Tax cut boosts domestic sales of strong spirits more than expected

Trend continued in May despite imports from Estonia

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Sales of strong spirits by the Finnish state retail monopoly Alko grew by nearly one third in the first week of May - in spite of the opening up of unrestricted personal imports from Estonia, when it joined the European Union at the beginning of the month.
      It is estimated that Estonia’s EU membership reduced the growth of domestic sales of alcohol by only a few percentage points.
      In March, Finland implemented sharp cuts in its traditionally high taxes on alcoholic beverages to head off a rush of travel to Estonia for the purpose of buying alcohol.
     
The tax cut increased sales all over Finland. In April, sales of strong spirits were one third higher than a year earlier in Uusimaa, Northern Savo, Central Finland and Kainuu. In Finnish Lapland sales in April were as much as 50% higher than last year.
      The increase in sales did not come as a surprise, but now experts are wondering if the price cut for strong spirits was excessive. The extent of the increase in sales came as a shock even to Alko.
      "We were prepared for growth in the two months after the change in taxation, but not this much", says Alko CEO Jaakko Uotila.
      Uotila also says that the tax cut has had a dampening effect on alcohol tourism to Estonia. "Now we should calmly look at what happens in the summer", Uotila says.
      Pekka Puska, Director General of the National Public Health Institute, also says that his first impression is that the increase in consumption has been greater than expected.
      "Now we have to wait for it to balance out. If there is a need, it must be possible to change the taxation", Puska says.
     
Finnish police report increased drink driving, arrests for public drunkenness, and disorderly behaviour. For instance, in January through April this year the number of DUI arrests was 40% higher than at the same time last year. The number of emergency calls increased by one tenth.
      "People here mainly buy products from their own liquor store. Now people can get more alcohol for the money they allocate for the purpose. Naturally it has an impact", says Jaakko Aurala of the Rovaniemi police.
      "It would seem that people are using more hard liquor. For that reason, many are drinking so much that they pass out - at least on warm sunny days", says Heikki Porola of the Helsinki police.
     
Nearly half of the members of the Parliament’s Social Affairs and Health Committee feel that the March tax cut was a mistake that should now be rectified.
      Päivi Räsänen, chairwoman of the Parliamentary group of the opposition Christian Democratic Party, would like to raise the tax on strong spirits soon.
      "I would also be ready for a model in which tax cuts would be directed at restaurants, and that having a glass of wine under controlled conditions would be cheaper for consumers than unsupervised bingeing", Räsänen says.
      Social Democratic Parliamentary Group chairman Jouni Backman is also in favour of focusing the tax cuts on bars and restaurants. He says that both alcohol policy and employment policy considerations favour such a move.
      Backman favours a reconsideration of the taxation of strong spirits - if the consequences call for such a re-evaluation. However, he says that such an assessment should not be made before the autumn, when the consequences of the tax cut can be seen more clearly.


Previously in HS International Edition:
  Cheaper alcohol reflected in increased public drunkenness (5.5.2004)
  Record liquor sales in Tallinn stores over weekend as Finns hoard cheap alcohol (3.5.2004)

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