Ministry: Excise duty cuts on hard alcohol are smaller than predicted

Alcohol on sale in a supermarket.
Alcohol on sale in a supermarket. Source: Anna Aurelia Minev/ERR

An analysis by the Ministry of Finance shows last summer's 25 percent cut in excise duty cuts have hit beer prices, but not hard alcohol prices.

Finance Ministry spokesman Ott Heinapuu said on Thursday: "So far, excise tax cuts have affected prices and have lowered the consumer price index by 0.3 percentage points. According to Statistics Estonia, vodka has depreciated by 11.6 percent in five months and beer by 8 percent."

"The fall in the price of light alcohol - such as beer - has been in line with the Ministry of Finance's forecast, but the decline in the price of strong alcohol has been more modest than expected by the ministry," Heinapuu added.

At the same time, the volume of alcohol declared has increased in line with the ministry's expectations, largely due to cross border trade. However, a further reduction in excise duty would not have such an effect. 

Heinapuu said: "The increase in alcohol declared is mainly due to changes in border trade, both north (with Finland) and south (with Latvia). No further reduction in excise duty will have the same effect. The reduction in additional alcohol excise duty may lead to an increase in alcohol consumption, so such a decision should be carefully considered beforehand."

The Ministry of Finance said if the Latvians had to carry out their planned increase in excise duty, this could lead to a decrease in alcohol consumption in Estonia. 

"The increase in alcohol duty planned in Latvia is likely to affect prices, which may reduce the incentive for Estonians to buy alcohol in Latvia, especially strong alcohol. The rise in Latvian prices may therefore reduce alcohol consumption," Heinapuu noted.

In July 2019, the government lowered excise duty on both hard and low alcohol by 25 percent. This meant that half a liter of beer was reduced by 10 cents and half a liter of vodka by €1.5.

The Ministry of Finance has not yet finalized the total excise tax receipts for 2019, but the excise tax receipts for the first 11 months of last year decreased by 3 percent compared to the previous 11 months. At the same time, the declared quantities of alcohol increased - strong alcohol 12.9 percent and beer 4.1 percent.


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Editor: Helen Wright

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