When the tax cut was revealed by RNZ in July, it was immediately criticised as “weighted in favour of the tobacco industry” by Janet Hoek, a professor of public health.
New documents obtained under the Official Information Act show Treasury officials shared those concerns, among others, which they laid out in detailed briefings to Costello.
The Government is a signatory to the World Health Organisation Framework Convention on Tobacco Control, and is obliged to protect policies from “commercial and other vested interests” of the tobacco industry, the briefing states.
“Removing duty from HTPs may be viewed as in the interests of the tobacco industry, noting that the WHO recommendation is that HTPs should be taxed at an equivalent rate to conventional smoked cigarettes.”
The only commercial beneficiary of the tobacco tax cuts is Philip Morris, which is the “sole supplier” of HTPs in New Zealand.
Philip Morris makes the IQOS. Users insert sticks of tobacco into the device, which heats the tobacco to a vapour rather than burning it.
The Treasury ultimately assumed Philip Morris would pass on the excise cut to consumers but said this was not clear given it had a monopoly in the market.
“It may be that the reduction in excise taxes is not passed through to consumers in price reductions, but rather is retained by the sole importer,” Treasury warned.
“There is also a risk that this change may be viewed as anti-competitive, giving a commercial advantage to the monopoly provider; or the change may lead to more entrants and result in price competition.”
David Broome, chief of staff for NZ First between 2014 and 2017, is external relations manager at Philip Morris.
Apirana Dawson – who was director of operations and research in the office of Winston Peters between 2013 and 2017 and led the election campaigns for the party in 2014 and 2017 – is Philip Morris’ director of external affairs.
Costello declined to be interviewed and did not address specific questions put to her.
In a statement, she said: “I have no connections to the tobacco industry and it’s completely wrong to suggest that the tobacco industry has anything to do with these policies, which are aimed at helping people quit smoking.”
Would HTPs actually help people quit smoking?
Costello has repeatedly said the excise tax cut for HTPs is designed to lower smoking rates by offering alternatives for people struggling to quit. She has claimed that “HTPs have a similar risk profile to vapes”.
But Treasury told Costello: “Evidence is clear that HTPs are more harmful than vaping.”
Its advice says “emerging research suggests that heated/smokeless tobacco products still produce toxic emissions similar to those in cigarette smoke, and also expose users to some toxicants specific to heated/smokeless products which could also expose bystanders”.
Cutting taxes on HTPs might produce worse health outcomes, Treasury said.
“Removing excise tax from heated tobacco products might see nicotine consumers move away from vaping, which evidence suggests is far less harmful compared to tobacco-based products.
“We are also concerned about the health impact of these proposals.
“Research suggests that smokeless/heated tobacco products may generate harm through exposure to toxicants, cardiovascular impacts, and chronic respiratory disease.”
It said it was not even clear they were significantly less harmful than cigarettes.
“Industry claims that because the tobacco is heated rather than burned, HTPs are less harmful. HTPs do contain toxicants at lower levels than cigarettes in some cases, but also contain some toxicants that cigarettes do not.”
Both health and Treasury officials have stressed the lack of evidence that HTPs even work as a smoking cessation tool.
The documents said because “HTP use is associated with dual cigarette/HTP use, and is not associated with smoking cessation” there was a risk smokers would continue to use both cigarettes and HTPs.
“Some studies suggest that former smokers that use HTPs are more likely to relapse. Other studies suggest HTP users are less likely to transition away from smoking conventional cigarettes than those users exclusively smoking cigarettes.”
But the documents showed Costello went to alternative sources to back up her claim that HTPs help people quit.
“I, the Associate Minister of Health, have received independent advice on the efficacy of HTPs as a smoking cessation tool,” the documents recorded Costello as saying.
RNZ asked where the “independent advice” came from, but Costello would not say.
In a statement, Philip Morris told RNZ many countries were now “recognising the reduced harm potential” of HTPs, including the US where the Food and Drug Administration authorised IQOS as a “modified risk tobacco product”.
The company said while IQOS was not risk-free it was a better choice for adults who would otherwise continue smoking.
“Both [Philip Morris] and independent assessments of IQOS have consistently found that the levels of harmful and potentially harmful chemicals are on average reduced by 90% to 95% compared to cigarette smoke.”
‘Most benefit’ to Philip Morris
Asked for advice on who would win and lose from cutting excise on HTPs – the so-called “distributional” impacts of the policy – Treasury effectively said that Philip Morris would win and poor people would lose.
“This initiative is likely to most benefit the sole importer of these products. The initiative is likely to have more of an impact on low income, Māori and Pacific populations. This is because these groups of people are more likely to smoke,” Treasury said.
“To the extent that this reduces costs for these groups there is a positive impact. To the extent that it causes these groups to switch to a more harmful option (compared to vaping, or not smoking), there is a negative impact on the health of these populations.”
Officials were also worried about the signal cutting excise tax for HTPs would send.
“Removal of duty is likely to be interpreted as a Ministry of Health endorsement of lesser harms from HTPs compared to smoked tobacco and use as a smoking cessation support, for which there is insufficient evidence, and to increase awareness of their availability.”
The advice noted that the WHO position was that “claims of HTPs as a smoking cessation aid should not be made” and the Government should not highlight positive outcomes from switching from cigarettes to HTPs.
A Ministry of Health review of scientific evidence showed “risks of dependency and addiction, exposure to toxicants, cardiovascular impacts, chronic respiratory disease” and developmental impacts.
“Because of the relative newness of HTPs, it is likely that more health outcomes will emerge over time.”
In a background document prepared for Costello, officials described HTPs as containing “mostly tobacco byproducts which previously were wasted. It is made from tobacco dust, fine particles and ribs and stems; various additives may be incorporated”.
The advice said “traditionally the tobacco has been used in higher value products like cigarettes and the byproducts of that manufacturing process, reconstituted, are used for Heated Tobacco Products”.
In her written statement to RNZ, Costello said she was committed to Smokefree 2025 and repeated her position that tax cuts for HTPs would support that.
“A key reason that smoking rates have reduced so rapidly in recent years is that smokers have switched to other, less harmful products, such as vaping,” she said.
“I want to ensure that we continue with this practical approach and provide a range of alternative options, which is why we are trialling the reduction in excise duty on HTPs.”
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