Tax and Black Market Update

No more 'sin' taxes, please
2/19/10
Cigarettes have many uses. I was gagging for a fag at last month's Al Green concert. As the organ-heavy riff of Love & Happiness brought Green's sacred sounds to the secular church of Auckland's Civic Theatre, noxious vapours rose from the crowd. A couple of durries would have masked the overpowering body odour.
Actually, several people did light up, but they were only smoking cannabis, and nobody seemed to mind. If they had been inhaling the legal drug, tobacco, there would have been a hue and cry.
Many non-smokers seem surprisingly tolerant and even partake of the odd joint, but fulminate at the merest whiff of tobacco fumes.
Now anti-smoking campaigners want ciggies banned in public places, although Prime Minister John Key says such a move would represent "nanny state" intrusiveness. But as the Government mulls over the means to fund cuts to personal rates, you can be sure so-called sin taxes will be part of the mix.
Its coalition partner, the Maori Party, is pushing for price rises, which will hurt many of its poor constituency, the same people it is promising to protect from an expected increase in GST.
The Smokefree Coalition also wants steep price rises and the price indexed to inflation.
This is often justified by the cost to the health system of treating smokers. This is, of course, poppycock. Smokers actually subsidise the health system and are treated as pariahs for their trouble.
In 1999-2000, smokers paid $950 million in excise, according to Treasury's 2001 Tax Review, and it is now more than $1.1 billion. Treatment, by comparison, is estimated at $225m.
About 70 per cent of the price of tobacco is tax. When I was a heavy smoker, I contributed $112 a week to the Government.
Today, my extra weekly tax burden is about $63. I would have to lie in a public hospital bed for five years and, even then, I would still be in healthcare credit.
Treasury is scathing about government gouging of the quarter of the population who smoke.
"Present levels of taxation appear indefensible on externality grounds, even if the social spending argument were accepted," it says.
"If excess health costs are to be selectively recovered from smokers or drinkers, savings in other areas of social spending, such as New Zealand Superannuation, should also be taken into account."
It's a good point. Smokers die younger, representing a considerable saving, while non-smokers linger on at a cost to the taxpayer.
Eric Crampton, a non-smoking senior economics lecturer at the University of Canterbury, says estimates of the cost of smoking are greatly inflated by including the cost of cigarette production.
"You cannot honestly have a net measure on the benefit side and then double-count by including the resource on the cost side. Similarly, we cannot count the healthcare costs on the cost side, if we do not include the tax revenues collected on the benefits side."
Treasury says the Ministry of Health and anti-smoking groups ignore "the long average lag between the payment of tobacco taxes and the incidence of health costs".
Crampton: "The cost-benefit analysis presented is fundamentally unsound [and] its methods seem to have been chosen with the aim of maximising the monetised costs of tobacco use and minimising the monetised value of the [enjoyment] derived by smokers from tobacco."
Pleasure is obtained by smoking, I assure you. It goes perfectly with three of life's best pastimes: eating, drinking and sex.
When the deed is done, even during it, there is nothing better than placing a crisp filter between one's lips and savouring the intoxication of a craving fulfilled.
Esquire magazine's fiction editor, Rust Hills, complained that "most advice you get about smoking and drinking comes from the wrong people. Their solution is worse than your problem."
Crampton would agree. His recommendation is to expunge the entire cost-benefit analysis from the Smokefree report, replaced with the "honest, albeit contestable, assertion that the authors know better what's good for smokers than smokers themselves".
An increase in tobacco excise is not certain but, as Treasury notes, this tax is neither efficient nor equitable. Smoking rates are higher among poorer groups and these people are unfairly punished by increases in the cost of tobacco.
Many smokers forego essential purchases to feed their addiction. An increase in GST, however, is a given. Smokers should not have to pay twice because of the perceived immorality of their addiction. We pay far more than our fair share.
Read

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Growing black market tobacco problem

December 8, 2005

Black market New Zealand grown and processed tobacco is becoming more readily available for those who know where to source it.

A WIN Party investigation into the New Zealand black market industry recently sourced a kilogram of locally grown and processed tobacco on sale in Auckland for $150, which in price equates to around a quarter of the regular retail price of commercially available, legal tobacco.

