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Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill — Second Reading

[Sitting date: 25 September 2012. Volume:684;Page:5585. Text is incorporated into the Bound Volume.]

Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill

Second Reading

Hon CHESTER BORROWS (Minister for Courts) on behalf of the Associate Minister of Health: I move, That the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill be now read a second time. First, I would like to thank the Finance and Expenditure Committee for its consideration of the bill on a shortened timetable. I would also like to thank the 94 interested groups and individuals who made submissions on the bill, of which 19 were heard in person.

The bill itself is quite short and straightforward in its intent, but it addresses a very important and serious issue for the country, and that is the enormous harm caused by smoking, which is by far New Zealand’s leading avoidable cause of serious disease and premature death. The committee recommends by majority to the House that the bill be passed without amendment. The majority view in the committee across all but one of the parties represented in this House was fully supportive of the intent of this bill to discourage smoking by increasing the price of tobacco.

Increasing the tobacco excise is our lever to raise the retail price of tobacco products, and this provides a strong signal and financial incentive to dissuade people from smoking. We know it works. Firstly, it presents young people who might be contemplating taking up smoking with a real deterrent, because we know they are very responsive to prices. Hopefully, they will find much better things to do with their money. Secondly, it provides all smokers with another trigger to quit. Not only can they avoid the high risk of the tragic health consequences of smoking but they can save themselves sizeable sums of money. Thirdly, the rising cost and increasing unaffordability of smoking provides those who have quit or are struggling to stay quit with a strong reinforcement for their resolve.

As announced in Budget 2012, this bill provides for four 10 percent increases in tobacco excise to come into effect on 1 January in each of the next 4 years. These compounding increases will likely take the price of an average pack of cigarettes to over $20 in January 2016. That marks a highly significant price point to drive home the very real cost of smoking. The bill provides for these new annual 10 percent increases in tobacco excise and excise-equivalent duties to be made in combination with the existing process available for the Government to make regular annual increases to keep pace with inflation. This is an important mechanism to maintain the value of the tobacco excise increases and the unaffordability of tobacco products in real terms.

The other step being taken through this bill is to ensure the financial incentive against smoking is not watered down through the cost indexation of social assistance payments. It would make no sense to raise tobacco prices on the one hand in order to reduce tobacco consumption, only to then factor the increase in tobacco prices back into the calculations used to keep social assistance payments in pace with inflation. I hasten to add that this does not mean that the Government is insensitive to the impact the tobacco excise increases will have on those who are unable or unwilling to quit. The proposal in the bill seeks to strike a balance that does not unduly punish low-income smokers or their families while ensuring there is a strong incentive for them to quit and thereby significantly boost their disposable income. The Government also provides a range of services and subsidised treatments to help smokers to quit.

As the committee has reported, many submitters from a health perspective sought much higher increases than those in the bill. Tobacco makes up a little over 2 percent of the total basket of products measured by the Consumers Price Index, so the tobacco excise increases in this bill will have a noticeable impact on consumer price inflation. However, for non-smokers, there is no impact on their spending power, whereas for smokers the whole point is to ensure that they see the full force of the financial incentive to dissuade them from smoking. For that reason, the bill proposes removing tobacco price inflation from the calculations used to adjust superannuation, Working for Families, and other social welfare payments in line with inflation. To achieve this requires consequential amendments to a number of pieces of legislation: the Children, Young Persons, and Their Families Act 1989, the Education Act 1989, the Income Tax Act 2007, the New Zealand Superannuation and Retirement Income Act 2001, the Social Security 1964, and the War Pensions Act 1954. As mentioned in the bill as introduced, it is intended at the end of the Committee of the whole House stage to split these indexation provisions from the bill into separate amendment Acts relating to each of the Acts in the list I have just mentioned.

This bill will play an important part in helping us reach the goal of New Zealand becoming, to all intents and purposes, a smoke-free nation by 2025, with smoking prevalence and tobacco consumption reduced to minimal levels. The Government adopted the smoke-free 2025 goal in March 2011 in response to the recommendations of the Māori Affairs Committee’s landmark inquiry into the tobacco industry in Aotearoa and consequences of tobacco use for Māori. Since then, amendments to the Smoke-free Environments Act to remove retail tobacco displays and tighten up the regime preventing sale of tobacco products to people under 18 have also passed through this House via the Health Committee. Now a third select committee, the Finance and Expenditure Committee, has given its attention to the challenge of achieving a smoke-free 2025.

I note the two recommendations for Government that the committee has made in its report on this bill—namely, to monitor closely the progress made over the next few years towards the goal of a smoke-free New Zealand by 2025 and implement further excise tax increases after 2016 if the achievement is in doubt, and to undertake work to assess the compatibility of New Zealand’s duty-free tobacco concession with the goal of achieving a smoke-free New Zealand by 2025. Work relating to both these recommendations is already in progress.

There is no doubt that the smoke-free 2025 goal is a stretch challenge that will require a range of activity over and above tax increases. In saying that, increasing the price of tobacco is the most effective policy tool available, especially when it is part and parcel of a comprehensive tobacco control programme like New Zealand’s.

The bill before us is a very similar piece of legislation in every regard to the previous amendment, which brought in tobacco excise tax increases in April 2010, January 2011, and January 2012. The bill builds on that success and continues the momentum. The previous excise rises have significantly lifted the price of tobacco. The price of a typical pack of 20 cigarettes increased 40 percent, from $10.30 in April 2010 to $14.40 after January this year. Over the same time, the price of loose tobacco increased by over 50 percent and is now over $50 for a 50 gram pouch.

Research tells us that for every 10 percent increase in the price of tobacco, tobacco consumption will decrease by about 4 percent, and this is exactly what we have been seeing. Overall, tobacco consumption by volume fell by 13 percent from 2009 to 2011, following the first two of the three excise rises. This is in marked contrast to the previous 5 years, when there was an overall decrease in tobacco consumption of only 3 percent.

