A report by the Treasury has admitted that smoking actually saves the Government money in the long run.
The fiscal benefits of smoking have long been suspected but rarely acknowledged and a report by the Treasury now puts this on the record.
In its report, the Treasury says smokers often die earlier than non-smokers and save the state in superannuation costs.
The Treasury says smokers pay $1.3 billion a year in excise which may already exceed the direct health costs they impose.
The report then goes on to consider broader economic questions. It says smokers' shorter life expectancy reduces superannuation and aged care costs, meaning they are already "paying their way in narrowly fiscal terms".
The report was prepared for last Thursday's Budget decision to raise the tax on cigarettes to discourage smoking.
The tobacco excise will rise by 10% per year for the next four years, beginning on 1 January 2013. This is in addition to the annual inflation-indexed increase and will increase the price of an average pack of 20 cigarettes to more than $20 by 2016.
The Treasury's report says smoking helped, not harmed, Government finances, because the early death of smokers saved huge huge pension costs of $5.5 billion to $5.8 billion a year.
But health lobby group Action on Smoking and Health (ASH) rejects those arguments, saying they ignore many costs from smoking.
Research by the New Zealand Institute of Economic Research has suggested that people should be able to pay increased prices into a special fund and get the money back later if they can prove they have quit.
The economic consultancy says that would be more effective than giving the money to the Government in higher taxes.
Meanwhile, a group of smokers spoken to in central Wellington seemed determined to keep on smoking, saying they would save money in other areas as the price goes up.
