The New Zealand government is reducing smoking by increasing tax on cigarettes. It seems that every 10% increase in excise, cigarette smoking declines 5%. Hmmm. Let me get this right. The tax increase adds money to sorely depleted government coffers. So how does it all stack up?
The smoker has to pay more for this unhealthy habit, in most cases cutting back on other things to continue.
The tobacco companies will lose 5% of their turn over. They will breathe a sigh of relief it is not more.
The government estimates with future increases, revenue will rise from $1.2 billion a year to $1.7 billion by 2016.
Had the price gone up by 20 or 30%, the shock would have had greater effect in stopping more people. As someone noticed "If you have a big hit, it's difficult for the tobacco industry to cut that. With smaller ones, they can adjust their prices and smooth the effect of an increase. With a big hit, they have less ability to do that."
NZ is struggling to balance its books financially. The good news is that this increase will help achieve that goal. The bad news is the government is even more reliant on tobacco excise. That may be the reason there is only a 10% increase, not one much higher.
In summary, it's not just the smoker then that is hooked on tobacco.
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