Smokers have been cutting back but, more important, there is also evidence that they have been quitting and, best of all, not starting. The previous excise tax increases resulted in immediate large increases in the number of people attempting to quit smoking, seen, for example, in spikes in Quitline call rates. Preliminary New Zealand Health Survey data from the last 6 months of 2011 shows that progress is also being made in reducing the adult—aged 15-plus—daily smoking rate. In 2006-07 the rate of daily smokers was 18.1 percent, and, on the preliminary figures to hand, this has been reduced to 16.2 percent. Every 1 percent drop in prevalence means 30,000 fewer smokers, and potentially thousands of lives saved.

There have also been particularly pleasing results in relation to reducing the rate of young people smoking. The large annual ASH Year 10 Snapshot Survey shows the number of 14-year-old daily smokers dropped by a quarter to only 4.1 percent in 2011, and 70.4 percent of year 10 students had never smoked—an increase from 64.3 percent in 2010. The fact that these reductions in the rate of schoolchildren taking up regular smoking are being seen across all ethnic and socio-economic groups is encouraging for the future.

Although the increases in tobacco excise in 2010, 2011, and 2012 have reduced tobacco consumption and prompted thousands of smokers to quit, and helped protect our youth by discouraging them from taking up smoking, we cannot and must not rest there. That is why this bill is needed to bring in a further series of annual 10 percent increases over the next 4 years, and that is why I commend the bill to the House.

IAIN LEES-GALLOWAY (Labour—Palmerston North) : The health impacts of tobacco smoking have been well rehearsed in this Parliament time and time again, with a number of measures designed to reduce the impact of tobacco-related harm having passed through Parliament in recent years. But I think it is worth reminding ourselves just briefly why it is that we are doing this and why we continue to come back to this issue.

It is estimated that half of long-term smokers still die of a smoking-related illness. That amounts to around 5,000 deaths each year in New Zealand that are attributable either directly to smoking or to second-hand smoke. Tobacco smoking shows up in, and is a cause of, all of the big four health issues facing New Zealand: cancer, respiratory disease, cardiovascular disease, and diabetes. It is for that reason that it is important that the Government and Parliament do everything they can to reduce the prevalence of tobacco use in New Zealand. Of course, we have that goal that we have all adopted to make New Zealand smoke-free by 2025. It is, as Chester Borrows said, an ambitious and lofty goal, but it is one that I think is achievable, and one that we need to continue working towards. We need to continue coming back to this issue.

It is in that sense that this particular bill, the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill, is an important shift in the way Parliament deals with the issue of tobacco excise tax. Whereas in the past we made one-off adjustments—increases—to tobacco excise tax, this bill legislates for a series of four cumulative 10 percent increases on 1 January over each of the forthcoming 4 years. That is an important development, because the research tells us that each time there is an increase in the price of cigarettes and other tobacco products, we see a related response from smokers in engaging in quit attempts, contacting people like Quitline, and, in fact, successfully quitting. But what the research also tells us is that we see a spike in quitting activity immediately after that increase, and then that activity tails off. So we need to keep coming back to this. As this bill allows for increases year after year, as the research becomes more developed we may want to look at whether annually is often enough, or whether we want to revisit this issue more regularly than that so that we keep capturing a new cohort of smokers, because each time the price goes up, we reach a new level. There is a certain price at which each cohort of smokers will engage in quit attempts, and as the price goes up and up and up, we capture a new group each time. I think it is important that this legislation allows for a 4-year period where that will continue to happen.

I have to say that this legislation has been able to pass because of the benign environment we find ourselves in in Parliament with regard to issues of tobacco harm reduction and tobacco legislation. That has not always been the case, which has been a barrier, I have to say, to measures like this occurring much sooner. We could have been doing this a decade ago, but I think it is fair to say the Labour Government was not prepared to come back to this issue time after time and face the fight that was put up by the National Opposition. I am pleased that the National Party has come round on this—

Michael Woodhouse: It’s outrageous!

IAIN LEES-GALLOWAY: It is not outrageous, Mr Woodhouse. It is not outrageous, because the National Party opposed Labour’s excise increase, it opposed smoke-free environments legislation, it opposed getting smoking out of pubs and bars and restaurants, and it opposed every initiative that the Labour Party brought to Parliament to reduce the harm of tobacco smoking. I wanted to say, Mr Woodhouse, that I am pleased that we now have a truce. I think it is great that we now have a truce and that around Parliament we have agreement that this is the right thing to do and we will not fight each other over it. I wanted to just note that it is due to that environment that this piece of legislation has been able to progress as far as it has through Parliament.

Much has been made of the fact that these increases will not be factored into the assessment of CPI increases, especially when it comes to assessing how much people who are receiving a benefit should receive in relation to the overall increase in the cost of living. I can see from a health perspective that that is absolutely the right thing to do. We are trying to make tobacco products more expensive in real terms, because the research—the evidence—tells us that that is one of the most powerful ways to reduce the incidence of tobacco smoking. But it is important to note, I think, that this is one more way in which life is becoming that much more expensive for people on the lowest incomes and people who receive a benefit, and that is something that we have seen over the last 4 years under this Government—life becoming just that much more difficult for those on the lowest incomes. So it is important that we examine what other measures we might be engaging with that would reduce the incidence of smoking but would not have this financial impact on those people who are most vulnerable, who have the least.

One of the other things that the Government could and should be doing, and that has a direct evidence base that supports our carrying out this initiative, is much greater use of social marketing to discourage people from smoking and to encourage them to quit. The research tells us that there is a direct relationship between what is known as target audience rating points—in other words, both the volume of social marketing and the accuracy of its targeting at its target audience—in getting people to quit. We see the same spike in quit attempts around those types of social marketing campaigns as we see around increases in excise tax, which this legislation allows for. However, unfortunately, under the current Government we have seen a reduction in funding for those types of social marketing campaigns and a reduction in those target audience rating points. So, overall, the Government is doing less of that type of social marketing that encourages people to quit smoking and discourages them from taking up smoking.

That, I think, is a real pity, because it is something that has a strong evidence base but does not directly impact the people who are themselves smoking. And it would go very well hand in hand with this type of measure. In fact, what would be ideal would be to have, with each of these excise increases, a very active social marketing campaign around those that also encourages people to quit. That would have a cumulative effect to really get the prevalence of smoking down and really advance New Zealand towards that goal of having the nation smoke-free by 2025. I would like to see the Government commit to more of that type of activity in addition to this taxation activity, which we do know will decrease the prevalence of tobacco smoking.

