Borrows Chester: Customs and Excise (Tobacco Products—Budget Measures) Amendment Bill — Second Reading 
Text is incorporated into the Bound Volume 
Borrows Chester: 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.] 
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 Maori Affairs Committee’s landmark inquiry into the tobacco industry in Aotearoa and consequences of tobacco use for Maori. 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 30000 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.