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On 28 April 2010 Parliament voted 118 to 4 to raise tobacco
excise rates by 10% for factory-made cigarettes and 14% additionally for
RYO cigarette tobacco, with further increases in 2011 and 2012. Such
overwhelming parliamentary support for action against tobacco is unprecedented.
So is the response….
The decrease in sales has been greater than the increase in
price.
Smokers may however start to smoke up due to trade discounts as
Christmas and summer approaches, by smokers switching or relapsing to
smoking thinner, cheaper RYOs.
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Figure 1. Average weekly cigarette sales and prices,
New Zealand supermarkets 2010
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Factory-made cigarettes and roll-your-own
cigarettes (=0.7 g tobacco)
have been added together.
Based on AC Nielsen weekly data requested
by End Smoking NZ, for 12 months to 15 August
2010, all
388 supermarkets in NZ.
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Table 2. Average weekly
sales and prices, before and after the tobacco tax increase on 29
April 2010:
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Millions of cigarettes, cents per cigarette
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Factory made cigarettes
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Roll-your-own cigarettes*
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All cigarettes*
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Aug 09-April 2010
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7.1 mln @ 53 c
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3.0 mln @ 47 c
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11.4 mln @ 63 c
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May to Aug 2010
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6.1 mln @ 58 c
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3.5 mln @ 57 c
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9.7 mln @ 70 c
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% change price
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10%
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21%
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12%
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% change sales
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-13.9%
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-17.9%
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-15.4%
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$ dollar retail sales
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- 6 %
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-0.1%
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- 0.04%
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Excise tax /cigarette
Change since tax rise
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34.6 c
+10%
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34.6 c
+25.7%
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34.6 c
+15.6%
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Tax revenue total
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-5 %
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3.2%
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0.0 % change
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*0.7 g tobacco per cigarette. Mln=million.
____________________________________________________________________
- The price
of an average cigarette has risen 12% and
cigarette sales overall have fallen 15%.
- On these supermarket
data, excise revenue has not increased.
- Treasury
estimates in April of a $200 million increase in tobacco revenue by
2012 will be difficult if not impossible to meet.
RYOs still 30% cheaper if rolled thin.
- All
cigarettes including RYOs are now more
expensive.
- RYOs
notionally containing 0.7g tobacco, are now
equal in price to factory-made cigarettes.
- On the
other hand RYOs remain cheaper to smoke
than factory-made (FM), if smokers continue to roll them thin (0.5 g
per cigarette, 60 RYOs per 30 g packet)
and some FM cigarette smokers have apparently switched to RYOs, instead of quitting altogether.
- The
“equalization” of tax on RYOs
and factory made cigarettes (FM) only applies if the RYO smoker uses
the same amount of tobacco per cigarette as a FM cigarette smoker. (0.7 g
per cig).
- However in
reality - the average weight of a RYO cigarette in NZ for the last
many years is around 0.5 g# ** - RYOs
remain 30% cheaper for most poor smokers.
- The price
gap means some FM smokers will still shift to RYOs
instead of quitting.
- This
probably explains the large fall in FM cigarette sales. Sales of
factory made cigarettes have fallen by a higher percentage than the
price increase. For RYOs, sales have not
fallen as much as the price increase, suggesting switching from
factory-made to RYOs.
____________________________________________________________
Responsiveness to cigarette price is increasing,
the sales decrease is now greater than the price increase.
Table 3. Changes in
response to major tax-triggered cigarette price increases in supermarkets
1991, 1998, 2000, 2010
(includes RYOs).
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Change in cigarette price
(a)
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Change in volume cigarette sales
(b)
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Price responsiveness (b)/(a)
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1991
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16.3%
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-10.5%
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0.64
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1998
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13.3%
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-9.6%
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0.72
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2000
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20.2%
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-16.1%
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0.80
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2010
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12.4%
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-15.4%
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1.24
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Source: AC Nielsen weekly supermarket
national sales and retail price data.
Comment: Progressively, over 20 years, 1991-2010,
cigarette sales decrease more for a given price increase.
That is, there is no
sign of a hard core of smokers developing.