Labour is pleased to support this bill. We are pleased to be constructive as an Opposition on issues like this, where it is important that we get consensus around the House, and we look forward to further action taking New Zealand closer to that goal of becoming smoke-free.

TODD McCLAY (National—Rotorua) : It is a pleasure to rise and speak on this bill, the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill. I was going to jump up and say to the last speaker, Iain Lees-Galloway, that he should be ashamed of himself for bringing such politics into a debate where all of the House is joined together to do the right thing for New Zealanders. But I have decided not to do that, and the reason for that is that in the Finance and Expenditure Committee we worked extremely well together on this issue. We had a number of submitters who came before us who asked the committee to do more in these areas, but, easily, we were able to agree on what it was this bill was trying to achieve and what it was as a committee that we wanted to happen, and we were able to also agree on some suggestions to the Government about further ways forward.

The reason for this is that smoking is New Zealand’s leading preventable cause of death, and if we break down those who smoke, of particular concern are younger people, but Māori are disproportionately overrepresented in these statistics, and that is a real concern. An estimated 4,500 to 5,000 New Zealanders die every year due to smoking or exposure to second-hand smoke. So up to 5,000 New Zealanders lose their lives because of tobacco. We know that half of all long-term smokers die of a smoking-related illness, losing an average of 15 years of their lives. I will say that again. Half of all long-term smokers lose an average of 15 years of their lives. Six hundred and fifty thousand New Zealanders, or one in every five people over the age of 15, continue to put their lives at risk. What is really concerning is that 155,000 of these smokers are Māori, and 45 percent of the Māori population aged 15 to 64 smoke.

I agree with the last speaker in this debate that as a Parliament all parties—and all New Zealanders—need to focus on this, and we need to do so much more about these appalling statistics. What we heard at the select committee from submitters was their concern, and we also heard from those who smoke. We heard why they smoke, and we also heard from some who want to give up. Some of them said it was their right to continue to smoke if they chose to do so. But we know that about 80 percent of everybody who smokes wish they had never started. So this legislation, with an increase of 10 percent per year for 4 years in the price of tobacco through excise duty, is as much about making people stop smoking as it is about making them never start smoking.

An interesting statistic I would like to bring to the House is around young people. Smoking among 15 to 64-year-olds fell significantly between 2006 and 2009, from 24 percent to about 21 percent. Well, that is a decrease, but 21 percent of people that age still smoking is too high. The proportion of school students who smoke daily has fallen from 15.6 percent in 1999 to 4.1 percent in 2011. That is an outstanding statistic, because the work that the previous Government has done and that this Government has done over the last 4 years is about saying to young people that this is not a choice that is good for you. Price is a very important part of that.

I am the father of four young children. I hope that they never smoke. I have to tell you that at the end of this process, when the price of a cigarette is about $1, it is going to have a greater effect on young people and their habits than almost anything else we can do at the moment. I guarantee it. If you go to any schoolyard and walk around and say to young people “Can I have a dollar?”, you would be hard-pressed to get one from any of them. Some years ago, to say “Can I have a cigarette?’ was not equated to the amount of money they cost, and I am sure that in schoolyards around New Zealand and in other situations they were shared freely.

Although there were people who came to the committee and said that we were targeting smokers and that it was unfair on them, and we were putting an extra burden on them, actually we know that 80 percent of people wish they had never started and want to stop. Every single time the price goes up New Zealanders are moved to seek help to stop smoking. Therefore I support this legislation, and I support it because it is going to encourage more New Zealanders not to smoke and it is going to encourage greater numbers of younger New Zealanders not to start smoking, or at the very least to not give these very expensive cancer sticks away to others.

I want to finish here but I will say that off and on I have been a smoker for some years. This is not one of these free-for-all declarations that the Hon Tau Henare makes in the House—and I wish him the very best with his challenge in this—but I would always say that I gave up smoking almost as easily as I started. I never made it a point to smoke in front of my family, my children, because I know that if they saw me smoking they would grow up thinking it was OK. It would normalise it. Much of the work this Parliament has done is to take the normality of smoking away so that it is not something that is as acceptable, it is not something that is normal. But through support—actually, not through the support of the Government; I paid myself, but there is support available—I found these tablets called Champix, which changed things for me, and for a year and a half I have not gone near a cigarette, nor do I want one.

So I encourage anybody who may be listening to this, or who may read this—or the four of them out there who have got TV on listening to Parliament at the moment—if you are smokers, to go and see your doctor. Go and ask the question and you will be surprised at the amount of support that is there, and you will not be a statistic—well, you are not a statistic, Mr Deputy Speaker, but you, the people out in the real world, who do not understand that we cannot use the word “you”. Anybody in the real world at the moment should go and talk to their doctor and seek support, because it is not as difficult as it seems, and there is a huge amount of support there. I thank you, Mr Deputy Speaker, for the time, and I look forward to the Committee stage, where we might discuss this bill in greater detail.

Hon MARYAN STREET (Labour) : It gives me great pleasure to rise and support this bill, the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill. Anything that curtails or curbs the consumption of tobacco in our society has to be a good thing. We have heard already many of the statistics around tobacco and tobacco consumption. We know that about 5,000 deaths each year in New Zealand are attributable either to direct smoking or to second-hand smoke, so this is about the environment around a smoker as well as their own consumption of tobacco. Five thousand deaths is a lot of New Zealanders.

In fact, if we have a look at the regulatory impact statement attached to the legislation, we notice that Treasury, in its inimitable style, tries to quantify the impact of tobacco and the harm it does, and tries to quantify the social costs of smoking. The regulatory impact statement says: “The social costs of smoking have been estimated at 62,800 life years lost to tobacco-related premature deaths, and 19,000 quality adjusted life-years lost to tobacco-related illness.” “Quality-adjusted life-years” is a term that is used in the health sector. It does not mean a lot outside of that, but, basically, what Treasury says, in its own way, is that people could have lived longer and they could have lived longer better if they had not been subjected to tobacco consumption or had not consumed tobacco themselves.

