State dumps beer millions

Photo: SCANPIX

Government, headed by the ice drill finance minister Jürgen Ligi, is seeking a filling for a €24m hole in a budget otherwise among the most perfect in Europe.

Mr Ligi is bringing back to parliament the bill restricting car VAT returns, knowing full well he’s digging himself a hole doing that. The car VAT bill is disliked by many in his own party and Riigikogu at large, to say nothing about the loud public outcry.

What does the state budget income consist of, and where to find the €24m? Big budget money is collected through excises. Over these past years, alcohol markets have been ablaze with heated discussions to the backdrop of a so-called green book being written – frame document for future alcohol policy – to be presented to government in the first months of 2014.

Tensions rising

Alcohol market abounds with quarrels and intrigue, resembling trench warfare, a battle between various interest groups, with armament unequal – Estonia’s top beverage producer A. Le Coq chief Tarmo Noop, now in Tartu city council in Reform Party ranks, is in obvious favour. At least when looking from the camp of the strong liquor makers.

«All kinds of links may be imagined. Nobody is prohibited, in Estonia, from revealing his party preferences,» Mr Noop says dryly. «I have belonged to the Reform Party since its beginning years. I have not detected any substantial advantages, except for not being a rank stranger to some persons so I can call them and present my arguments.»

Still, alcohol producers take a single view on the occasional «we have our own prime minister» slipped by the beer men.

Even social ministry officials, who have to do with compiling the green book and alcohol policy shaping, numbly state that during this government nothing will change with alcohol excises. Nothing except that these rise yearly, pursuant to the coalition agreement. Yet, they rise so that one per cent of alcohol in beer is taxed 2.6 times lower than a per cent of alcohol in strong alcoholic beverages, the excise gap widening at every rise.

Janek Kalvi, AS Liviko CEO and chairman of Alcohol Producers and Importers Union uniting the strong alcohol camp, says the last drop in the bucket came as they realised that, instead of evening out the excises, the government was inclined towards setting minimum prices on alcohol. That would favour beer producers.

Vodka producers, however, think it would be fair to equalise excises, as alcohol is alcohol and the objective of taxation ought to be alcohol content in a beverage. Also, that would bring money into state coffers as of 11 litres of absolute alcohol consumed yearly by Estonians, two thirds comes from low-alcohol beverages i.e. beer, ciders and cocktail drinks from which the state gets excise 2.6 times lower. Thus, the one third of strong alcohol consumed brings the state two thirds of alcohol excise. By equalising excises, the state would gain additional €50m-€60m a year; to a bottle of Saku Originaal, for instance, €0.24 of excise would be added. Instead of three beers, a father in the family might sip two, in the evening.

Tarmo Noop the beer-brewer thinks the vodka-camp claims stupid: no-one in the whole wide world has ever equalised excises; equalising would push the youth towards vodka; beer producing is much more expensive that vodka making as it is; excessive drinking would follow; it would be a blow against tourism i.e. entire Estonian economy; with Latvia switching to euro, having lower excise, people would by beer from Latvia.

Both camps can wield studies proving their points, compiled by two leading researchers of the land. Naturally, this is hot topic for health protection associations and anti-alcohol groupings.

In mid-October, medicine students addressed Riigikogu members, individually, asking each to «personally stand for hobby groups becoming better available to young people than alcohol starting fall of 2014». The future doctors expressed their concern that the government indeed promised to start supporting youth hobby education, in 2014, by €130 per child, but at the end of September finance minister Mr Ligi unexpectedly announced that €25m invested into development of Estonian youth is maddeningly much.

Medicine students and the citizens societies joining their appeal, like parent’ union, child protection society, and Foundation Terve Eesti (Healthy Estonia) desired that the government still find the €25m promised for hobby groups and develop a scheme how that money would go into constructive activities.

Secondly, the signatories think alcohol prices ought to be significantly raised via gradual lifting of alcohol excise. This should be started with rising low-alcohol beverage excise, as the youth practice drinking with the very ciders, beers and wines.

A month ago, the students made it to the parliament, where they first met with soc dems, then the IRL faction and Centre Party, each supporting their idea or at least hearing them out. In the Reform Party faction, the reception was lukewarm, to put it mildly; more specifically, the young people trying to make the world better ended up in tears.

