More quit-smoking support, rather than more tobacco tax hikes, is recommended by the Tax Working Group, which also calls on the Government to set clear sugar tax goals.

The Government’s Tax Working Group released its interim 195-page report today, including a chapter focusing on the role of ‘corrective’ taxes on alcohol, tobacco, sugar and gambling in changing people’s ‘unhealthy’ behaviours. It received high numbers of public submissions on these tax areas – particularly calling for a sugar tax – but the group falls short of recommending any direct ‘healthy behaviour’ taxation changes. It says that changes to alcohol tax rates need public health expertise and the Government needs to be clear on what health goals it wants to achieve before deciding on regulating or taxing sugar consumption.

Many submissions were also received calling for changes to GST, including reducing or exempting some food and drinks from GST, but the group says better mechanisms for  helping low income households were welfare transfers or changes to personal income rates.

Tobacco tax burden

The report says the heaviest burden of the current policy of hiking tobacco excise each year is being borne by some of the country’s poorest communities, which health surveys show have the highest rate of smoking.

It also points out that Treasury analysis in 2016 found that the number of people quitting smoking would be ‘quite small’ relative to the size of the tax increases. In addition, the high taxes on cigarettes and roll-your-own tobacco appeared to be a factor in increasing robberies and criminal activity.

The Group recommended the Government “prioritise other measures to help people stop smoking (such as educational campaigns and regulatory measures) before considering further large increases in tobacco excise rates”. It also said some of the revenue from tobacco excise could be directed towards smoking cessation programmes.

The tobacco tax raised almost $1.7 billion in 2017, an increase of over 50 per cent since 2010. Tobacco excise is scheduled to keep increasing by 10 per cent above inflation until 2020.

Sugar ‘goals’ needed

The group says case for introducing a tax on sugar-sweetened beverages had to rest on clear Government goals of what health outcomes it was seeking to achieve before deciding whether a tax was the right way to go.

It says after examining last year’s NZIER sugar tax report, which identified five steps needed for an effective tax, the group felt there was a major risk that a sugar tax could encourage consumers to switch to other unhealthy products that were cheaper or untaxed, so the health benefits might be limited.

The group recommended that the Government should consider the role of other policy responses, like education, alongside more clearly articulating its sugar consumption goals as:

  • If the Government wishes to reduce the consumption of sugar across the board, then a sugar tax is more likely to be an effective response.
  • If the Government wishes to reduce the sugar content of particular products, on the other hand, then regulation is more likely to be more effective.

Public health input needed into alcohol tax rates

Decisions on what the tax rate should be on alcohol would be best decided with input from the public health community, says the group.

It says currently the main tax on alcohol* is alcohol excise, which last year raised $1 billion with a complicated rates structure that is inconsistent in how drinks with different alcohol levels are taxed.

The group says the appropriate tax rate for alcoholic drinks should depend on the health effects of alcohol consumption and the impact of alcohol abuse so the public health community needed to be involved in making that decision.

But it added that the current alcohol excise system was unnecessarily complex and it was difficult to understand why the rates per litre of alcohol should vary so much across different products.

“A case could be made for applying a consistent rate per litre of alcohol across all products – which would increase rates for some products and decrease them for others – but little can be said in favour of the current approach,” said the report. “The Group recommends that the Government review the rate structure with the intention of rationalising and simplifying it.”

Public feedback is sought on the interim report from the group, which was set up in January and is due to provide its final report to Government in February next year.

*The Government also applies the Health Promotion Agency levy on alcohol. This levy raised $12 million in 2017. Revenue from the levy is hypothecated to fund the Health Promotion Agency.


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