It gives me particular pleasure to speak to this bill as Labour’s spokesperson on health. This bill has not come up as a health measure. This bill has not been introduced by the Minister of Health. This bill has not come to the Health Committee. So I am left with a question mark about the Government’s real motives. I wish there were a consensus. My colleague Iain Lees-Galloway a moment ago referred to a truce between Labour and National over controls on tobacco consumption and smoking. I hope this is better than a truce. I hope this is actually an agreement on the negative health impact that smoking has on the lives of New Zealanders. But if the Government were truly convinced that this bill is a good health measure, then, surely, the Minister of Health might have introduced it and it might have come to the Health Committee.

In fact, what I see is that we have an assessment—and this is Treasury’s assessment again—that this legislation will raise an additional $528 million over the next 4 years—$528 million over the next 4 years. I would have more comfort that this was a health measure and not a tax grab if there was any reference to the $528 million over 4 years being put into smoking cessation. The speaker who resumed his seat a moment ago, Todd McClay, talked about not having had too much trouble giving up smoking. Well, that is not true for most smokers—that is not true for most smokers. In fact, people who are addicted to nicotine do require support. So let us be clear that if we are going to curtail the consumption of tobacco, we should have equal support measures put in place by the money raised from this measure. If this bill is going to raise $528 million over 4 years, it would be a good idea if the Government could see its way clear to redirecting that money into health initiatives and into supporting further Quitline programmes, nicotine substitutes, and things that people need to reduce the harm and finally reduce their addiction.

This is not an easy substance to deal with. Putting the price up is certainly one way of making it less accessible to young people, and I support that. I support it as a health measure. I support it because the tobacco companies are known for their appeal, their advertising angle, to young people. Would they be putting so much money into their current television advertising campaign—AgreeDisagree, I think it is called—around the plain packaging of cigarettes if they were not persuaded that advertising works? If we raise the price—and Labour supports that; Labour supports it as a health measure, not as a tax grab, but as a health measure—if we do that, then let us make sure that we are helping people who will not be able to afford the one thing that they consider to be their stress relief, which is a cigarette, and help them to quit smoking and to give up that addiction. We are talking about an addiction here. This is not, as the Government would have us believe, simply a lifestyle choice. We know, as one of my colleagues said earlier, what the four major killers of New Zealanders are: cardiovascular diseases, cancers, respiratory illnesses, and diabetes. We know that these four killers take 80 percent of the health budget. We know that most of the symptoms are preventable. Why can we not now have an agreed position across the House on what the major health goals ought to be for New Zealanders, and why can we not work jointly, as we are on this bill, to reach them?

I have to say that I am not yet persuaded that the Government has changed its mind over tobacco. If it has, and if subsequent speakers from National can persuade me that they have changed their mind over tobacco, I will welcome that. But I recall what Bill English said in 2000, when we in Government were looking to increase the excise on tobacco in 2000. Bill English said: “The reason we voted against this measure was that the Government did not ever say that it would do it, and that is the measure it set—not us. The Government did not say before the election that it would do it—that is the Government’s standard, not ours. It is a tax increase. It is a tax on the poorest people in New Zealand, it is an increase that is far too large, and that is why we voted against it.” That is the same man, Bill English, who went to the country in 2002 with a policy that said that the National Government would repeal the Smoke-free Environments Act. If there has been a change of heart, if there has truly been a change of heart in the National Party, I would like the next National speaker to get up and say so. If we are agreed on the health goals here, then let us celebrate that and let us move forward. If this is simply a tax grab, and if the money is going to paper over the holes that the Government’s economic policy has left, then let National speakers say that. I am sure they will not, but let them be challenged to say that.

We agree, on this side of the House, that this bill is a good measure, for health reasons. Let it be for health reasons. Let us agree on it, for those reasons, and let us pursue it and ring-fence some of the income from this increased excise to address the problem of smoking addiction. Thank you.

KEVIN HAGUE (Green) : I want to begin by expressing my thanks to all of those who made submissions on this bill, the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill, to the officials who serviced the Finance and Expenditure Committee, and to the committee members themselves, including the chairperson of the committee, Todd McClay, who has just recently spoken in this debate. Congratulations to Todd McClay on his successful attempts at quitting smoking. On average it takes someone seven attempts to quit, and on average the odds of quitting are doubled in any particular attempt by using nicotine replacement therapy or some other method, as Todd McClay has discussed.

None the less, I want to express some frustration that despite a request from the Health Committee, this bill was considered by the Finance and Expenditure Committee. The reality is that this is, or ought to have been, as Maryan Street has just mentioned, a bill primarily about health. Indeed, virtually all of the submissions that were received by the Finance and Expenditure Committee were about health. I believe that the Health Committee may have been better positioned to provide an expert scrutiny of the submissions that were received. Had that occurred, it may be that the committee would have come back to this House with a bolder recommendation about this bill.

In the New Zealand Medical Journal, just a few days ago, on 21 September, Nick Wilson and George Thomson from the University of Otago Faculty of Medicine published a letter entitled “What is tobacco tax for—revenue or health?”. I think some of Maryan Street’s comments go to that point. I want to particularly draw out one passage from their letter, in which they say this: “We suggest that Parliament makes it explicit in the tobacco tax legislation that: The primary purpose of the current Bill is to reduce smoking so as to prevent harm to health and to prevent premature death, rather than to increase Government revenue. The Bill is a key part of the Government plans for achieving a smokefree nation in 2025.” Chester Borrows has referred to that goal in his contribution to this debate today. The reason that that is important is that the option considered first by the agencies of Treasury, the Ministry of Health, and the Customs Service, which has been selected for this bill and has been recommended by the select committee, is in fact the option that has the least effect on improving New Zealanders’ health, so it is, in fact, least congruent with a purpose that is about health, rather than revenue gathering.

We know that these 10 percent increases recommended in the bill will not be enough to get us to that smoke-free goal in 2025. We know also that the tobacco industry has ways of manipulating its margins to enable it to cope with and accommodate such small increases to excise tax. Chester Borrows referred to that smoke-free goal as a stretch goal target, and, indeed, as other speakers have mentioned, it will be a difficult target for the nation to reach. Given the comments that I made in the first reading debate, which others have picked up on in this debate today, that smoking is the largest preventable cause of death in New Zealand, and increasing the price of tobacco and tobacco products is the single most effective measure of actually reducing the consumption of tobacco and tobacco products, it seems to me that it is woefully inadequate to choose the least effective measure. In doing so, the Government is planning to fail to meet that target that it has set.

