The government of Estonia decided on Thursday to implement sharp increases in the taxation of alcohol and tobacco, as well as fuel.
A previous decision, alcohol is to rise in price by ten per cent from the beginning of 2008. Now the government decided to raise the tax on alcohol by a further 20 per cent later in the year.
The tax on tobacco will rise in January, and in July, so that the price of cigarettes will reach the minimum level required by the EU.
Estonian Finance Minister Ivari Padar said that public health concerns were the main reason for the move.
In the same connection the government decided to decrease the income tax rate from the present 22 per cent to 18 per cent.
Estonia postponed plans to raise its taxes on tobacco and alcohol in previous years for fear that it might spur inflation and prevent Estonia from joining the euro zone. As Estonia's switching over to the euro is being delayed in any case, the government decided to raise the taxes at one go.
Prime Minister Andrus Ansip says that the new target is to join the common European currency in 2011. According to calculations of the Estonian Ministry of Finance, Estonia can expect an inflation rate of six per cent next year.
Cheap alcohol has been a major draw for Finnish travellers visiting Estonia, and was a key reason why Finland felt forced to lower its taxation of alcohol when Estonia joined the EU; Estonian EU membership meant that Finland could no longer maintain personal import quotas for travellers arriving from Estonia.
The unprecedented alcohol tax cut in Finland was followed by a sharp rise in drinking-related problems.
Finnish Prime Minister Matti Vanhanen has praised Estonia's earlier decision for an upcoming tax hike. The Finnish government is to discuss possible higher taxation of alcoholic beverages in the autumn.