The $216 million nonsense

Radio NZ report:

The government has agreed to set aside $216 million it may need to pay for tax cuts for heated tobacco products (HTPs).

When I first heard this figure it seemed illogical as HTPs are such a minuscule part of the market.

She also said she did not expect the cost to the government to be “anywhere close to what was modelled”, as the tax collected on HTPs was only $3.62 million in 2022 and $5.97 million in 2023.

So the actual value of the tax change is $3 million, not $216 million. Yet the average reader or listener would think it is $216 million. How is that figure achieved?

Well prepare for nonsensical advice from officials.

But Health Ministry officials warned the minister against liberalising the regulation of HTPs, prior to the excise tax cut.

“There is no evidence to support their use as a quit smoking tool,” officials wrote to Costello. 

So they said that this won’t drive smokers from normal cigarettes to heated tobacco (which is less harmful).

The Cabinet paper said Health Ministry modelling suggested 7200 smokers could switch to HTPs over the next two years if encouraged by a cheaper price.

But here they say actually 7,200 smokers would switch to the less harmful HTPs.

So the $216 million figure is based on the scenario that the lower excise tax will actually lead to smokers switching to HTPs. So there would only be a loss of revenue if smokers switch to less harmful HTPs – which is the exact purpose of the trial!

So the official Ministry advice is that for policy purposes no smokers will switch to HTPs, but for fiscal purposes 7,200 smokers will switch to HTPs!

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