New report exposes tobacco tax well past the Laffer Curve: Hiking taxes on durries now means less revenue, more smokers

A new report on New Zealand’s illicit tobacco market shows the Government’s tobacco excise policy is blowing smoke up gangs and criminals — while driving the first increase in smoking rates in decades.

The report by FTI Consulting reveals that illicit tobacco now makes up 27 percent of all cigarettes smoked in New Zealand, up from 23.6 percent last year and 16.5 percent in 2022. The result: over $600 million in lost excise revenue in 2024 — and an increase in smoking rates.

Taxpayers’ Union Executive Director Jordan Williams said:

“This is textbook Laffer Curve economics. The Government has pushed excise rates so high that every further tax increase now reduces the tax take. While tax receipts for tobacco products are falling, demand hasn’t disappeared — it’s just gone underground."

“With nearly a third of cigarettes smoked in New Zealand now illicit, the losers are taxpayers, the health system, and legitimate retailers. The winners are the counterfeit Chinese producers, the smugglers, and organised crime."

“The irony is staggering: years of punitive tax hikes meant to cut smoking have instead increased smoking while starving the Treasury of hundreds of millions in revenue. If the Government is serious about a smoke free New Zealand, it needs to stop virtue signalling and get serious about enforcing the law.”

“Over-taxation has created a whole new market for dirt-cheap counterfeit cigarettes. That means while the tax receipts are going down, the actual number of people smoking is going up. This report should be a wake-up call.”