By way of contrast, virtually all of the submitters—who, as I say, were from the health sector, by and large—recommended instead that we in the first year increase excise tax by 40 percent because, they said, that is the way of achieving the kind of shock change of behaviour, rather than that gradual acclimatisation that smokers will tend to have to these progressive, smaller increases. They also suggested that that 40 percent increase should be followed up by subsequent annual 20 percent increases. That is the option recommended by the experts from the health sector, and that is the option that the Green Party supported. So why was a more aggressive option rejected? That one was not even considered by the agencies, but they did consider a one-off 30 percent increase and subsequent smaller increases.

The implication of the letter from Messrs Thomson and Wilson in the New Zealand Medical Journal is that it may have been rejected because it would adversely affect the revenue, because if we reduce the consumption of tobacco and tobacco products, actually, the revenue stream will, in fact, decrease. I guess there is some evidence for that, in that when the agencies considered the options to recommend to us—and those options are included in the regulatory impact statement—the option that is included in the bill and recommended by the select committee was the one favoured by Treasury. The much more aggressive one considered by the bill is the one that was favoured by the Ministry of Health. So in our questioning of officials in the Finance and Expenditure Committee’s deliberations I asked why that more aggressive approach was rejected. What the Treasury officials came back to me with was the suggestion, which Chester Borrows has alluded to in his comments here today, that it was rejected because Treasury was concerned about the impact on those low-income New Zealanders who did not quit or reduce their consumption of tobacco or tobacco products. There was absolutely no modelling done of that at all, despite the fact that it is actually a relatively easy scenario to model. That causes me to question that scenario just a little.

So I put that suggestion to all of the submitters from the health sector who deal with those low-income communities. What those submitters said without exception was that they did accept that there would be a disproportionate impost on those communities, and they expected that the Government would respond to that by using some of the revenue that came in through these more aggressive taxes to fund better services to support people who wished to quit or to reduce their consumption. But they also said that they still favoured the most aggressive tax increases possible, and they did so for one reason and one reason only: in addition to disproportionate costs falling on that community, there would also be disproportionate benefits in the savings from reduced tobacco consumption, but, most important, disproportionate benefits to the health status and the years of quality life gained by those communities.

So overall it is a shame that the Government has chosen to go with the modest 10 percent increases. The bill also refers to the duty-free concessions. Those duty-free concessions are at best an anachronism, and the sooner they go altogether the better. I support the select committee’s recommendations about that. I want to, again, endorse the thanks and the congratulations that this House has previously accorded to the Hon Tariana Turia, who ought to take a considerable degree of credit for this measure and for the ongoing efforts of this House to deal with the scourge of tobacco-related harm. Thank you.

PAUL GOLDSMITH (National) : I rise to speak in favour of this, the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill, and I do so with pleasure because the purpose of this bill is to increase the excise tax on tobacco to reduce smoking. Over the next 4 years excise taxes will increase 10 percent a year on top of the 40 percent increase since April 2009. The advice we have had in the Finance and Expenditure Committee is that for every 10 percent increase in price, tobacco consumption falls by about 4 percent. So this increase, I am sure, will contribute to the improvement of our health outcomes in New Zealand.

I must say I do find it fascinating that we have the Labour Party and the Greens supportive of this principle, this basic principle: that if you want to stop something—if you want to stop smoking—you increase the taxes, and that discourages people from doing it. That is how you go about doing things. But when it comes to taxing work, they have a very different view. They do not seem to see that same logic flowing through. If you tax work and you tax income very highly, it discourages people from doing it, and if you tax saving by capital gains taxes, that also has a disincentive on people doing it. So it is interesting to see the different logic you have in the different parts of the mind when it comes to these things. But all in all I am very much in favour of this bill, and I think it will make a real contribution to reducing the harm caused in this country by smoking. Thank you.

ANDREW WILLIAMS (NZ First) : I am taking a call on behalf of New Zealand First in the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill debate. This bill will see a 10 percent cumulative increase in tax on tobacco commencing 1 January 2013 and applying every 1 January thereafter for 4 years, taking a packet of cigarettes from something like $14 a packet to around $20 a packet by 2016. The bill states that the increase in the price of cigarettes will discourage tobacco consumption, which in turn will improve the health of New Zealanders. New Zealand First will not oppose this bill, as we agree that it is in New Zealand’s interest to tackle the harmful effects of smoking, and the cost of cigarettes is one tool—a very simple, basic tool—to limit consumption.

However, New Zealand First does have some concerns that this may be just a pay-off by the National Government to the Māori Party members in order to keep their vote and support. Is this just a sop to one of the Government’s cling-on parties to maintain its vote? It is a bit like the charter schools—another sop to a cling-on party to keep its vote, as well. So we do wonder. Having heard in this House today how National Party members had opposed the many other increases in excises in the last decade, it is interesting that suddenly the leopard changes its spots and agrees with it, but probably only because Associate Minister of Health Tariana Turia has managed to convince Government members that she will maintain her vote with them only if they support this particular bill of hers.

We do have concerns, however, about whether this money will not just disappear into the general consolidated fund as another way to prop up the National Government’s “Fagin Budget”. We have already had the “pick a pocket or two Budget” this year, which included the Government taking $14 million of taxes from the paper boys and paper girls of this country. It was getting down to the rock-bottom way of getting money into the coffers by attacking the young people of this country who are trying to get out there and make a little bit of pocket money to perhaps pay for some of the things that they would like to have that they cannot afford. Or, in some cases I have heard, young children have actually paid for their annual school camp from the money that they have made from their paper round or their odd jobs. So it would be disappointing if this 10 percent cumulative tax was taken each year—a significant amount of tax—but was only to then disappear into the coffers.

