TDB/Infometrics flag $1.3 billion cost of 'redundant' tobacco crackdown

TDB Advisory and Infometrics, two of New Zealand's premier economic consultancies, have collaborated on a new analysis of the likely effects of the Government's planned tobacco crackdown.

A headline finding from their 142-page report: additional costs imposed on New Zealanders from the crackdown are conservatively estimated to total around $1.3 billion over the next ten years. That works out as an extra cost of about $3900 per current smoker to implement a set of measures that TDB and Infometrics consider "largely if not entirely redundant".

Ayesha Verrall's Smoked Tobacco Amendment (STA) will slash the number of tobacco retailers by at least 90 percent, slash the nicotine content in cigarettes by at least 90 percent, and prohibit anyone born after 2008 from legally purchasing cigarettes.

The massive costs estimated by TDB/Infometrics only cover those factors considered 'quantifiable': Costs of administration and Customs resources, costs to the retail sector, and costs to broader society including increased travel costs for smokers, increased crime from illicit trade, and impacts on the tax system.

Here's the breakdown:

Interestingly, the single largest cost is one that has received little attention so far: with a 90 percent reduction in retail outlets, smokers will be forced to get in their cars and travel far further to obtain their fix, forking out more in fuel costs and lost time. The report notes this cost will hit Māori smokers (who tend to live more rurally) especially hard.

The report goes on to examine other countries who've pursued strict restrictions on tobacco supply, finding 'little or no reduction' in actual smoking as smokers switch to black markets. Meanwhile black market-related crime increases while tax revenues crater.

On matters of public concern like tobacco harm, politicians on both sides of the political aisle suffer from a near-insatiable urge to be seen to do something. But any experienced policy analyst ought to consider the costs and benefits of a 'do nothing' option alongside proposals for intervention.

Indeed, the TDB/Infometrics report makes a surprising case for the do-nothing option: based on current trends, New Zealand is already on track to achieve its "smokefree" goal (defined by Tariana Turia back in 2011 as five percent of the population smoking) by 2026 as smokers increasingly make the switch to less-harmful vaping products. In fact, among year 10 students, the goal has already been achieved, with just three percent smoking daily.

For those specific population groups (such as Māori and Pacific) who are not on track to reach to reach the five percent goal, TDB/Infometrics recommend more targeted interventions that do not impose massive costs and fuel criminal activity.

TDB and Infometrics conclude:

Overall, this report finds the STA is largely if not entirely redundant, with the smokefree target of 5% likely to be achieved by 2026 even without the STA. The Act is also highly costly, imposing costs on society of over $1 billion, costs that do not need to be incurred. In addition, in some respects, the package may in fact be counterproductive in terms of discouraging smoking, such as if the growth in the illicit market sees reduced price (tax-free) product being more available, if reduced nicotine levels lead people to smoke more low-nicotine cigarettes to satisfy their desired nicotine levels, or if the reduction in the number of retail outlets encourages people to bulk buy cigarettes.

New Zealand's smokers are, of course, taxpayers – persecuted with some of the highest tobacco excise tax rates in the world, paying far beyond any costs they impose on the health system. Instead of forcing them to procure their fix from a criminal-led black market, we ought to be thanking them for their contribution to vital public services.

While the STA has passed all three readings in Parliament, its implementation doesn't begin until mid-2024, meaning there is still the opportunity for repeal post-election.