_______________________________________________________
May 2010
Cigarette
price expected to increase by $4 a packet over 2 years
RYOs to become 40% more expensive
Table
4. Cigarette price changes in 2010-2012:* All cigarette prices increase,
but RYOs remain cheaper than factory-made cigarettes.
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Jan 2010
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April 2010
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Jan 2011
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Jan 2012
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2010 –
2012
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25s Factory
Made
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13.00^
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14.30^
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17.30*
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+33%
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30g RYO
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21.30^
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25.50^
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29.80*
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+40%
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20s Factory
Made
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10.30
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11.30
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13.00 estd
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Assuming 60 RYOs /30 g (0.5 g/RYO cigarette # **)
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Price*/FM cig
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52.0 c
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57.6 c
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69.2 c
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+15c
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Price*/RYO cig
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35.5 c
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42.5 c
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49.7c
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+14c
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Avg
RYO cigarette (0.5 g) cheaper by
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16.5c /cig
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15.1c /cig
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19.5c /cig
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3c more /cig
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*Ministry
of Health press release 28 April 2010.
#Laugesen, Epton, Frampton,
Glover, Lea. http://www.biomedcentral.com/1471-2458/9/194 and more at www.healthnz.co.nz/News2009.htm based on weighing of tobacco in
cigarettes rolled by RYO smokers.
**http://www.endsmoking.org.nz/RYOhalfprice.htm
Table 1 National data estimating RYO weights.
^
Actual recommended retail prices from BAT. In reality, shops on low
income areas discount these prices.
Table
5. Actual taxes and prices before and after 28
April 2010
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(Many shops did
not raise prices until about 3 May)
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Before
28 April 2010
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From
May 2010
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% increase
during 2010
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Excise
rates www.customs.govt.nz
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Tax rate/FM
cigarette
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31.4 c
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34.587 c/cig
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10% (tax)
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Tax rate / 0.5
g RYO
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19.65 c
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24.643 c/cig
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25% (tax)
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Tax rate / 0.7
g RYO
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27.51 c
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34.587 c/cig
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25.7% (tax)
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Retail prices
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Holiday 20s
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9.50** to 10.30
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11.30*
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10%
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Holiday 25s
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13.00
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14.30*
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10%
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30g RYO Port Royal
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$19.80** to $21.30
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25.50*
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20%
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*
recommended retail price from BAT
**
a discounted price
Note:
Normal increases in excise to
adjust for inflation have been stood down until January 2012.
Also
see http://www.moh.govt.nz/moh.nsf/indexmh/tobacco-excise
Background
Government collects over $1 billion million
annually in tobacco tax and spends $56 million annually on tobacco control
(persuading smokers to quit or smoke less, etc).
Thus by about January 19 of 2010 the smoker (at the
rate of 35 cents tax per cigarette) has paid for the risk reduction and tobacco
control services for the rest of the calendar year. However the disease
and treatment costs,
estimated
at $1.8 billion for the year, are not fully recovered by the end of the
year.
Figure 2. Weekly manufactured cigarette sales
before and after tax-triggered price increases in 1991, 1998, 2000 and
2010, New Zealand.
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A. Budget cigarette tax increase 1991
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B. Budget cigarette tax increase 1998
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lSource: AC Nielsen weekly supermarket
national sales and retail price for 20 cigarettes in current dollars.
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C.
Pre-Budget cigarette tax increase 2000
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D. Pre-budget cigarette tax increase 2010
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Source: AC Nielsen weekly supermarket national sales and retail price
for 20 cigarettes in current dollars..
- The
fourth red data point in the 2010 graph is lower due to Easter week
– fewer shopping days.
- In
2010 sales remained steady through to week 23, to the end of the data
available.
In May 2000, government increased the tax and price,
introduced stronger health warnings and used powerful television
commercials, with the result that 80,000 smokers quit. Why then did they
relapse? www.endsmoking.org.nz/casestudy.htm
Principles for tobacco taxation as a health issue:
a WHO report on NZ tobacco tax, and moisture and tax rates.
www.endsmoking.org.nz/taxtrends.htm
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