New Zealand First is supporting this on the basis that those taxes do go into genuine health support, and into trying to reduce smoking such as through public awareness campaigns, for instance, or an increase in the media spend concentrating, for example, on the media showing the real effects of smoking on unborn babies—real stories, real people, the good and the bad. We would expect that such campaigns would dispel the whānau myths—smoking is a killer, but the messages that may come down through the Māori whakapapa contradict these, such as “I smoked through all my pregnancies, and you lot are all right.” The truth is that cigarettes now contain many more poisons than ever before. They are more potent, and New Zealand has more poisons than ever before. They have the highest levels of nicotine in the world, which therefore makes them more highly addictive and harder to do without.

New Zealand First would expect more funding from these tax increases to allow health professionals to work with specialist populations, such as more specific support for those with mental illness who may find it difficult to quit without that extra assistance. The primary health organisations throughout New Zealand are doing a tremendous job in helping public awareness of this problem and addiction. Smoking cessation programmes need to become more integrated and prioritised across contracted funding streams, such as cardiovascular disease and diabetes. Quitting smoking reduces risk across these health issues as well, so the flow-on effect to our health system is enormous. It cannot be just an isolation of taxes on smoking; it must be hand in hand with the other health measures as well.

Cigarette taxation needs to fund research with resources made available to those who are at the coalface, without there being huge application processes. We need access to researchers who can give their time to help write up case-based realities to share and grow existing smoking cessation services. We need more training and recognition of the smoking cessation workforce, and access for funded quality training. We also need money from these increased taxes to go into an innovation fund to recognise that there are lots of great suggestions to try to quit smoking, such as in countries around the world where they have tried quit cafes. Those quit cafes have been successful in many other countries.

I also sat on the Finance and Expenditure Committee on behalf of the Rt Hon Winston Peters, and one of the discussions that came up during that committee was that this legislation did not cover duty-free cigarettes. In fact, there is a significant consumption of cigarettes that come via the duty-free stores in our airports and our ports, but there was no real data—the officials could not provide data—on how many duty-free cigarettes were being sold. In Australia they have reduced the dispensation on duty-free cigarettes to only 50 now, whereas we are still at 200; therefore, if the Australians can see fit to reduce it to 50 cigarettes, then we should be considering likewise. Otherwise, why do all this work? Why have all this effort to try to increase the programmes, to try to improve the education around smoking and ceasing smoking, and yet still allow literally pallet-loads of duty-free cigarettes to hit you in the face as you walk off the aeroplane. If we are going to be genuine about reducing smoking and reducing the use of tobacco and cigarettes, then this Government certainly needs to also look at duty-free cigarettes and line ourselves up more with the Australians, who have obviously decided to get on top of the problem.

New Zealand First will be monitoring what funding is provided from this taxation, to ensure that the programmes that I have suggested and the health measures that I have suggested will receive the benefits of this increased taxation. We will expect to see the funding and delivering of the smoking cessation programmes to go up quite a few notches from where they are at the moment—not just lip-service from the National Government but proper funding and delivering of programmes to help the health of New Zealanders. These cigarette tax increases must not just be another way for this penny-pinching “Fagin Government” to pick the pockets of good, everyday New Zealanders, in order to balance the books of an ever-failing Government.

JOHN HAYES (National—Wairarapa) : Thank you for the opportunity to speak on this debate on the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill. It is a little bit disappointing to listen to the quality of the debate this afternoon. Labour and the Greens are arguing that “Yes, we support you, but it’s just a tax grab, not a health measure.” Then they go and complain about why the issue came before the Finance and Expenditure Committee and not the Health Committee. Well, I think the outcome of this going through the Finance and Expenditure Committee shows that the committee members there had a good deal of common sense.

The last speaker from the New Zealand First Party, Andrew Williams, said that this measure was simply a sop to the Māori Party. Well, that is not the case. Then he went on to explain that he had sat on the committee—well, he did for one session—and asked questions about the duty-free allowance; he was not there the following week to hear that the amount of cigarettes sold through duty-free stores equates to about 500 million a year. This has just been politicking in the House this afternoon.

I want to just make the point that human beings respond to signals. It is very clear—there is very strong evidence—that a 10 percent increase in the tax reduces the number of smokers by 4 percent. Nobody in the Opposition, at least, has mentioned this afternoon that the Budget in 2012 has provided $20 million over the next 4 years to help people stop smoking. This is a very sensible bill, it is very well constructed, and I support it.

Dr DAVID CLARK (Labour—Dunedin North) : I rise to take a call in support of this bill, the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill, and I hope I can certainly meet and possibly exceed the high standard of debate just forwarded by Mr Hayes in his—

Hon Member: Short.

Dr DAVID CLARK: —short, succinct, and worthy contribution. I enjoyed the irony in his comments on politicising. You know, usually those who like to throw stones in that glass house know how they are thrown. Indeed, Todd McClay in his earlier contribution rued that politics had entered the debate after the Finance and Expenditure Committee had worked so well and collaboratively. I certainly always admire Mr McClay’s ability to insist on the absence of politics in debate when the politics does not suit him. He is nothing if not consistent.

The debate, of course, in the select committee was a good one. We heard many submissions from many organisations that had important things to say, that had experiences to share, and that, indeed, had much research behind their submissions. We discussed topics such as the unintended consequences of this rise in the excise—the 10 percent increases year by year from 1 January 2013, and then 2014, 2015, and 2016—and we wondered what might happen. Overseas evidence was considered and a view was presented that home-grown tobacco would be more popular as a consequence. I am assured by those who know more about this than I that flavour will not be leading that move. The quality of home-grown tobacco apparently is not perhaps up to what can be purchased in the shops, but, indeed, some people will endeavour to produce their own as they struggle to meet the costs of rising tobacco prices. We also discussed the introduction of amendments to the duty-free treatment of tobacco, and it is regrettable that the Government has not done something to tackle that. It appears that it could be open to accusations of having one rule for those who cannot afford international travel and a different rule for those who can.

