Francesca Rudkin: Black market ciggies are in the news again

Cheap, illict, black market ciggies are in the news again.  A new report claims more that than one third of tobacco consumed last year was bought on the black market. It estimates the Government lost $817 million in excise and GST revenue last year. It’s worth noting the report was commission by tobacco companies, who are obviously very keen to knock this behaviour on the head.   Immediately, it raises questions about the excise tax placed on cigarettes and whether we should raise it, keep it steady, or drop it. Excise tax and GST in NZ means a packet of cigarettes is around $40 – but you can pick up a pack on the black market for around $13.   It’s a difficult policy choice. On one hand, high cigarette taxes have helped reduce smoking rates over time. On the other hand, you can’t deny that rising prices have increased the incentive for black market tobacco smuggling and illicit sales.  There is a reasonable argument for reducing or freezing excise taxes if policymakers believe the illegal market is growing faster than the legal market is shrinking. Australia provides a warning. After years of large tax increases, the Australian Bureau of Statistics estimates illicit products made up as much as 80% of nicotine consumption in 2025. Organised crime groups have become heavily involved, leading to violence, extortion, and firebombings.  However, cutting taxes also has drawbacks. Cheaper cigarettes may encourage more smoking, undermining progress towards public health goals. I would also argue it’s unlikely the excise tax would be reduced enough to truly compete with a black market $13 pack of cigarettes.  New Zealand has not yet reached Australia's level of criminal involvement. The Government has stated that while illicit tobacco is increasing, New Zealand is “not yet facing the same issues as Australia.” Authorities have responded with joint operations involving Customs, Police, and Health agencies.  Last night, Customs Minister Casey Costello defended border controls on Newstalk ZB Drive, stating that Customs has had huge success in seizing illicit tobacco. And to be fair, they have demonstrated significant enforcement capability. In one recent case, officers intercepted 927,000 smuggled cigarettes concealed in shipments falsely declared as clothing, leading to arrests and the potential tax avoidance of $1.4 million. Other operations have seized more than 1.5 million cigarettes and over a tonne of loose tobacco.  What we need to see though is better organisation between Police and Health agencies once the product is in New Zealand and on sale. In the year ending in March, Ministry of Health did not undertake any enforcement action against retailers under Smokefree legislation, and yet, dodgy retailers don’t seem to be very hard to find.   From here they need to make it clear whose jurisdiction it is to focus on breaking up the domestic supply of illegal cigarettes, with serious fines and consequences on the table.   Overall though, the strongest response may be a middle path: avoid large future excise increases while investing more resources in enforcement. This approach preserves the health benefits of high tobacco prices while reducing the risk of creating an Australian-style black market dominated by organised crime. See omnystudio.com/listener for privacy information.