse economic impact of
smoking (especially for the health sector and industry).
Increased government revenue which is potentially available to promote health
and support quitting and which can be used to off-set economic hardship among
low-income groups.
The potential disadvantages of increased tobacco tax:
 The possible increased risk of economic hardship in the households of smokers
who don’t quit or cut down in proportion to price rises (with potential adverse
effects on health and welfare).
Report to the Smokefree Coalition 31
7
Discussion of the health and welfare impacts
7.1
Principal findings
Immediate impact on smokers: There is strong evidence internationally and from
New Zealand data that increasing tobacco tax enhances quitting and reduces
consumption among smokers. There is some international evidence to suggest that this
impact is greatest for low-income smokers.
Youth uptake: There is reasonable evidence internationally that increasing tobacco
tax reduces the uptake of smoking by young people. However, there are no New
Zealand data on this issue.
Health impact on smokers and those around them: The dominant evidence is that
most smokers are nicotine dependent, suffer severe health outcomes (half of long-term
smokers die as a result of their smoking), and their smoking harms others (fetuses,
children, and adult non-smokers). Taxation increases reduce this health impact for
those that quit or reduce smoking. However, unless there are compensating measures
by government to reduce the levels of deprivation for low-income smokers, there are
suggestions that those with multiple indicators of deprivation may be less likely to
quit than those with limited deprivation. The groups most likely to be severely
deprived include Maori and single parents (nearly all of whom are women).
Financial hardship: There is the risk of increased hardship where smokers do not
quit or reduce sufficiently to compensate for the increased cost of tobacco. However,
such hardship may decline where smokers quit or reduce sufficiently. Work in Britain
has suggested that where there are not compensating measures by government to
reduce the deprivation for low-income smokers, tobacco tax increases are likely to
increase hardship. However, the limited New Zealand data to date do not support this
for the aggregate group of lone parent families (due to compensatory reductions in
tobacco use).
The average spending in 1996-7 on tobacco by lone parent smokers has been
estimated (see section 5.2) at $17 per week (4% of the total spending of their
household). A 30% tobacco price increase could have caused about a $5 per week
increase in tobacco spending for those who did not quit or reduce smoking. The
potential for any resulting hardship may be avoided by nicotine dependent individuals
regularly using nicotine replacement therapy (NRT), which is cheaper for the
equivalent dosage than smoking a packet of 20 cigarettes a day. Policy options for
government to avoid any such hardship for the households of non-reducing smokers
are discussed below.
Other potential adverse effects: Increases in tobacco tax may potentially alter usage
rates of other drugs (alcohol, cannabis) but there are no good data on such effects.
High tobacco taxes are related to increased tobacco smuggling internationally but this
may be less likely to occur in New Zealand due to its isolation.
Report to the Smokefree Coalition 32
Methodological complexity: There are many methodological and conceptual issues
that complicate any detailed considerations of the health, social and economic aspects
of smoking and the use of tobacco taxation to control tobacco.
7.2
Strengths and weaknesses of the state of evidence
The international evidence concerning the potential benefits of tobacco taxation is
generally strong. Similarly the overall New Zealand evidence concerning the impact
of increased tobacco taxation on reduced consumption is strong. However, from a
New Zealand perspective there are major areas of uncertainty:
 The impact of increases in tobacco taxation on smoking rates among young
people, low-income groups, Maori and women.
 The impact of increases in tobacco taxation on financial hardship experienced by
low-income groups and Maori.
 The impact of increases in tobacco taxation on usage rates of other drugs
(particularly alcohol and cannabis).
Report to the Smokefree Coalition 33
8
The implications for public policy
8.1.1 Policy options
There is a range of options to complement tobacco tax increases, which include:
Enhancing motivation and means to quit: Strategies include enhancing existing
services (the promotion of the free Quitline) and boosting the current low-budget
smoking cessation mass communications campaign (the “Quit Campaign”).
Fully subsidising nicotine replacement therapy for low-income groups: This action
would further reduce the cost gap between smoking and using NRT (eg, for
Community Services Cardholders). A more detailed discussion paper of this approach
is currently being prepared for the Health Funding Authority by one of these authors
(Wilson 1999167).
Allowing NRT to be sold in supermarkets: This action would probably further reduce
the price of NRT (patches and gum) relative to the current pharmacy-only status. Such
an approach appears to have proved successful in the USA (Oster et al 1996168; CDC
1997169; Shiffman et al 1997170; Lawrence et al 1998171; Shiffman et al 1998172).
Part-subsidising smoking cessation counseling for low-income groups: A voucher
system could allow smokers to purchase an effective amount of counseling from the
smoking cessation counseling provider of their choice (eg, GP/nurse counseling, Noho
Marae programmes, hypnotherapy, group programmes etc).
