Economic effects of a country-level tobacco endgame strategy: a modelling study
Authors: Ouakrim Driss Ait , Wilson Tim , Howe Samantha , Clarke Philip , Gartner Coral , Wilson Nick , Blakely Tony 
Published: March 2023

Background

Aotearoa-New Zealand (A/NZ) is the first country to pass a comprehensive commercial tobacco endgame strategy into law. Key components include the denicotinisation of smoked tobacco products and a major reduction in tobacco retail outlets. Understanding the potential long-term economic impacts of these measures is important for government planning.

Methods

A tobacco policy simulation model that evaluated the health impacts of the A/NZ Smokefree Action Plan was extended to evaluate the economic effect of the new measures from both Government and citizen perspectives. Estimates were discounted at 3% per annum and presented in 2021 purchasing power parities US$.

Findings

The modelled endgame policy package generates considerable growth in income for the A/NZ population with a total cumulative gain by 2050 amounting to US$31 billion. From a government perspective, the policy results in foregone tobacco excise tax revenue with a negative net financial position estimated at US$11.5 billion by 2050. In a sensitivity analysis considering future changes to labour workforce, the government’s cumulative net position remained negative by 2050, but only by US$1.9 billion.

Interpretation

Our modelling suggests the Smokefree Aotearoa 2025 Action Plan is likely to produce substantial economic benefits for the A/NZ population, and modest impacts on government revenue and expenditure related to the reduction in tobacco tax and increases in aged pensions due to increased life expectancy. Such costs can be anticipated and planned for and might be largely offset by future increases in labour force and the proportion of 65+ year olds working in the formal economy.

Funding

This study was funded by a grant from the Australian National Health and Medical Research Council (GNT1198301)

Research in Context

Evidence before this study

Multiple countries have set targets to achieve a commercial tobacco endgame. Most simulation modelling studies have evaluated ‘traditional’ tobacco control interventions (e.g., tobacco excise tax increases, indoor smoking bans, smoking cessation health services). Very few have modelled the economic effects of endgame strategies. We searched PubMed with no language restrictions for articles published from 1 January 2000 to 8 February 2023 using the following search terms: (smoking[TW] OR tobacco[TW]) AND (endgame[TW] OR eliminat*[TW] OR “phasing out”[TW] OR “phase out”[TW] OR aboli*[TW] OR prohibit*[TW] OR ban[TW] OR “smoke free”[TW] OR “smoke-free”[TW]) AND (model*[TW] OR simulat*[TW]) AND (cost[TW] OR economic[TW]).

We identified six economic evaluations of commercial tobacco endgame strategies, including different interventions and cost perspectives. Five studies modelled interventions in the Aotearoa/New Zealand (A/NZ) context and one in the UK. Four studies were conducted from a healthcare system perspective, estimating the costs to the health system associated with tobacco-related diseases. One of these studies additionally estimated ‘non-health social costs’, as the productivity loss resulting from smoking-associated morbidity and mortality. Another study estimated the cost to consumers resulting from a policy in which retail outlets selling tobacco were significantly reduced, considering both the actual cost of a pack of cigarettes and the cost of increased travel to retailers, and the last estimated excise tax revenue to the government resulting from increases to tobacco taxation (compared to no increases to current tobacco tax levels). Of the identified literature, none evaluated the effect of endgame strategies on citizen income nor the fiscal impacts to government revenue and expenditure.

Added value of this study

This study evaluates the economic impacts of a recently introduced commercial tobacco endgame legislation in A/NZ. We modelled the economic impacts by 2050 of a policy package that includes the four key measures in the new legislation (i.e., denicotinisation of smoked tobacco products, enhanced antismoking mass media campaigns, 90% reduction in the number of tobacco retail outlets, and a smoke-free generation law that bans sale of tobacco to anyone born after 2008). The analysis presents both a government and citizen perspective. The government fiscal impacts extend beyond health system expenditure to also include differences between business as usual (BAU) – i.e., no endgame strategy – and endgame scenarios in excise tax revenue, goods and services tax (GST) revenue, income tax revenue, and superannuation expenditure. A net government position is also calculated. The citizen perspective estimates the impact of the policy on population income and savings that may result from reduced tobacco consumption. Our model projects large economic gains for consumers from the tobacco endgame package resulting from a sharp reduction in smoking prevalence, morbidity and mortality. For the A/NZ Government, the policy is projected to result in reduced healthcare costs, and increased income tax and GST revenue. These gains are offset by increased superannuation payments resulting from a greater number of individuals living past the age at which superannuation is provided to all citizens (65 years in A/NZ and described in this article as “retirement age” for simplicity), as well as large reductions in excise tax revenue.

Implication of all the available evidence

Our findings support previous evidence indicating that ambitious tobacco control policies can produce large heath and economic benefits. Our model suggests that a commercial tobacco endgame strategy is likely to result in a large revenue transfer to the benefit of the A/NZ population. An endgame approach moves beyond the BAU model of incremental policy change to a deliberate strategy to permanently reduce tobacco smoking to minimal levels within a short timeframe. A logical result of such a strategy is a significant decrease in excise tax revenue for governments. Under the endgame scenario, the net position of the A/NZ Government is likely to be negative due mainly to the foregone excise tax revenue. In a sensitivity analysis of the endgame scenario that takes into account recent projections from Stats NZ of a future larger and older labour force in A/NZ, our model suggests that the net government position might become positive as early as 2036 – less than 15 years after the introduction of the endgame policy.