Friday 30 April 2010

Tobacco tax and the poor [updated]

Let's assume the SmokeFree Coalition's report on the effects of a tax increase are correct: 39,000 Decile 1 households paying $348 more per year.

Let's assume that every Decile 1 household earns at the very top of the Decile 1 income band: $20,100.

If GST is 12.5%, and that household spends all of its income, it pays $2512.50 in GST.
If GST rises to 15%, it pays $3015.

The proposed GST hike would have a household at the top of the Decile 1 band paying about $500 more in tax. National has proposed fully compensating poor households for the tax hike so they are no worse off. It is nevertheless strongly opposed as being the worst thing ever for the poor.

The enacted tobacoo tax hike will cost the average smoking Decile 1 household well over $350 after the second 10% hike -- the "well over" is because tax on loose leaf tobacco will rise by much more. None of this increase will be compensated for poor households. It is nevertheless strongly endorsed as being the best thing ever for the poor. Quitting households will be better off in financial terms, but there will be fewer of them than those that continue smoking.


Again, this is a tax on "not me", and I generally support taxes on "not me" by virtue of their being paid by "not me". Like a high GST that hits tourists as compared to an income tax that doesn't. But this does seem a tad regressive, even for my liking.

Update: I was wrong: The Standard (Labour Party blog) complains that the poor won't be compensated for the tax hike, but only to the extent that beneficiaries won't be compensated as they won't see a CPI adjustment taking into account the tobacco increase. Shame Labour voted for the tax hike then, ain't it?


  1. Actually The Standard isn't affiliated with the Labour party but the labour movement... many of its writers are Labour members but others support the Greens or Mana or come from the unaffiliated left.

  2. Despite that quibble, I really appreciate your work on tobacco, so thanks for that. Was just coming here to find your refutations of the oft-quoted figure about tobacco costing $1.9 billion per year.

  3. Thanks. Send me an email if you didn't find it and I will point you in the right direction.