Enhancing benefit payments and/or reducing income tax for low-income groups:
These approaches are relatively blunt policy instruments but they could potentially
off-set some of the potential adverse impact of increased tobacco tax. It would also
help reduce the underlying social determinants of smoking (Marsh and McKay
1994173, Dorsett and Marsh 1998174, Graham 1994175 and 1998176, Graham and Der
1999177). The approach is also desirable on other public health grounds (such as
reducing income inequality in society) and would help with achieving other
government social objectives (eg, gender equality, strengthening families and
enhancing social cohesion).
The converse of all the considerable evidence that shows how multiple disadvantages
decreases the ability to stay smokefree is that:
“It is impressive how small a rise in the quality of material life is associated
with a sharply lowered incidence of smoking” (Marsh and McKay 1994178:
83).
Those who argue that the raising of the incomes of the poorest and most
disadvantaged will encourage smokers, or not affect their smoking, need to address
the evidence arising from cuts in the real incomes of the poorest. In Great Britain
(Marsh and McKay 1994179 chapter 3) it appears that such income cuts eventually
increase the prevalence of smoking amongst the poorest, or at least slow the reduction
Report to the Smokefree Coalition 34
compared the reduction by other groups. The higher prevalence amongst poor smokers
appears (once the effect of smoking parents is removed) largely related to their
relative lack of quitting as adults (Graham 1998180).
Changes in other taxes or social interventions: Other taxes have impacts on lowincome groups, including GST and rates. Changes to these taxes could be used to
offset the potential financial hardship associated with increases in tobacco taxation
and to achieve parallel social objectives. Housing creche and educational interventions
could further modify the impact of tobacco tax rises, while also reducing the social
determinants of smoking.
8.1.2 Linking tobacco tax increases with other policy developments
New Zealand evidence
The principal details we found of Treasury advice to the New Zealand Government on
dedicated tobacco taxes showed that this agency argued that these taxes:
“restrict the Government’s ability to adjust fiscal policy as required or ensure
that competing claims for resources are assessed on an equal basis” (Spenser
1991181).
The Sullivan review of 1988 (New Zealand Customs Department 1988182) and the
Public Health Commission in 1995 (PHC 1995183) both suggested that tobacco control
funding could be directly raised from tobacco taxation.
The Ministry of Health has recommended:
“a linkage, by way of a communications strategy, of an increase in excise and
additional spending on new smoking reduction initiatives. …. The
development of a communications strategy is recommended to present the
excise increase as part of the Government’s commitment to reducing tobacco
consumption.” (Ministry of Health 1997184).
There appears to have been no published in-depth New Zealand research on the
dedicated use of tobacco taxation.
International evidence - Direct health sector funding from tobacco tax: This occurs
in at least five countries including seven US states and three Australian states (PHC
1995185). The experience of the United States is that tobacco tax funded initiatives can
contribute to significant improvements in tobacco control and reductions in smoking
prevalence (Hu 1998186). The British government has announced it intention to:
“divert to the national health service any additional revenue raised from future
real increases in tobacco tax” (Finch 1999187).
Linking with interventions for Maori and other ethnic groups: Elder (1996188)
records the use of the California dedicated tobacco tax to enable tobacco control
Report to the Smokefree Coalition 35
activities to reach diverse ethnic groups. As over 22% of all New Zealand smokers,
Maori smokers contribute at least $200 million a year to general revenue. We found
only one published mention of the policy implications of tobacco taxation for Maori
(Reid and Pouwhare 1991189). Evidence on the Treaty implications of Crown health
policy has been given in the Napier hospital case before the Waitangi Tribunal in 1999
–2000, but the transcript was not available by the time this report was produced.
A proportion of tobacco taxation revenue derived from Maori smokers could be
dedicated to a Maori-controlled tobacco control agency. This would achieve Treaty of
Waitangi objectives for tino-rangatiratanga, as well as helping attack the large
disparity of smoking-related health and welfare consequences for Maori.
Other specific dedicated proportions of tobacco tax: These include options for youth
and the poor or deprived. A proportion of the tobacco taxation revenue derived from
illegal sales to youth (under 18 years) could be dedicated specifically to tobacco
control targeted at youth.
The proportion of tobacco taxation revenue derived from the lowest quartile by
deprivation could be dedicated to helping those smokers quit. Of this quartile, 36.9%
smokes (Ministry of Health 1999a190) and as they smoke at similar levels to the
general population (Table 1) they would contribute at least $300 million a year
through tobacco-related taxation (excise and GST). Bloomfield (1999191) has
estimated that the 40% with the lowest income are paying over $500 million a year in
tobacco-related taxes.
Dedicated taxes for use beyond a narrow definition of the health sector: To prevent
hardship to those members of low-income groups who continue to smoke at the same
level, it has been proposed for Britain (eg, Townsend 1996192) that increases in
tobacco tax could be linked with other financial changes (eg, lowering income tax for
low-income groups or increasing payments to beneficiaries).
Discussion: Without the legislative tying of tobacco related revenue to tobacco
control, any ‘linked’ funding of initiatives are unlikely to be appropriate in size. By
‘appropriate’ we mean where funding is in a meaningful relationship to the costs of
tobacco use. Without a legislative base, linked funds are also very vulnerable to
erosion.
