Alcohol tax war between Estonia and Latvia
In a move aimed at countering alcohol tourism to Latvia Estonia's new government lowered its alcohol tax by 25 percent as of July, repealing a tax hike passed three years ago. Latvia has responded with plans to introduce lower taxes on certain types of alcoholic beverages as of August. How can the dispute be resolved?
Don't keep lowering taxes
Latvia's decision to follow suit and lower taxes on alcoholic beverages is not an appropriate reaction, Neatkarīgā argues:
“Of course the state needs to focus on its budget revenues. After all there are too many underfunded areas: medicine, education, road construction, infrastructure, science, regional development, social welfare and combating poverty. But 100 million euros from the alcohol tax is not the solution to all these problems, just an insignificant sum. ... After the economic sanctions were imposed against Russia our companies had to seek out new markets. The Latvians involved in the alcohol industry should do the same now.”
Caught in the crossfire
The price war will have repercussions for Finland too, Kaleva points out:
“Every bottle or can of alcohol brought into the country from Estonia lowers the tax revenues in Finland. The alcohol tax is by no means a negligible source of income for Finland, because it brings in 1.5 billion euros. ... In the long term we can only hope that Finland won't be caught up in the alcohol war between Estonia and Latvia. The best way out of it would be if Estonia and Latvia raised their alcohol taxes once more. But that could take years.”
Cooperation must be improved
Lacking cooperation is the source of the tensions between Estonia and Latvia, political scientist Veiko Spolitis comments in Eesti Päevaleht:
“For years both the economies and the tax rates of the three Baltic states grew at a pretty synchronised pace. The Economics Committee of the Baltic Assembly [an organisation promoting closer collaboration between the parliaments of Estonia, Latvia and Lithuania] is the place where differences of opinion are discussed. And this should be continued - even if the five-party Latvian government is fragile and the Estonian government isn't particularly stable either.”
Let's hope Estonians will resist temptation
The government could be giving the wrong incentives, Õhtuleht warns:
“Concerns about public health in view of the tax cut on alcohol are not unfounded because the state is sending conflicting signals. On the one hand it wants to limit drinking, but on the other it's now promoting drinking with this measure. The leader of the fight against alcohol, Jevgeni Ossinovski, a former health minister and leader of the Social Democratic Party, has been badmouthed for years for the steps he's taken - with hindsight often undeservedly, bearing in mind the drop in alcohol consumption. .... With the current tax cut we must hope that cheaper alcohol won't cause consumption to go up once more and that the government will offer people - particularly young people - reasonable alternatives.”
Alcohol tourism not a good business model
In the last three years stores selling alcohol sprouted like mushrooms in the area around the Latvian-Estonian border because Estonians drove to their neighbouring country to purchase alcohol cheaply. Diena finds that the Latvians shouldn't mourn the loss of this business:
“Naturally the lower alcohol tax will lessen the Estonians' interest in alcohol tourism in Latvia. ... Stores will be closed and jobs will be lost. ... But any rationally thinking entrepreneur knew that this would be a relatively short-lived line of business. ... So it's childish to start moaning and trying to persuade the politicians to lower the tax on alcohol in order to save the 'business' on the border. After all, this isn't a serious business activity that will increase prosperity in the region in the long term.”
Cheap alcohol always a big draw
The tax cuts in Estonia could pose a problem for Finland, writes Etelä-Saimaa:
“Tax competition between EU states puts Finland in a difficult situation. In the coalition talks in Finland a tax hike for harmful products was on the table. The tax cuts in Estonia pose a challenge. ... From the point of view of Finland's small breweries it would be good if the taxes on alcoholic beverages with a low alcohol content didn't go up drastically, so that Finnish products remain competitive. ... A crazy plunge in prices isn't likely because the warehouses are full of beverages that were even more heavily taxed. The Finns will still travel to Estonia though. Cheap alcohol is always a big attraction.”