Pity the poor smoker

Thursday May 17, 2018 Mark Cox

On 14 May 2018, Statistics New Zealand published an interesting analysis of how inflation has affected different parts of the population.  The analysis was based on Household Living-Costs Price Indexes (HLPIs) and it covered 13 different household groups, comprising: Maori; beneficiaries; superannuitants; households in five income quintiles; and households in five expenditure quintiles.


Of the different household groups examined, Māori households saw the highest inflation in the year to March 2018 (up 2.0 percent, compared with 1.7 percent for all households).  At the other end of the scale, households in the higher income and expenditure quintiles experienced lower than average inflation.


Māori households are particularly vulnerable to inflation because Māori are more likely to smoke than other ethnic groups and because the price of cigarettes and tobacco has been increasing much more rapidly than earnings and prices in general. 


The latest results from the New Zealand Health Survey showed that, in 2016/17, 35% of Māori adults were current smokers, while 15.7% of all adults smoked[1].  Smoking rates amongst Maori have been falling, but the gap between Maori and the rest of the population, in terms of tobacco use, has not been closing.


The graph below illustrates how hard smokers in general have been hit in the pocket in recent years.  Cigarette and tobacco prices have increased much more rapidly since 2000 than either prices in general or average earnings, but the trend for cigarette and tobacco prices diverged dramatically after 2010.  Since that time, cigarette and tobacco prices have increased more than twice as rapidly as both prices in general and earnings.


graph 18 05 18 01


It will be noted from the graph that cigarette and tobacco prices have been subject to a ratchet effect since 2010.  This is the result of legislation to impose annual increases in tobacco excise duties, introduced by the then Associate Health Minister, Tariana Turia.  The legislation was introduced explicitly as a smoking prevention measure.


The solution for those wanting to avoid higher than average inflation rates is to quit smoking, but that is easier said than done.  Many smokers and former-smokers will attest to how powerful an addiction smoking is.  As the National Institute on Drug Abuse (part of the USA’s National Institute s of Health) puts it:  “Most smokers use tobacco regularly because they are addicted to nicotine.  Addiction is characterized by compulsive drug-seeking and use, even in the face of negative health consequences.  The majority of smokers would like to stop smoking, and each year about half try to quit permanently.  Yet, only about 6 percent of smokers are able to quit in a given year.  Most smokers will need to make multiple attempts before they are able to quit permanently.”[2]


A more realistic solution would be for the government to spend a lot more than it does on smoking prevention, but some would say that this will not happen because the government is addicted to tobacco excise duty.  Government revenue from tobacco excise and duties amounted to $1,710 million in the year ended June 2017.  This was up from $1,068 million, in the year ended June 2010: an increase of 60%. 

By contrast, approximately $61.7 million was spent on the national tobacco control programme in 2014/15 [3].  This was equivalent to just 4.1% of the tobacco excise duty collected that year.


(Declaration of interest: The author was a smoker for almost 30 years, but finally managed to give up 18 years ago.)