Budget 2012: Higher taxes create black market - tobacco company

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Imperial Tobacco, whose brands in New Zealand include Drum, Horizon and Peter Stuyvesant, says the hike in tobacco tax announced in today's Budget opens the door to a black market.

Finance Bill English this afternoon announced the excise on tobacco will rise by 10 per cent a year for the next four years.

The tax hike is expected to raise $1.4 billion. By 2016, a packet of 20 cigarettes will cost $20 or $1 per cigarette.

``The Government could shoot itself in the foot with this policy decision by creating a lucrative black market for tobacco,'' Imperial Tobacco's Brendan Walker said in a statement.

``The most recent study from Australia shows smokers have moved from purchasing unbranded tobacco to counterfeit and contraband tobacco.''

``Policymakers must remember we are a legal company selling a legal, highly regulated product to consenting adults whose right to use our product, of their own free will should be respected,'' he said.

The Crown collected $145 million in excise from locally produced tobacco and a further $746 million from taxes on imported tobacco, according to the Government's financial statements for the nine months ended March 31.

A Ministry of Health discussion paper released last month modelled the impact on smokers' behaviour if the price of a packet of 20 cigarettes rose to $100 over the next eight years from around $16 today, to help achieve the goal of a `smokefree New Zealand' by 2025.