While there are periods in New Zealand (eg, 1986-91) and elsewhere where large
gains in tobacco control have been achieved without dedicated taxes, the notable
tobacco control success of such places as California, Massachusetts (CDC 1996193)
and the Australian State of Victoria argues for the adoption of this method. This
approach is also being introduced in the UK (Beecham 1999194).
Should a dedicated tax be considered, the experience in New Zealand (Thomson and
Wilson 1997195) and elsewhere is that politically defensible institutional structures
need to be used to protect the continued success of the tobacco control work (Novotny
and Siegel 1996196, Pierce-Lavin and Geller 1998197, Aguinaga Bialous and Glantz
1999198).
Report to the Smokefree Coalition 36
The Treasury argument on dedicated taxes appears to ignore the ethical implications
of revenue from an addictive substance, where the starting consumer is not fully
informed. There appears to be ethical considerations to address in the use of tobaccorelated taxation for other purposes than helping those dependant on nicotine to quit,
helping prevent young people becoming dependant and protecting non-smokers.
James (1995199) covers some of the basic discussion within the current New Zealand
policy framework on the equity aspects of tobacco taxation. We found no published
New Zealand investigation of the wider ethical framework relevant to this area.
However, Graham (1998200) comments on aspects of the Australian relationship
between tobacco control and ethics. Also, Lewit (1989201) has discussed the possible
inequities from regressive tobacco taxes.
8.1.3 Summary of the policy options
To reduce the potential for increases in tobacco taxation to worsen financial and other
hardship for low-income smokers, policy makers can consider the following
immediate measures:
 Enhancing motivation and the means to quit:
 Expanding mass media campaigns.
 Fully subsidising NRT for low-income groups and allowing NRT to be sold in
supermarkets.
 Expanding Quitline services and part-subsidising smoking cessation counseling
for low-income groups.
 Reducing the social determinants of smoking and countering any financial impact:
 Enhancing benefit payments and other transfers (eg, housing help) for low-income
groups.
 Reducing income tax for low-income groups.
 Making appropriate changes in other taxes (eg, GST and rates).
Longer-term measures that would improve the ability to quit or reduce smoking, and
thus reduce the possible financial and other hardship for low-income smokers include:
 Increased regulation for smokefree environments.
 The full disclosure and control of cigarette constituents and combustion products.
 The further control of tobacco marketing (eg, plain packaging, restrictions on the
point of sale).
To ensure that there are the long-term resources to put particular interventions into
place, the options include the introduction of dedicated tobacco taxes. There appears
to be ethical considerations to address in the use of tobacco-related taxation for other
purposes than helping those dependant on nicotine to quit, helping prevent young
people becoming dependant and protecting non-smokers.
Report to the Smokefree Coalition 37
8.2
The implications for future research
The major shortfalls found in information on the New Zealand impacts from tobacco
tax rises are the:



Amounts by which young people, low-income groups, Maori and women change
their spending, and the variation between quitting, reduction and maintained
consumption within those groups.
The welfare impacts (positive and negative) due to increases or decreases in the
household budget available for other items, the decrease in uptake by youth, and
due to the health consequences of quitting and reducing consumption.
The policy implications of tobacco taxation for Maori and low-income
families/whanau. In particular, there appears to be a need for research on ways to
ensure secure funding proportionate to costs of tobacco use for those groups, and
on the Treaty of Waitangi implications of tobacco taxation.
Such work should ideally consider all sources of tax burden and put tobacco taxation
in context with the impact of income tax, GST, and alcohol taxation.
Research into the impact of increases in tobacco taxation on usage rates of other drugs
(particularly alcohol and cannabis) is also desirable. However, such research may be
fairly difficult while cannabis is an illegal substance and has a highly distorted market
price.
Agencies that have a role in supporting and funding such research work include the
Health Research Council, the Ministry of Health, the Health Funding Authority, the
Health Sponsorship Council, Customs and the Treasury. There appears to be a
pressing need for a central plan and coordination of tobacco-related research within
government agencies.
Report to the Smokefree Coalition 38
9
Recommendations to government
1. Research funding: That government funds further research work on the impact of
tobacco taxation which could use the full depth of a number of rich existing data
sources (eg, Household Economic Survey unit data, Census unit data). This work
should include research surrounding any future significant tobacco taxation
increases and the impact of this on Maori and low-income families/whanau.
2. Increasing tobacco taxation: That all government agencies work towards further
increasing tobacco taxation in New Zealand (ideally one very large price increase
every two years). These increases should be accompanied by interventions to
minimise the potential financial hardship to some Maori and low-income
families/whanau and to decrease the social determinants of smoking. These
interventions include stronger mass media campaigns, continued free access to the
Quitline, fully-subsidised nicotine replacement therapy for low-income smokers,
and increased welfare benefits or reductions to the income tax burden for lowincome groups.
3. Plugging taxation loopholes: That government acts to ban all tobacco sales from
duty-free stores based in New Zealand.
Report to the Smokefree Coalition 39
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