The new Estonian government will be continuing its policy of taxing health-harmful products, including alcohol and tobacco. Several politicians weighed in with their opinions following the reports that Estonia’s new government is planning its annual price increase for alcohol.
The new government is lead by Prime Minister Kaja Kallas from the Reform Party who won a second term in office in the recent Parliamentary elections. Ms Kalles is leading her third administration in an unbroken run going back to January 2021, when she first became head of government. The new Minister of Health is Riina Sikkut of the Social Democrats (SDE). ERR reports that Ms Sikkut was runner-up to Läänemets in the SDE leadership contest in 2022, and was economic affairs and communications minister in the outgoing coalition. This will be the second time she has held the health minister post, having done so between 2018 and 2019 already. The new Minister of Finance is Mart Võrklaev, of Ms Kallas’ Reform Party.
Head of Communications of the Social Democratic Party Merlyn Sade stated that the coalition government has agreed on a slow yearly growth in excise rates. Finance Minister Võrklaev will soon announce the exact numbers.
Estonia sees benefits of alcohol taxation
The Reform Party’s Finance Minister-designate Mark Võrklaev highlighted the need for better taxation policies to safeguard the Estonian people, according to Postimees reporting. Mr Võrklaev added that cross-border trading was an issue the new government needed to navigated carefully.
[The excise tax increase] should also be a part of the tax package that’s planned to be brought into the Riigikogu during the spring session. We will try to adhere to the principle that tax changes be known six months before they enter into effect, and we’ll also monitor our neighbouring states’ tax rates to prevent cross-border trade.”
Mart Vorkalev, in Postimees: Estonia’s new govt planning annual price increase for alcohol, tobacco
Estonia has suffered greatly from alcohol-related harm. But by implementing a comprehensive evidence-based alcohol policy, the country successfully reduced alcohol consumption by one-third over the last decade. As a result, death and disease due to alcohol fell significantly and the health gap between different population groups has narrowed.
A central element of Estonia’s alcohol policy approach is a systematic and evidence-based approach to alcohol excise taxation.
In 2021, survey by the Foresight Center revealed that the contribution of the alcohol and tobacco tax to the government budget is among the largest in the EU at almost 4.8% of the budget. In 2019, the Estonian government received €225 million from the alcohol excise duty.
This amounted to 2.4% of all tax revenues in the state budget. By comparison, the EU average is only 0.4%.
In addition to the substantial economic contribution, Estonia’s alcohol taxation is also improving health and well-being of people and society.
A 2022 study showed that the alcohol taxation increase in Estonia could explain the success in significantly reducing the number of alcohol deaths in the country, especially in terms of preventing ischemic heart disease deaths caused by alcohol. Researchers compared Estonia to neighboring Lithuania. Both countries have implemented ambitious alcohol policy solutions and managed to reverse alcohol consumption and harm trends with the help of effective alcohol policies.
Movendi International is reporting in the alcohol policy development in Estonia because the country’s experiences are a world class example for the effects of evidence-based, systematic, and ambitious action to protect people from alcohol harm.
Cross-border trade a challenge for ambitious alcohol policy, especially alcohol taxation
At the same time, Estonia’s alcohol policy is facing a number of challenges. All Baltic countries have experienced problems with the different alcohol tax levels and their impact on driving cross-border alcohol trade. For instance, neighbouring Latvia has a lower alcohol tax rate.
In 2019, an alcohol tax war between Latvia and Estonia led Latvia to cut alcohol taxes as reaction to Estonia’s decision to cut alcohol excise taxes by 25%. Latvia decided to limit their planned 30% tax increase to only 5% as a counter measure. The fate of the alcohol policies in the two countries therefore remain closely intertwined with each other.
In early 2020, the alcohol border trade issues were continuing between Estonia and Latvia as both countries were either slashing alcohol taxes or decided to lower the rate of planned alcohol tax increases. Estonia had adopted a 25% tax reduction in 2019. This sparked an alcohol tax race to the bottom in the Baltic region. This race to the bottom risked undoing the positive effects that Estonia had seen thanks to its world class alcohol policy making, including alcohol tax increases.
When the coronavirus pandemic broke out, the reintroduction of border controls between Estonia and Latvia halted alcohol tourism. After border controls were introduced to reduce the spread of the coronavirus, the number of Estonians crossing the border to neighboring Latvia to purchase alcohol declined significantly.
Cross-border trade issues: an opportunity for collaboration
This experience highlighted the way forward to Baltic countries: re-introduced border controls in Estonia showed that stronger implementation of laws can actually effectively control cross-border trade.
The previous years have shown for all countries in the Baltics that close collaboration is better than a race to the bottom that undermines tax revenue and fuels alcohol use and harm among the people in the Baltics.
Collaboration is possible and has positive effects in the context of cross-border trade to address and limit alcohol tourism and tactics of the alcohol industry to exploit cross-border trade.
Collaboration is also possible with regards to alcohol taxation levels.
Latvian experts and policy makers have begun discussing that a Latvian alcohol tax raise should be coordinated with neighboring countries in the Baltics region so as to strike a balance and reduce cross-border trade issues – a problem that has played out in recent years and fueled alcohol harm in the region.
Raising alcohol excise taxes is a WHO recommended alcohol policy best buy solution which has been proven effective in preventing alcohol harm. All Baltic countries have ample examples showing how evidence-based and public health centered alcohol taxation helps promote health and economic benefits.
