Rise in alcohol tax leads to surge in personal imports from Estonia

Expert says overall consumption reduced

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Personal imports of alcoholic beverages from abroad has grown significantly since the rise in alcohol taxation at the beginning of the year.
      In the first four months of 2008 imports by passengers had grown by about ten per cent over the same time in 2007. The trend continued in the late spring and summer.
      “We can say that the growing trend has clearly continued”, says Lennart Wahlfors of the National Product Control Agency for Welfare and Health.
      “It is clear that the rise in the tax on alcohol at the beginning of the year is in the background”, he notes.
      More detailed information on imports in the late spring and summer will come out in mid-September.
      Wahlfors says that another factor boosting passenger imports has been the increase in passenger ship services between Finland and Estonia. Most of the alcohol imported by travellers comes from Estonia.
     
The biggest increase has been in personal imports of strong spirits.
      “This trend has also continued to grow in the summer”, Wahlfors says.
      The increase in the alcohol tax focussed specifically on distilled spirits, whose prices rose by 10.5 per cent, whereas those of medium strength beer, wine and cider went up by about 3.5 per cent.
      The tax hike was followed by a significant decline in sales of spirits on land in Finland.
     
Personal imports of beer have also increased during the summer, but more passengers are concentrating on spirits, Wahlfors says.
      “The price of beer has risen in Estonia as well. It is available in Finland fairly cheaply, although volume discounts were banned from the beginning of the year. The price difference with strong spirits is greater.”
     
In 2004, when restrictions on alcohol imports from other European Union countries were lifted, and when Estonia was joining the European Union, the first government of Prime Minister Matti Vanhanen (Centre) cut alcohol taxation with the specific aim of curbing pressures for massive imports.
      The tax cut was followed by a sharp increase in domestic consumption and resurgence in alcohol-related problems.
      A working group examining alcohol taxation could not come to a unanimous proposal on whether or not alcohol taxation should be increased next year.
      The Centre Party and the Greens have called for higher taxation, whereas the National Coalition Party and the Swedish People’s Party want to postpone a tax hike until after the whole year’s statistics are available.
      Opponents of another tax hike emphasise the problems related with increased passenger imports and the growth of consumption that does not appear in official statistics.
      The issue also pits two government ministries against each other in the government budget talks. The Ministry of Social Affairs and Health is pushing for a tax hike, whereas the Ministry of Finance is not convinced that the increase would have the desired benefit. The Ministry of Finance is also concerned that further increases will spur inflation.
     
Special researcher Esa Österberg of the National Research and Development Centre for Welfare and Health (STAKES) sees the fear of growing passenger imports as a poor reason to oppose a tax hike.
      “If domestic sales were to decline by, say, a million litres as a result of the tax hikes, then about half a million of it would certainly be shifted to passenger imports. The remaining half a million litres of consumption would nevertheless be left out completely”, he says.
      Österberg in favour of raising the alcohol tax, if the aim is to prevent harm to public health.
      “But one must not be so myopic to imagine that Finnish alcohol policy is guided by public health alone.”
     
Österberg emphasises that the tax increase would enhance state coffers both in the form of growing tax income, and in savings resulting from reduced alcohol-related problems.
      “I am amazed that the Ministry of Finance is so eager to promote small tax cuts. I would understand well if it were the Ministry of Trade and Industry. From the point of view of the Ministry of Finance, an increase in the alcohol tax is a purely positive thing”, he says.
      Österberg also notes that tax hikes that have already been implemented have prevented further growth in alcohol consumption.
      “Without the tax hikes of the early part of the year, it would have risen about two or three per cent.”


Previously in HS International Edition:
  Cheaper alcohol sparks surge in retail sales nationwide (12.3.2004)
  Significant rise in overall alcohol consumption in Finland last year (25.2.2005)
  Ministry says alcohol poses a threat to Finnish internal security (16.4.2008)
  New Year brings an end to bulk beer discounts; alcohol taxes raised across the board (2.1.2008)

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