The end game for GEG

From New Zealand’s move to terminate the GEG legislation to Malaysia’s action this week in dumping the GEG clause in its latest bill, there are indeed lessons to be learned. — Reuters

IN a surprising move, the newly elected three-party coalition that won the New Zealand general elections last month, binned the highly controversial Generation Endgame (GEG) law to ensure its tax revenue is not jeopardised.

Despite being a strong proponent of anti-smoking, New Zealand’s latest move brings to question the need for GEG when the country’s coffers are insufficient to fund budgetary spending.

To recap, New Zealand’s move to implement GEG was centred around banning the sale of tobacco products to anyone born after 2008, limiting the amount of addictive nicotine in cigarettes, and most crucial that would be hitting the government’s purse strings, cutting the number of tobacco retailers by 90% to just 600 from 6,000.

To be fair, New Zealand does not face a significant addiction to tobacco smoking as its smoking prevalence within the society is relatively low at just 8% and the target under its Smokefree 2025 was to reduce it to less than 5% – a crucial trigger point where a country is deemed to be smoke-free.

Reality bites

Prior to the announcement of pulling the plug on the GEG legislation, the incoming finance minister was quoted as saying that changes to the law had a significant impact on the government’s revenue to the tune of NZ$1bil.

New Zealand’s prime minister and the finance minister also cited potential regulatory problems with the strict tobacco legislation as well as fuelling the black market of untaxed sales, while the new age limit would also be a challenge.

These are indeed reality on the ground and for a country like New Zealand, which had illicit trade of just 8.4% last year, based on an independent report on black-market tobacco trade, the change in heart with respect to the harsh tobacco law shows that legislators need to understand the reality of market dynamics before embarking on a policy that seems unfair.

Malaysia dumps GEG

Malaysia first introduced its version of the GEG via the tabling of Control of Tobacco Product and Smoking Bill 2022 in July last year. Unfortunately, Parliament was dissolved to make way for the 15th General Election, as well as due to numerous objections to the bill itself.

In its original form, Malaysia intended to impose penalties with fines of up to RM5,000 and ban those born after Jan 1, 2007, from buying or in possession of cigarettes or vape products.

The original bill was later fine-tuned with the tabling of the Control of Smoking For Public Health Bill 2023 to ensure comprehensive control can be implemented on all types of smoking products including electronic cigarettes or vape. Since the first reading on June 12, 2023, the bill had been subjected to further review by the Parliament Special Select Committee on Health.

The revised bill also had similar aspirational goals which among others were to reduce the smoking prevalence to 5% by 2045. The revised bill also acts as a control measure for registration, advertising, packaging, sale, and use of both conventional cigarettes and cigarettes with a heating device.

However, on Nov 28, 2023, the government tabled yet another version of the bill with the tabling of a new Control of Smoking For Public Health Bill 2023 with notable changes, and retracted the revised bill that was tabled on June 12.

First, the bill dropped the age limit for the sale of any tobacco products or in essence dumped the GEG agenda. Instead, restrictions for the sale of any tobacco, smoking substance, or substitute tobacco products, as well as provision for any services for smoking are now restricted to minors below the age of 18.

For the benefit of doubt, smoking substance refers to any substance or any combination of substances, used for smoking, including nicotine, propylene glycol, glycerol, and triethylene glycol.

The word “smoking” too has been fine-tuned to include inhaling and expelling the smoke or vapour, of any tobacco product or substitute tobacco product, and includes the holding of or control over any tobacco product or substitute tobacco product that is ignited, heated, or vaporised or used in any other methods.

Malaysia’s move to dump GEG was perhaps related to a potential challenge to the bill once it is gazetted, as the age limit is seen against the spirit of Article 8 of the Federal Constitution, which guarantees equality before the law.

From New Zealand’s move to terminate the GEG legislation to Malaysia’s action this week in dumping the GEG clause in its latest bill, there are indeed lessons to be learned. First, while tobacco is harmful to health and does cause cancer, legislating tobacco usage to those of certain age brackets has economic consequences. In New Zealand’s case, it was the NZ$1bil revenue that the new government felt was more important, while in Malaysia’s case, it was perhaps fear of the legislation being challenged by those who felt violated by the bill.

However, Malaysia has a very different tobacco industry landscape as smoking prevalence in Malaysia is well above 20% while illicit trade, which Malaysia is losing out to the tune of billions in uncollected taxes, is more than 55%.

Malaysia, as it is, is finding it tough to tackle illicit trade and the GEG Bill, in its original form, would have likely driven the level of illicit trade even higher, thus losing millions more in the form of taxes. Enforcement is key in any tobacco legislation and as seen in the case of New Zealand and Malaysia, those in power have come to their senses.

Regulation for vape is vital

As the government removed liquid nicotine from the Poisons Act 1952 on March 31, 2023, which has enabled tax to be imposed on e-liquids with nicotine with effect from April 1, 2023, there was a concern on the regulatory framework for vaping products.

The vaping industry is a growing industry, employing more than 31,500 workers and close to 10,000 businesses, the newly tabled bill will see the growth of the vaping industry curtailed as it does not recognise vaping as a Tobacco Harm Reduction (THR) tool. The industry has a business volume of close to RM3.5bil and risks being wiped if vaping is banned and not regulated.

The absence of regulation also brings about the safety and security of products that are sold in the market as seen in recent cases where the uncontrolled substance used in these products could be harmful. Hence, the requirement for those involved in the sale of tobacco products to be registered under the new Bill is indeed a welcome move.

There is no easy way to quit smoking, period. However, we must address tobacco addiction with cleverly structured programmes that will enable smokers to quit the habit for good. THR are well-accepted strategies deployed and this includes the use of vape and vaping products and even snus, an oral smokeless tobacco product.

In a recent report, Sweden has now become the world’s first smoke-free nation as smoking prevalence has dropped to 5.6%, thanks to its successful method of introducing alternative products, alongside education and tobacco-control measures, which has given some very positive results.

For example, Sweden now boasts of having the lowest tobacco-related diseases and premature deaths due to tobacco-related products in Europe and lung cancer deaths that are half the Europe average.

Hence, Malaysia too must move towards not only adopting THR strategies to combat the prevalence of smoking but also introducing legislation to govern the sale and scope of what is sold to the public. We must also recognise that vaping is a tool for smoking cessation, as proven in countries like Britain and New Zealand.

Pankaj C. Kumar is a long-time investment analyst. The views expressed here are his own.