Comparison of the black market tobacco with several brands of legal tobacco revealed an insignificant difference in quality. The black market tobacco moisture content was slightly higher but there was negligible difference in fineness of cut, and taste and smell when smoked.

"New Zealand's tobacco tax rate is one of the highest in the world and government justifies its high taxing of tobacco as a means of deterring people from taking up smoking and forcing those who smoke to quit", says WIN Party spokesperson Dave Clarke.

"When government greed pushes the price of a commodity outside of the reach of the average wage earner, people look for cheaper alternatives, and when there's a demand for cheaper alternatives, entrepreneurs who can see an easy way of making a quick dollar, will find a means of supplying".

"The growth of the black market tobacco industry in this country is definitely on the increase and it's certainly having an effect upon retail tobacco sales".

"The Health Ministry and anti-smoking lobby claim smoker numbers and rates of smoking are on the decline but recent Statistics NZ and AC Nielsen figures reveal otherwise.

"Smoker numbers have remained static over the past two years and retail tobacco sales and government revenue take have increased".

"High tobacco tax is creating 'crime', as more and more people become involved in the lucrative black market trade and we are going to need more and more law enforcement resources committed to fighting what in reality is a government created problem".

"If government wants to eliminate smoking, then they must either ban tobacco, or implement positive education campaigns that create an environment that induces people to want to quit".

"Human nature dictates that high taxation, smoking bans and scaremongering will never deter people from taking up smoking or persuade smokers to quit. People will decide that for themselves and the majority will not be influenced by what government and anti-smoking zealots determine they should do".

Release Authorised by Dave Clarke - WIN Party Press Secretary
Dave Clarke - Press Secretary
Mobile: +64 21 179 1410
WIN Party Media Release

September 13, 2005

Anti-smoking organisations claim the rate of tobacco consumption has declined following the introduction on 10 December 2004 of smoking ban in bars and indoor workplaces, claims based wholly upon retail sales figures.

The increasing availability nationwide of illegal black market tobacco is
distorting retail sales figures, making it next to impossible to determine if
there has been a decline in smoking following the introduction of the smoking
ban in bars.

British American Tobacco's decision to shut down its New Zealand operation and relocate to Australia, in part, is attributable to a decline in retail sales.

Industry sources acknowledge that 'chop chop', a term for black market tobacco, has helped contribute to the drop in retail sales.

With governments excise and tax accounting for almost eighty percent of retail price of tobacco, entrepreneurs have been quick to venture into the black market tobacco industry.

Where once there was only a primitive backyard industry producing coarse low-grade tobacco, we now find sophisticated operations delivering a product comparable in quality with commercially produced tobacco.

What makes 'chop chop' attractive to smokers is the price, less than half than that of legal tobacco.

A WIN Party investigation in Christchurch, Wellington and Auckland revealed that for those 'in to know' finding 'chop chop' is not a problem.

Smokers claim 'chop chop' is plentiful, is well dried, is finely cut, and they dispel tobacco company warnings of health risks associated with smoking tobacco that hasnâ€(tm)t been treated with anti-fungal chemicals to prevent mould.

"The tobaccoâ€(tm)s that fresh", claimed one smoker, "that as long as you put it in straight in a freezer when you buy it, and only take out enough to last you a day or two at a time, mould donâ€(tm)t get a chance to grow".

Another smoker informed WIN the reason for the marked improvement in 'chop chop' quality over the past year or so was due to the influx into New Zealand of people who've been heavily involved with the Australian black market tobacco trade.

"These guys know how to process the stuff properly", he said, "and they know how to build machines that cut the leaf as fine as the stuff you buy in the shops".

"As long as governments reap exorbitant tax from tobacco in the name of good health", says WIN Party spokesperson Dave Clarke, "people will find innovative ways to grow and process black market tobacco".

"Prohibition by 'excessive taxation' has never worked. If a government taxes a product to a level beyond the financial reach of most people, the entrepreneurs will step in with a less expensive, tax free alternative".

"High tobacco taxation guarantees with absolute certainty that New Zealand will always have a thriving black market tobacco industry".

WIN Party Media Release