Black market will grow - tobacco companies

BY HELEN MURDOCH AND NATHAN BEAUMONT

Dairy robberies and sales of blackmarket tobacco are likely to increase after this week's big tax rise, tobacco companies say.

A bill enacted under urgency in Parliament this week on a 118-4 vote has put in place a 10 per cent increase in tobacco excise duty. Two more 10 per cent rises will follow in January and at the beginning of 2012.

When the two-year price-rise cycle is complete, a packet of 20 cigarettes will cost about $14 and a 30-gram pouch of loose tobacco about $30.

Loose tobacco has been hit with a double whammy – an immediate increase of 14 per cent to bring it into line with cigarettes, as well as the 10 per cent increases.

Imperial Tobacco New Zealand said the price rise could fuel the growth of illicit tobacco trade and a rise in tobacco robberies.

The company said the increase in price could see tobacco sellers needing to install more security measures as the cost of the product could result in "temptation to criminals".

An Ernst & Young report, commissioned by British American Tobacco (BAT), said up to 31 million illegal cigarettes were smoked by New Zealanders last year, with up to $50 million being lost in tobacco tax.

BAT spokeswoman Susan Jones said overseas experience showed that the illegal tobacco trade benefited from big price increases.

The report calculated that up to 81 tonnes of illegal loose tobacco and up to 31 million illegal cigarettes were smoked by Kiwis last year – about 3.3 per cent of total consumption.

The blackmarket trade cost the Government $39 million to $50m in lost tobacco tax revenue last year, it said.

Market research by Colmar Brunton for the report showed two-thirds of respondents said the cheaper price was the reason they smoked illicit tobacco.

Blackmarket cigarettes primarily come from duty-free imports smuggled into New Zealand via passengers and air freight, and cigarettes and tobacco concealed in shipping containers and in mailed parcels, the report said.

The illegal growing of tobacco was mainly in Motueka and Northland , it said.

However, former Tasman District mayor and tobacco grower John Hurley said the trickle of upper South Island blackmarket tobacco disappeared with the closure of the region's industry in the mid-1990s.

"There may be a very small trickle today, if it exists at all. There is virtually nothing grown here."

Hurley said he doubted whether the Government would succeed in taxing tobacco off the market. "I think smokers will probably change who they vote for."

A former Motueka tobacco grower, who did not want to be named, said most illicit loose tobacco was smuggled into New Zealand. "No-one is prepared to take the risk to grow tobacco," he said. "There's probably a greater acreage grown in pot."

A Customs Service spokesman said up to seven million cigarettes and 1.3 tonnes of loose tobacco were estimated to make it across the country's borders illegally each year, but the country's small size and isolation meant the problem was not as bad as in other countries.

It is illegal to import commercial tobacco into New Zealand without paying excise duty, but legal to bring in limited amounts for personal use duty-free.

It is illegal to manufacture tobacco for sale without paying excise, but legal to grow up to 15 kilograms annually for personal use.

Anti-smoking campaigners are hailing the bill as a victory for health.

Quitline, which helps people who want to give up smoking, said it was expecting many more calls, and Action on Smoking and Health (Ash) said it expected more people to kick the habit due to the price rise.

The Salvation Army applauded the move but said it wished the Government had the courage to act as harshly against alcohol.

North South Business Association past chairman Clark Xu said Christchurch dairy owners he spoke to yesterday were worried about their future.

Cigarettes accounted for between 40 per cent and 50 per cent of turnover for dairies, he said.

"With the sharp price increase it will stop smokers and seriously influence turnover," he said.

"And another thing is the robberies. Criminals focus on cigarettes."

- © Fairfax NZ News