A Treasury report has admitted that smoking saves the Government money because smokers die earlier and pay more in tobacco tax than their health problems cost.
The regulatory impact statement on tobacco taxes prepared ahead of the Budget said smokers' shorter life expectancies reduced the need for superannuation and aged care.
"When the broader fiscal impacts of smoking are considered ... smokers are probably already 'paying their way' in narrowly fiscal terms."
In last week's Budget, Associate Health Minister Tariana Turia introduced tobacco levies that will increase the price of a 20-pack of cigarettes to more than $20 in four years.
The charges would increase the Government's tax take from tobacco from $1.3 billion to around $1.7 billion by 2016.
The Treasury document acknowledged that the revenue gathered in tobacco taxes already exceeded the health costs of smoking.
A University of Otago study in 2007 estimated that the direct cost of smoking to the Ministry of Health was $300 million to $350 million.
The Treasury cited a Ministry of Health study that estimated the indirect health costs of smoking at $1.9 billion, but acknowledged the figure had been disputed and was far higher than previous estimates.
In comparison, alcohol tax revenue was $682 million. The immediate health cost of alcohol-related problems has been estimated at $700 million and the indirect cost up to $5 billion (though this figure was also disputed).
The regulatory impact statement said taxing smokers was a much more reliable way of generating income for the Government than taxing other goods and services.
It said tobacco taxes were "very efficient" for raising revenue because the addictive nature of nicotine meant smokers were not highly sensitive to price increases.
Mrs Turia said last week that for every 10 per cent increase in the price of cigarettes, tobacco consumption fell by about 5 per cent.
The Treasury was more conservative, estimating a 3.5 to 4 per cent decrease in smoking consumption after each tax rise.
The Treasury said a Budget night tax rise would have prevented people from stockpiling cigarettes but price increases signalled in advance were more likely to encourage smokers to quit. The first rise takes effect in January.
Tobacco tax has been increased by more than 40 per cent since 2010.By Isaac Davison @Isaac_Davison Email Isaac