The Government has cancelled pumping $430 million into superannuation, tax credits and benefits that would have, in effect, been direct compensation for higher tobacco taxes.
Superannuation, veterans pensions, welfare benefits and Working for Families tax credits would all have gone up by 0.8 per cent over the next three years
because of the tobacco tax rises, under a longstanding policy of compensating beneficiaries and pensioners for rises in consumer prices.
But Associate Health Minister Tariana Turia said that the increases had been cancelled because they would have cost $430 million over the next four years.
A bill implementing a National election promise of automatic pension and benefit adjustments in line with the consumers price index will also be changed to take out the effect of the tobacco tax increases.
The change will affect about 515,000 superannuitants, 385,000 families receiving Working for Families tax credits, 11,000 war veterans and 325,000 people on other benefits such as the domestic purposes benefit and the dole.
Superannuitants will be hit less than younger age groups by the rise in tobacco prices because only 11 per cent of people aged 65 to 74, and 4 per cent of those 75 and over, smoke.
The national average smoking rate is 20 per cent.
"They smoke less because a lot of the smokers are dead by that time," said public health expert Dr Murray Laugesen.
But he said welfare beneficiaries in younger age groups smoked more than the national average - in line with the Maori population, where 45 per cent of working-age people still smoke.
Mrs Turia said non-smokers did not need to be compensated for the higher tobacco prices, and smokers should not be compensated.
"It makes no sense to increase superannuation, benefits and family tax credits paid to smokers to compensate for Government actions to increase tobacco prices and discourage smoking," the minister said.
"It also makes no sense to compensate non-smokers receiving these entitlements for tobacco price increases that don't affect their cost of living."
Auckland Returned and Services Association president Gary Walker said many war veterans had smoked all their lives and were often advised by doctors not to quit at their age because of the stress.
The higher tobacco taxes are expected to bring in $205 million a year in extra tax revenue by 2013.
