Excise Taxation in New Zealand

Abstract

In New Zealand, excise taxes are levied on three commodity groups: alcohol, tobacco and petrol. The 2001 Tax Review, published by the New Zealand Treasury, argued that excises are inequitable and inefficient, and advised that these taxes should be removed and the revenue replaced by raising the standard rate of GST. This paper provides an empirical examination of these issues. First, the efficiency of New Zealand’s current system of indirect taxes is examined. The welfare and redistributive effects resulting from the revenue-neutral removal of excise taxes are then examined. Welfare and redistributive measures are computed for a range of demographic groups and total weekly expenditure levels. While the largest efficiency gains and reductions in inequality are observed for households with at least one smoker, the overall distributional implications of the proposed reforms are found to be small.Indirect taxation; equivalent variations; excess burdens; inequality;tax reform