New Zealand Associate Health Minister Casey Costello’s 50% excise tax cut on Heated Tobacco Products (HTPs) has hit a significant roadblock following the withdrawal of Philip Morris’s IQOS device from the market due to new regulatory requirements.
The tax cut, implemented in July 2024, was part of a trial aimed at encouraging smokers to switch from traditional cigarettes to less harmful HTPs. However, with IQOS being taken off the shelves, the only available HTP device in New Zealand, the future of the initiative has been thrown into uncertainty.
Costello, also the Customs Minister, introduced the tax cut with the goal of aiding 280,000 “hardcore addicted smokers” in transitioning to a less harmful alternative. She argues that HTPs, which heat tobacco rather than burn it, offer a viable option for smokers who have not found success with vaping. “Vaping does not work for everyone,” Costello stated in defence of the policy, adding that HTPs have “a similar risk profile to vapes” and could serve as another tool to reduce smoking rates as part of the government’s Smokefree 2025 initiative.
The 50% reduction in excise tax was designed to make HTPs more affordable and attractive as a smoking alternative. Costello expects that the tax cut will lead to lower retail prices, though Treasury officials warned it was unclear if Philip Morris, the sole supplier, would pass these savings on to consumers.
Philip Morris’s IQOS device is currently the only HTP available in New Zealand. It was removed from shelves on October 1 due to new vaping regulations requiring devices to have removable batteries and child safety mechanisms. The IQOS device, classified as a vape under these rules, failed to meet the new standards. Although the heated tobacco sticks that are used in the device remain available, new users are unable to purchase the heating device itself, effectively stalling the trial.
Philip Morris has not provided a timeline for when a compliant device will be available, further complicating the policy’s future.
The tax cut has faced sharp criticism from public health experts and government officials since its inception. Treasury raised concerns that the policy primarily benefits Philip Morris, noting that the company holds a monopoly on HTPs in New Zealand. “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 officials said.
Officials also warned that HTPs might not be significantly less harmful than traditional cigarettes and that their use could be associated with health risks, including exposure to toxicants and cardiovascular issues. “HTPs are more harmful than vaping,” Treasury stated in its briefings to Costello, while also noting a lack of clear evidence that HTPs are effective as a smoking cessation tool.
Health experts echoed these concerns. Janet Hoek, a professor of public health at the University of Otago, called the excise tax cut an “untested, radical experiment” that appeared to favour the tobacco industry over public health. Hoek agrees with the Ministry of Health, which advised, “We do not recommend liberalising the way HTPs are promoted. This would likely compound existing concerns about youth uptake and addiction to nicotine products.”
Despite the criticism, Costello has maintained that the tax cut is a necessary part of the government’s strategy to reduce smoking rates. She argues that many smokers who have struggled to quit may find HTPs to be a less harmful alternative to traditional cigarettes. Costello also says she has received “independent advice” supporting the efficacy of HTPs as a cessation tool, although she has not disclosed the source of this advice.
Costello has also hit back at critics who have expressed concern over the $216 million that has been set aside to pay for the tax reduction. Costello said, “This is the unfortunate thing – the noise around the $216 million – it was a contingency sum. Total excise collected for related tobacco products, not smoking, was about $6 million in 2023, and heated tobacco was a portion of that. So this $216 [million] was a contingency sum put into the budget to capture incase there was this massive turn around.”
Costello also noted that “the only country [critics] were trying to compare us to was Japan around using heated tobacco as a cessation tool. Japan doesn’t have vaping, so that was the differential and that was where things got distorted.” “This $216 million – it was never going to be that,” she added.
Costello emphasised the fact that this is a trial, outlining that the ultimate purpose behind the tax cut was to create a price differential between a packet of cigarettes and HTPs to see if that would get people who are “hardcore addicted smokers” to quit smoking.
Prime Minister Christopher Luxon has backed Costello, emphasising that the tax cut is a 12-month trial. “We need to see how it goes,” Luxon said, expressing confidence in the trial’s potential to contribute to the Smokefree 2025 goal. However, he acknowledged that he had not personally seen the independent advice that Costello referenced.
The IQOS device’s removal from the market means the trial is effectively stalled, and raises broader questions about the feasibility of the trial and the long-term effectiveness of HTPs in reducing smoking rates. Without a compliant device available for new users, the policy’s intended outcomes may be delayed or diminished. Furthermore, the presence of former New Zealand First party members in senior positions at Philip Morris has fueled public suspicion about corporate influence on the policy, though Costello has consistently denied any ties to the tobacco industry.
