Government extends tax break for Philip Morris heated tobacco products

Treasury noted Phillip Morris’ monopoly in the market, with the company benefiting from the move. Photo / Getty Images

By Guyon Espiner of RNZ

The tax break for Heated Tobacco Products (HTPs) made by Phillip Morris has been extended for an extra two years.

In July 2024, the Government cut the tax on HTPs in half, in what it said would be a one-year trial subject to an evaluation.

But NZ First Associate Health Minister Casey Costello told RNZ the evaluation would now be done in July 2027 and the reduced tax rate would apply to HTPs at least until then.

Labour’s health spokesperson Ayesha Verrall said the extension of the tax cut was striking, given the strain on the health system.

“This Government has the wrong priorities. It is giving tax breaks to tobacco companies now valued at over $300 million and the evaluation they promised, to check that it was helpful, is a total sham.”

Labour’s Ayesha Verrall criticised the extension, citing health system strain and a $300 million cost. Photo / Getty Images

Costello cut the HTP tax rate by 50% last year, with the aim that cheaper prices may encourage people to switch from cigarettes to HTPs.

The cut was made despite health officials telling Costello there was no evidence HTPs worked to stop people smoking or were significantly safer than cigarettes.

Costello told Cabinet she had her own “independent advice”, which, when she released it later, turned out to be five articles that were either about different products, outdated, or offered only weak support for her view.

Treasury said Philip Morris had a monopoly in the HTP market in New Zealand and would be the main beneficiary of the move.

NZ First's Casey Costello is under fire for extending HTP tax cuts for another year, favoring tobacco giant Philip Morris. Photo / Getty Images

Costello’s office told RNZ the tax cut trial would be extended because Philip Morris had to pull its IQOS device from sale last year, as it did not comply with requirements for vaping devices to have a removable battery. Last week, Costello ditched the requirement for removable batteries, saying Cabinet was advised this was the best way to resolve legal action from Mason Corporation, which owns the Shosha vape store chain.

A spokesman for the minister said with HTPs off the market for months last year, the original plan for an evaluation after one year did not make sense.

“There wasn’t an evaluation because of the withdrawal of HTPs from the market. Any report back would be meaningless as the cheaper HTPs were only available for two months,” the spokesman said.

“Cabinet agreed to extending the HTP review to July 2027 as there will be more market data available.”

The spokesman said the evaluation would then be able to show whether “a sustained price reduction encouraged uptake by smokers” and if it had helped reduce smoking.

The assessment would also look at whether HTP use “encouraged smokers away from vapes” and the extent of “unintended uptake by young people”.

A March 2025 Ministry of Health (MOH) briefing to Costello, focused on how to evaluate the HTP tax cut, said Philip Morris had not initially passed on the excise reduction to consumers.

“There was no price change passed through to customers for the first month, though this is an observation of value in and of itself,” the MOH said.

The briefing, obtained by RNZ under the Official Information Act, said Philip Morris had to pull its IQOS device just three months into the tax cut trial.

“All HTP devices were removed from the market in New Zealand due to not meeting new safety regulations. This has meant there have been no HTP devices available for purchase for at least five months of the 12-month trial period.”

Costello has said that HTPs “have a similar risk profile to vapes”, but officials from Treasury and Ministry of Health advised her they were much more harmful than vaping.

In its March briefing, the MOH told Costello it would be difficult to assess whether people using HTPs had decreased their harm or not.

“While we will be able to assess whether the percentage of current or recent smokers who use HTPs increases, we will not be able to track whether those same people were previously using, or likely to use vapes, for example, whether they moved from a safer alternate product to a more harmful one.”

Verrall said the onus should be on Philip Morris to prove its product was safe.

“There is no reason why the government should be running a study for Philip Morris to help get its products used,” she said. “This product is not a health product. It is a harmful product.”

Verrall said the latest update from the Treasury showed the HTP tax cut was forecast to cost up to $293m if continued until 2029.

“It’s deeply worrying when our health system is underfunded that the Government is giving away $300m to the benefit of a single company with links to one of the coalition partners,” Verrall said.

The extension of the tax break for the Philip Morris products comes after RNZ published documents alleging a close relationship between NZ First and the tobacco giant.

The documents, released in litigation against US vaping company JUUL, allege Philip Morris pitched draft legislation to NZ First as part of a lobbying campaign for its HTPs.

The documents claim Philip Morris corporate affairs staff “reached out to NZ First to try and secure regulation to advantage IQOS”.

A lobbying firm advising Juul claimed that NZ First leader Winston Peters had a relationship with Philip Morris and also that “any regulation he champions is likely to be very industry-friendly and highly geared towards commercial interests in the sector”.

Peters did not address the allegations that NZ First received material from Philip Morris, but said RNZ’s story was a “tissue of baseless accusations” and that engagement with the tobacco industry was legitimate.

“Multiple government departments have themselves proactively reached out to, and met with, ‘big tobacco’ for direct feedback and advice on tobacco legislation,” he said, in a post on X.

Health Coalition Aotearoa and Vape-Free Kids want Prime Minister Christopher Luxon to strip NZ First of the tobacco and vaping portfolio but he says Costello is doing a great job.