Estonia: Problems created by border-trade for applying high-tax alcohol policy

Abstract

Abstract In early 2000s, Estonia had one of the highest levels of alcohol consumption globally. In 2008, the average salary could buy 62 litres of strong spirits, compared with 28 litres in 2000; the increase of affordability was one of the highest in the EU. Since then, alcohol consumption per capita has been reduced by a third, which has also led to a reduction in related problems: mortality from alcohol-related illnesses has fallen by 40%. This was achieved with the progressive adoption of measures that rely heavily, but not exclusively, on increasing excise taxes. In 2014 a comprehensive alcohol policy document was adopted, paving the way to the measures in all 10 areas of WHO global strategy to reduce harmful use of alcohol. Since then Estonia has launched treatment programme and awareness campaigns, restricted advertising and the exposure of alcohol in the public sphere. By 2017, the over-exploitation of the tax-based measures backfired. The twofold alcohol price difference between Estonia and Latvia, resulting from doubling the excise tax for beer and raising significantly those for other alcoholic beverages, caused an unintended increase in cross-border trade between the two countries. This, in turn, caused a new wave of public discussion around pricing policies, and a loss of popular support for tax increases. As a first step to address the problem, the government halved the tax increase planned for February 2018, thus increasing beer tax by 9% and spirits tax by 5%. Tax increases scheduled for 2019 and 2020 were cancelled, and taxes on spirits, beer and cider were cut by 25% instead. This resulted in Latvia decreasing their spirits taxes by 15% in turn. This development forces health promoters to seek new ways to reduce harm to public health and win back support to healthy policy choices.