We can see the Government’s priorities, indeed, in getting this through. It is not entirely comfortable with the legislation, one suspects, although it will raise an additional $528 million over the next 4 years. One suspects that it is perhaps along the lines of the other tax grabs we saw in the Budget—a bit of a cynical measure aimed at those whom it has done the least to support during its time in this Government. The increases will be made in combination with the CPI indexation of the duties that occur annually on 1 January. We know that this will have a significant effect on the final cost. Treasury, in its analysis in the regulatory impact statement that it has presented to the House, has said that tobacco consumption imposes a significant cost on Government. We know that to be the case. But it also makes the point that these costs—these negative externalities—are largely met by the existing excise, so further increases in tobacco excise cannot be justified on the grounds of meeting all the health costs that arise from the smoking of tobacco. In Treasury’s words: “smokers are probably already ‘paying their way’ in narrowly fiscal terms.” But that is where Treasury’s analysis stops. It is disappointing, because then Treasury goes on to say that it may also reduce labour productivity and it may have other impacts that are internalised—it speculates “through effective wage rates in the functioning of the labour market.”—but it has not taken the time, or it does not have the time, it says, to research those impacts fully.

This is a pattern we are seeing out of the Public Service at the moment, as various parts of it are squashed and where morale is low because of a Government that is choosing to bring in consultants rather than to value the contributions of Public Service policy analysts. We saw a similar pattern with my bill to Mondayise Anzac Day and Waitangi Day, the Holidays (Full Recognition of Waitangi Day and ANZAC Day) Amendment Bill. The effect on productivity of policy changes is not being assessed, because it is hard work. Those policy analysts who have it on their agenda simply cannot afford the time, or are not encouraged to do it by the current Government. That must be disappointing, as we seek to have the best possible advice when making these decisions that affect a significant portion of our population. We are told that one in five New Zealanders is a smoker today, so 20 percent of our adult population is affected by this legislation, entirely and directly.

Smoking remains the single biggest cause of preventable morbidity and mortality in New Zealand, so there is no doubt we need to tackle this. That is why Labour will support it. Labour, indeed, took measures under extraordinary urgency to increase the excise on tobacco back in the early 2000s. We see here a move by this Government to increase it in a series of steps, but all put through in one swift move. I guess it is probably a little distasteful to the Government if we turn our minds back to the comments of Bill English in 2000. He had this to say. He said that “The reason we voted against this measure”—as the Government then did—“was that the Government did not ever say that it would do it, and that is the measure it set—not us. The Government did not say before the election that it would do it—that is the Government’s standards, not ours. It is a tax increase. It is a tax on the poorest people in New Zealand, it is an increase that is far too large, and that is why we voted against it.” Well, how times have changed. We have a Government that is suffering from a low tax take. We have seen a 4 percent drop, since the global financial crisis, in revenues. The tax department says that 1.5 percent of that can be attributed to the global financial crisis, roughly in line with what other countries have expected and experienced, but that 2.5 percent of that drop in revenue can be attributed directly to Government policy changes.

Here we are talking about measures that the Government described as “broadly fiscally neutral”. We are going back to those 2010 tax cuts, where we know that 44 percent of the value of those tax cuts went to the top 10 percent of earners, and just 2 percent of the value of those 2010 tax cuts went to the bottom 20 percent of earners. Those are the people, I suggest, who are disproportionately affected again by this excise tax. It is a Government that says one thing, and then does another. It votes against this kind of legislation in one term under one Government, and then brings it through in its own Government when really, by expediency, it is faced with a revenue hole that needs to be filled. So this Government has put up this tax and done it in a way that has not really been signalled. It has done it to paper over the big hole in the books that is created by that tax so-called switch. We know that the majority of the benefits for the lower-income earners—in fact, all of them—were swallowed up very quickly in GST, and then beyond that, with rising living costs, we know that the median wage recently dropped by 3 percent.

This is a Government that is overseeing the worst economic record of any Government in 50 years. I am sure Mr Bennett will rise soon to dispute these facts, or to defend the approach it is taking, or to tell us that it is a long-term strategy that is broadly fiscally neutral—if you interpret “broadly” in the sense of “over the next 100 years”—or some other excuse. What we are seeing here is a Government that has lost the revenue that it was expecting, and is grabbing for some more revenue.

Ultimately, we do support—we do support—measures that will stop people smoking over time and that discourage smoking. They are the same kinds of measures that it would be interesting to see employed in the alcohol space. We know that alcohol-related harm could be reduced by pulling the big levers of marketing and price. These are the recommendations of the Law Commission. Again, the Government has said that it will not go near them this time. I guess we wait another 10 years to see whether it will back out of that view as well, and come around and come to terms with the fact that there are ways to change behaviour. This measure is a measure that the Government is taking. We will support it, because we believe that it is important to address this single biggest cause of morbidity and mortality in New Zealand. Thank you.

DAVID BENNETT (National—Hamilton East) : The Labour Party just needed to say that last sentence in the previous speech. It did not need to have all that economic waffle, which is just rubbish. The economy has grown in the last 6 months, more than it did under the Labour Government. When National took office it took on an economy in recession, and it has turned it round in these most difficult times. That is the economic reality.

The Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill is not a revenue-gathering bill. This is in the best interests of New Zealanders’ health. If the Labour Party was serious about that, it had 9 years to do more than it did in this area. Token changes were made by a Labour Government that did not take them to the public. Bill English was quite right in what he said—that Labour Government did not put it in front of the people. We have put it in front of the people. Labour knew that the Government was going to make these changes. They are in the best interests of the population and the public, and of our health. It is a good bill, and we support it all the way through the House.

Hon PAREKURA HOROMIA (Labour—Ikaroa-Rāwhiti) : Labour wholeheartedly supports this legislation, the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill. We said it before the election and we said it after the election. I want to commend Minister Turia for the effort that she has put into it.

In relation to the tax take, it is quite fascinating that some of the policies that this Government has laid out on a platform of a whole lot of rhetoric are not going anywhere, like Whānau Ora. I hope that the returns of this tax take can be seriously put to use to support a whole lot of the unnecessary gaps and the real pressure and areas of poverty, where a lot of people are not getting serviced or supported because of the lack of finance. It is interesting to see that unlike National when it was in Opposition, Labour supports this.

