New Zealand first is invoking the 'agree to disagree' provision of its coalition agreement with Labour because it doesn't support the announced 11.46 percent increase in tobacco excise from January 1.
The increase will still go ahead because it has been passed by regulation.
In a statement, New Zealand First leader Winston Peters said the increase "gouges the poor" and it is having less of an effect on reducing smoking rates, especially among Maori and Pasifika groups.
He said the policy of automatically increasing tobacco excise has "reached the limit of its effectiveness".
Peters said studies show an unintended consequence of this policy is smuggled cigarettes, which increased by 352 percent between 2015 and August 2019.
"Clearly the price point has reached such a level that organised crime groups see economic opportunity. This places unnecessary pressure on our customs service when it should be focusing resources on preventing the importation of illicit drugs," he said.
Interceptions in 2018 were 53 percent higher than the previous year.
"Another unintended outcome of New Zealand having one of the world's highest retail prices for tobacco products a typical pack in New Zealand retails for about NZ$31 compared to NZ$1.62 in Vietnam, NZ$5.29 in China and NZ$6.07 in South Korea is the threat to the safety of the country's dairy owners from violent burglary," Peters said.
New Zealand First believed the 11.46 percent increase is "punitive" for many poor New Zealanders who can't afford another price hike.
"The excise increase disproportionally gouges the poor and New Zealand First cannot support the policy," Peters said.
ACT party leader David Seymour said New Zealand First "made the right call" in pulling its support from next year's tax increase.
"Tobacco taxes take $2 billion from the pockets of New Zealanders, a sum which outweighs the cost smokers impose on the community.
"Massive tax hikes have failed to significantly reduce smoking rates but have taken hundreds of millions from the poorest New Zealanders and incentivised thugs to wreak havoc on small retailers across the country," he said in a statement.
Seymour also suggested New Zealand First pulls its support from a range of Labour's policies, including firearm legislation and vaping advertising.
Under the terms of the coalition agreement, it says the parties can 'agree to disagree' if the party leaders agree to do so.
