New TDB Advisory econometric research shows vaping contributed 83% of New Zealand’s smoking decline over the past decade, while Australia’s restrictive approach showed no statistically significant vaping effect. Real cigarette prices remain a major driver in both countries.

Key findings

• Price remains powerful: Real cigarette price increases explain 54% of Australia’s smoking decline and 32% of New Zealand’s since the 1980s;
• Vaping shifted NZ’s trajectory: Vaping accounted for 33% of New Zealand’s total smoking reduction and 83% of the decline in the last decade;
• Australia’s prescription model underperforms: Australia’s prescription-only vaping model yielded a negative but non-significant coefficient in the smoking model;
• Traditional controls may be plateauing: The models indicate some erosion in the effectiveness of non-price tobacco controls after 2012; and
• Harm reduction matters: Switching to reduced-risk products can cut toxicant exposure by 80–99%.

Implications for New Zealand

• New Zealand’s regulated vaping market accelerated progress toward Smokefree 2025 goals;
• Addiction “internalities” can exacerbate the regressive nature of high tobacco excise taxes, with poorer smokers cutting essentials rather than tobacco;
• Calibrating rules and taxation to relative harm can nudge smoker towards lower-risk alternatives and improve public health outcomes; and
• Risk remains of illicit trade and welfare losses from excessive taxation

TDB view

The comparative analysis provides compelling evidence for integrating harm reduction into comprehensive tobacco control strategies. New Zealand’s experience demonstrates that regulated access to reduced-risk alternatives can accelerate progress toward smoke-free goals without undermining traditional control measures.

While excise taxation remains effective, the addictive nature of nicotine limits price responsiveness, particularly affecting lower-income consumers who sacrifice other essentials rather than reduce tobacco use. The contrast between Australia and New Zealand’s vaping outcomes suggests overly restrictive regulation may inadvertently keep smokers using more harmful products. However, uncertainties around long-term health effects of novel nicotine products warrant continued monitoring and proportional regulatory frameworks.

Methodology:

We employed a state-space framework with AR (1) processes to isolate the effects of two key policy variables on smoking rates:

1. Real cigarette prices (excise tax effects)
2. Vaping rates (harm reduction adoption)

Data: Australia 1980–2023; New Zealand 1983–2023

Controlling for unobserved factors: Our model’s innovation lies in incorporating a latent AR (1) state as a control variable. This “sticky” background component absorbs all systematic movements in smoking rates not explained by our policy variables, including social norm shifts, advertising bans, plain packaging, smoke-free laws, and cessation programs. Without this control, these unmeasured influences would confound our estimates, making it impossible to isolate the true effects of price and vaping policies.

Analysis: We used advanced statistical methods (Kalman filter maximum likelihood) to estimate how these background influences evolve over time. By controlling for these confounding factors, we achieved clean identification of policy effects, decomposing smoking declines (26.3 percentage points in Australia, 24.7 in New Zealand) into precise contributions from price, vaping, and background factors through counterfactual analysis.

Note: These are model-based, observational estimates and should be interpreted alongside ongoing monitoring of long-term health outcomes.

Context & Backdrop

These findings align with recent international developments. The U.S. FDA’s 2025 authorization of nicotine pouches and New Zealand’s consideration of regulated markets for oral nicotine products reflect growing recognition of harm reduction’s role in tobacco control.

As countries worldwide grapple with stubbornly persistent smoking rates despite decades of traditional control measures, this comparative analysis offers valuable insights. The evidence suggests that embracing regulated harm reduction, rather than prohibition, may be the key to achieving ambitious smoke-free targets while minimizing unintended consequences for the most vulnerable populations.

Figure B1: Smoking rates, current smokers % of 15+ population