Around one in five adults currently smokes in New Zealand. That is still a high percentage. I know that amongst Māoridom, respiratory diseases, for a whole host of reasons, are not helped by the smoking issues. I know that in my family my wife and my mother had emphysema, and that still runs rampant amongst a lot of young people. Generally, smokers like my mum—bless her, who has passed on—would not stop. They would do it right to the end. That was because they were more than addicted; it was a way of life. For people to carry on and say that it is OK is just outrageous. Certainly, the effect on the body is that it does not just affect the lungs or the respiratory system; it affects that whole body. It is something that we should join together as a nation to ensure that there is a decline in over time, because more than 700,000 New Zealanders still smoke. That is a lot of people.

What else is interesting is what is done with the tax. It is interesting that the good old duty-free shops have ducked and dodged, because not many of the ones who are disadvantaged and who smoke go through them, but there are a whole lot of other people who go through them. Again, there is an imbalance in relation to the delivery of services and whatever else. In 2004 we, along with two other countries, became the third country in the world to ensure that smoking stopped inside restaurants and bars. If you can recall, there was an uproar about it and how unnecessary it was. It is such a treat now to go anywhere and nobody smokes inside. There are some inventive ways—I saw on a balcony the other day people were allowed to go outside and smoke, and they might get arrested, but they might get away with it for the rest of the time too. New Zealand does set a good example, and we just need to do better.

The issue for me is the tax take, where it goes, and what it does. It should be expended alongside and utilised in the sense of cessation programmes—not stopping them—and helping our people, the young ones especially, stay off it. I see your finger raising up there, Mr Assistant Speaker, so I will end there. Thank you very much.

The ASSISTANT SPEAKER (Lindsay Tisch): You have still got more time, if you want it.

METIRIA TUREI (Co-Leader—Green) : I want to speak briefly on this report. We also support it. It is funny listening to the grumping about it, given that most parties, I think, if not all of us, are supporting this legislation, the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill. We know that raising the tax on tobacco works to deter people from smoking and, particularly, to deter new smokers from taking up smoking. That is a good thing. We know that it is one of the most effective tools. It is disheartening for those of us who want to see us meet our Auahi Kore 2025 goal to see the timidity—if that is the right word—with which this Government is pursuing this policy. I think it is very telling, as my colleague Kevin Hague said, that the Ministry of Health suggested that there should be a 40 percent increase in the tax, Treasury suggested 10 percent, and 10 percent is what the Finance and Expenditure Committee has proposed.

There are some 5,000 smoking-related deaths a year, 600 of which are Māori deaths. Smoking costs around $2 billion a year in health costs. So this is a very serious issue. There are 150,000-odd Māori in this country who smoke. The Māori Affairs Committee inquiry was, I think, one of the most detailed inquiries ever into tobacco in this country, not just for Māori but on issues across the board. The recommendations included denormalising tobacco and not allowing it to continue to be a normal product on New Zealand shelves, which I want to talk about in a moment; reducing availability; putting some pressure on the industry, rather than just on consumers; transparency in the additives that tobacco companies use in their cigarettes to help maintain the level of addiction—and, again, I shall come back to that in a moment—and tax increases. They were key issues. The inquiry also talked about the elimination of interference by the industry in regulation setting.

I want to touch just very briefly on this report, International Trade Law and Tobacco Control, which was produced by Professor Jane Kelsey in May of this year. It sets out very clearly the risk to New Zealand, through international trade agreements, on continuing to regulate to meet our Auahi Kore 2025 goal. What she sets out in there, and what the Māori Affairs Committee has heard from evidence about this, is that in order to achieve this goal for 2025, we have to be very careful about the challenges at the World Trade Organization, for example, under trade rules, where countries have been challenged on their tobacco regulation. We must be very conscious of the State-investor enforcement powers in international trade agreements, like the Trans-Pacific Partnership, which is currently being negotiated, that give tobacco companies a great deal of power to challenge countries and to challenge nation States on the regulations that they want to put into place, including, potentially, not just taxes but a whole range of measures, in order to meet our goal of Auahi Kore 2025. We need the strongest regulation, and the right to continue to put in place the strongest regulation, in New Zealand’s law to protect the interests of our people and, from our perspective in the Māori Affairs Committee, to protect the interests of Māori.

I would also say that there is a new development in drug law reform that Peter Dunne is proposing, which I support and which, I think, will have some better uses in the future. He is recommending reform for a new regulatory regime to control the sale of psychoactive drugs in the New Zealand market. He is proposing to establish a regime where any new psychoactive product would have to be tested, would have to meet safety concerns, and would need to be proven safe before it is put on the market. That is quite a small industry, and there have been very few deaths related to that industry. I would strongly suggest that tobacco should be subject to exactly that same regime. As a product that kills 5,000 New Zealanders a year and a product from which there is enormous profit made off the poorest in our country, it should be proven safe. If that is to be done, they would then have to be transparent about the additives that tobacco companies use to increase addiction, which was a major issue that we dealt with in the Māori Affairs Committee inquiry.

We support this legislation. The Government is timid. It is terrible to see that not only are the Finance and Expenditure Committee and this Parliament rejecting serious taxes on alcohol, for example, but also this Government is rejecting serious taxes on tobacco, when we know that these are major tools to help protect the health of New Zealanders, which, surely, is what we are here for.

MAGGIE BARRY (National—North Shore) : I rise in support of the Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill, which will make a significant contribution towards making New Zealand smoke-free by 2025. This is a bill that was argued vigorously within the Finance and Expenditure Committee. The goal of achieving the 10 percent a year increase for 4 years is something we decided was good, but we did not want it to stop there, so we have recommended that the Government monitor the progress very closely and keep it going, if necessary, with further tax excises until after 2016, and for as long as it is required.

I am on the Finance and Expenditure Committee, which heard this bill. We received 94 submissions and heard 19 oral submissions, many of them presenting very good ideas. We heard of some interesting smoking cessation programmes—electronic cigarettes—some of which were very good. But we have to be mindful that the World Health Organization has indicated that electronic cigarettes that contain nicotine should be regulated as medicine, so we have recommended as part of our discussions that more research be undertaken into e-cigarettes that contain nicotine. We also considered duty-free tobacco concession, but we did consider it outside our scope, because this is a narrow bill. Generally, this is a very significant contribution to attaining our goal of making New Zealand smoke-free by 2025. I fully support this bill. Thank you.

  • Bill read a second time.