Ending duty-free tobacco sales would be good for health – and health budgets

Until recently, Aotearoa New Zealand led global tobacco control innovation. Evidence-based policies, including sustained tobacco excise tax increases, saw large reductions in smoking rates, which will save thousands of lives.

Yet duty-free tobacco sales remain a curious anomaly and contradict efforts to reduce smoking prevalence.

At international airports and duty-free stores throughout the country, travellers can still buy cigarettes and roll-your-own tobacco without paying the excise tax or GST applied at domestic retail outlets.

Cheap duty-free sales of tobacco products not only deprive the public purse of millions of dollars, they undermine efforts to become a smoke-free nation.

Excise tax works because it raises prices, and higher prices reduce smoking. Studies have consistently found every 10% increase in price reduces tobacco consumption by around 5%.

Numerous studies show that when tobacco prices rise, people smoke less and try to quit more often, and fewer young people take up smoking. Because people on lower incomes and young people are more sensitive to increasing prices, tobacco excise taxes can help reduce health inequities within these groups.

These benefits explain why successive governments increased tobacco excise by 10% annually from 2011 to 2020, on top of annual inflation adjustments.

But while this measure was associated with a sustained decline in smoking prevalence, duty-free outlets continue to offer tobacco at just a fraction of regular retail prices.

Raising revenue while reducing harm

In 2014, three years after it declared the Smokefree 2025 goal, the government recognised this inconsistency. It reduced the duty-free allowance from 200 cigarettes to 50 and applied similar reductions to other tobacco products.

Nonetheless, although duty-free sales dropped sharply the following year, they continue to represent millions of dollars in foregone tax revenue.

Our recent analysis of the tobacco returns data that tobacco companies supply to the Ministry of Health shows duty-free tobacco cost the government between NZ$60 million and $96 million in foregone excise tax and GST between 2015 and 2024.

Even using conservative assumptions that account for reduced consumption at higher prices, the lost revenue amounts to tens of millions of dollars.

The health system is under increasing pressure; allowing discounted tobacco sales effectively undermines government goals to reduce cancer and cardiovascular disease.

Importantly, it also removes funding from government coffers that could expand existing health care.

Even using our most conservative estimate of $60 million, the foregone revenue could have funded around 600 Keytruda treatments for early-stage breast cancer, which is currently unfunded. (Ironically, people self-funding cancer therapies pay GST on the drugs they require.)

Alternatively, $60 million could have funded around 2,000 additional hip or knee replacement surgeries, or provided a substantial boost to mental health and addiction services.

Towards a coherent tobacco policy

Ending duty-free sales of tobacco products would amount to a price increase, which we would logically expect to reduce sales, and hence decrease health harms, and costs to the health system over time.

While perfume or chocolate purchases may be a relatively harmless perk of travel that boost airport revenues, these arguments do not hold for a product that will kill two out of three long-term users, and which remains a leading cause of preventable death.

This policy incoherence means that while New Zealand has an explicit goal of reducing smoking prevalence and tobacco availability, and eliminating smoking-related inequities (particularly for Māori and Pacific peoples), it still allows sales of discounted tobacco.

New Zealand is a party to the World Health Organization’s Framework Convention on Tobacco Control, the first global treaty to address the tobacco epidemic. This means New Zealand has an obligation to implement effective and wide-ranging tobacco control policies.

The World Health Organization has recommended parties to the framework do not allow duty-free tobacco sales (or at least apply taxes to them).

Remedying the current contradiction is simple. Ending duty-free tobacco sales offers a straightforward and low-cost solution that would consolidate the effects excise taxes have on tobacco consumption.

Applying excise and GST taxes to tobacco products currently sold at duty free stores would also generate revenue that could support a struggling health system.

Importantly, it would ensure government policies align with its international obligations, demonstrate the policy leadership that once defined Aotearoa New Zealand’s approach to tobacco control, and encourage other countries to take similar action.