Another example: a little more than a year ago, medicine students proposed to the then Reform Party social minister Hanno Pevkur to discuss adding 10 cents to the price of a bottle of beer, awarding the state with some €24m of excise income and quite a lot in VAT. Minister quite disliked the idea and he proceeded to search his computer for a study proving otherwise. Mr Pevkur attempted to project the research on the wall, but the document did not open fast enough. When it finally opened, it was visible that the research had been included in an e-mail sent by Tarmo Noop. A coincident? Just informing the minister? The students, for one, were surprised.

Jürgen Ligi understands not

In June 2012, alcohol producers and importers union addressed finance minister Mr Ligi with proposal to equalise one per cent ethanol content in hectolitre of beer and strong alcohol. Mr Ligi replied that he, in principle, supported the proposal, but added that considering this would take time. «In essence, the proposal is included in the finance ministry domain development plan for 2013–2016 as a tax policy measure,» wrote Mr Ligi.

Now, the clause is no longer to be found in the development plan – it was removed by a finance minister directive, dating this August.

Last October, family doctors union, health workers trade unions association and nurses’ society proposed that the government raise low-alcohol and strong-alcohol beverages excise to the same level, in order to find extra money for the health care system. In less than 24 hours, the Reform Party Prime Minister Andrus Ansip said the following, at government press conference: «Knowing by research that the youth are getting their initial serious alcohol experience with lean drinks, mixing cheap Lauaviin vodka with Coca-Cola, would it make sense for us to push them even farther away from beer? In my opinion, we are right now having some kind of a balance between low and strong alcohol excise.»

According to National Institute for Health Development data, however, the youth’s start-off drinks are beer and cider: 39 per cent of boys and 30 per cent of girls have sipped a glass of beer before turning 11, in the case of cider the percentages are 33 and 24 respectively.

Finance minister Jürgen Ligi also deemed the health care workers’ solution to be cheap: «I am of the opinion that the sharper drinks – where, in addition to that, very little is contained after such input of labour – the spirits, vodka, ought to be taxed higher. I do not understand who suddenly we are seeing this lobby for excise rise on low-alcohol beverages, seeing that we have made such a neutral, uniform and long-term tax rise proposal. I do not understand it. This is definitely very bad for the system if we say that we will take from outside, somewhere, as nothing can be organised inside, as they are quarrelling.»

The sums that finance minister wants to hear nothing about are huge. As seen on the graph added to this story, half a billion euros might have been added into state budget, over the past ten years, from beer excise alone – by equally taxing alcohol of equal impact.

Youth of Estonia and addictive substances

12–14-olds and alcohol (2010–2012)

• 86% have tried alcohol (European average 63.1%)

• 45.9% consumed alcohol last month (30,6%)

• 55.9% have been drunk at least once (26,3%)

Source: international research Alcohol use Among Adolescents in Europe.

15–16-olds and addictive substances (2011)

• 11% have been drunk within the last month, 36% within the past three months

• 73% have tried smoking (52% of boys and 38% of girls have tried smoking at 12 years of age or earlier)

• 19% of boys and 16% of girls have smoked at least one cigarette the past month

• 32% have tried drugs

• 17% have used cannabis during the past 12 months and 6% during the past 30 days

• 97% of those trying cannabis have smoked during their lives, 99,8% have consumed alcohol, 96% have been drunk

Source: European school children alcohol and drug use questionnaire ESPAD, in which 2,460 Estonian students participated

Comment

Jürgen Ligi, finance minister (Reform Party)

The talk on equalisation is illogical. The idea of excise is to impact selling price of goods, the situation where cost price is too low for the harmful effects of the goods. Technologies for producing various beverages differ greatly and, therefore, so does alcohol cost price or obtainability of molecule. 

Equalisation of excise may, therefore, not come by way of harmonising molecule excise, but rather by equality of excise on molecule price. Right now, it cannot be said that taxation on beer and wine is lower than on vodka. However, Estonia is at European top by strong alcohol consumption. Thus, raising low-alcohol beverages’ excise, as desired by vodka-lovers, would be a wrong path, further worsening our alcohol culture.