It is not something it wants to boast about, but tobacco is a cash cow for the Government.

The amount it collects in excise tax from producers has almost doubled over the past 20 years and tobacco generates more funds for the Government than it gets in payments from its largest state-owned enterprise, Meridian Energy.

Meridian paid $163 million in ordinary dividends last year. Imperial Tobacco - one of three companies that dominate the New Zealand market - contributed about $249 million in tax. Corporate affairs manager Cathy Edwards said 80 per cent of the cost of the company's products was direct revenue to the Government.

Associate Minister of Health, Tariana Turia, said over the past 20 years, revenue from tobacco excise had increased substantially from $600 million to $1.1 billion a year.


Duty is the biggest cost for tobacco companies, amounting to 72 per cent of Imperial Tobacco's revenue in its latest year. The company also paid $9.3 million in tax.

Smoker Lauren Santos said the amount she paid in duties on tobacco was ludicrous. The most recent increase has pushed prices to about $14 for a packet of 20 cigarettes and $30 for a 30g pack of tobacco.

She said the most immediate effect of increases was that smokers would look for cheaper products.

"I stopped paying $19.80 for a packet of tailormades every second day and have moved on to roll-your-owns, and about two out of every three people I know have done the same."

Edwards agreed. "It doesn't discourage smoking, smokers just switch brands, looking for a better deal." She said smokers were being unfairly targeted and it was especially hard on low-income people.

ASH NZ spokesman Ben Youdan said tax rises prompted tobacco companies to aggressively push their budget products. Pall Mall had become the leading brand in New Zealand, overtaking the more expensive Holiday.

Turia said it had been proven that putting the price up encouraged smokers to quit, although it might take a while for the full impact to be felt.

"We are dealing with a highly addictive substance that many people find hard to quit, so sales don't fall as fast as the price increases," she said.


"This is the main reason tax revenue has been increasing."

Santos said she thought the price rises would prompt her to quit eventually.

New Zealand's smoking-related health bill is big - an estimated $350 million a year or more - but it seems, on the face of it at least, that if smokers quit en masse, the Government would be out of pocket.

But Turia did not want to look at it that way. "The cost is much more than the medical bills. Up to 5000 New Zealanders die each year from smoking or exposure to second-hand smoke, and that is an immeasurable loss."

Turia said the Government would think the pay-off was worth it if it no longer received tobacco excise.

"You cannot put a dollar figure on someone's life, or their well-being. Having healthy citizens and whanau members is the ultimate goal. Tobacco excise revenue is really only a means to achieve this goal."


Cigarette sales dropped 11 per cent last year, which Youdan said proved the increases were working.