On Monday, the Finance Committee scrapped the 5 percent increase for alcohol taxes, which was expected in July 2025.

Committee Chairman Annely Akkermann (Reform) justified the decision by saying the state should not lose revenues at the expense of cross-border trade with Latvia. Vice-Chairman Andrei Korobeinik (Center) said the government may have underestimated the impact of border trade on tax collection.

ERR discussed the change further with committee member Aivar Kokk (Isamaa). The threat of increased border trade is not new or unexpected information.

Kokk said that, for the first time, the coalition saw that raising the tax would deepen the budget deficit.

"Thanks to the decision not to implement a five percent excise duty increase next year, the state budget will be €18 million in surplus," he said. "Otherwise, it would have been €12 million in deficit. Everyone understood this argument."

Kokk added that when the alcohol excise duty was sharply increased in 2017, the growth of border trade and the reduction of excise revenue could be seen. But when the excise duty was reduced in 2020, when the coronavirus spread, it revived the economy and the excise revenue did not decrease.

"Today, we see that Latvia is also planning to raise excise duties next year, so the excise gap with Latvia will not be as significant, at least for the coming year," the MP said.

He confirmed that the Finance Committee has also met with alcohol producers several times to discuss the issue.

"Beer producers have made it very clear that sales on the Latvian side have already increased this year, and every excise duty hike only amplifies this," Kokk said.

Annely Akkermann said, as of September, the amount of taxes alcohol sales bring in is €7 million lower than forecast. The reason is reduced consumption – young people prefer other substances.

"According to the Ministry of Finance, cross-border trade is expected to grow by 20 percent, while alcohol producers' sales data suggest an increase of up to 30 percent. Therefore, the commission faced a decision: should we raise [the excise duty] even further compared to Latvia, thereby increasing cross-border trade?" she said.

The chairman said allowing alcohol, fuel excise duties, and VAT revenues to flow to Latvia will not reduce alcohol consumption in Estonia. Even if Latvia raises its alcohol excise duty, a case of beer there will still be nearly €2 cheaper, posing a significant risk of cross-border trade. Therefore, in his view, raising excise duties in Estonia will not have a positive impact on consumption habits.

"A higher alcohol excise tax would have an impact if it were more aligned with Latvia's, so that cross-border shopping wouldn't pay off," Akkermann added. According to her, Estonia's agreement with Latvia is hindered by Latvia's lower wage levels and their desire to attract Estonian shoppers.

Sikkut: We are too sensitive to border trade

Health Minister Riina Sikkut (SDE) said that from a health point of view, making alcohol more expensive would undoubtedly be necessary. Half a bottle of vodka is cheaper than chocolate, and compared to other goods and income, alcohol becomes relatively cheaper, which is why it is consumed more.

"The risks of cross-border trade were discussed and considered in the Finance Committee. I have a feeling that we are overly sensitive about cross-border trade, but at the same time, the Finance Committee is indeed free to make decisions, even if I do not like them," Sikkut said.

Asked why, as a minister, Sikkut could not tell SDE Finance Committee members to vote against the change, she said a majority is needed in the committee and there is no point in making such a play.

"The Finance Committee discussed the matter and had their analyses from the Ministry of Finance, which allowed them to make their decision in this way. I understand that the risks of cross-border trade were highly prioritized. During the coalition negotiations, we did indeed agree that any additional increase would be conditional, and if excise hikes do not align with those in neighboring countries or Latvia, the possibility of further increases would be reconsidered," the minister said.

Sikkut added that Estonia's high consumption rate, health arguments could have played a strong role in the committee's discussions. She said the increase in excise duty would not mean that half of Estonian residents would start traveling somewhere to buy alcohol.

The SDE politician pointed out that, according to her party's suggestion, the excise rates for strong and light alcohol could be increased at different rates.

"If the price difference for a bottle of beer with Latvia becomes too large and motivates cross-border trade, the same might not necessarily apply to strong alcohol," Sikkut suggested. In her view, differentiating excise rates would also make sense from a health risk perspective, but such a decision requires further discussion.

Sikkut added that when it comes to alcohol policy, excise taxes are talked about like a magic wand. However, evidence-based alcohol policy is diverse when looking at prevention, price increases, the number of outlets, time availability, as well as improving treatment options.

The draft regarding the excise duty increase will be put to the final vote on December 11. According to it, the 5 percent increase in alcohol excise duty planned for July 1, 2025 is canceled. Instead, excise duty will increase by 10 percent on January 1, 2026.

As a result of the change, the additional stockpiling of products anticipated in connection with the planned summer excise duty increase is expected to be avoided at the end of this year. However, the impact on next year's state budget revenues will be positive, as goods with a lower excise rate are likely to be stockpiled ahead of the 2026 excise duty increase.

Had the excise duty increase occurred as originally planned, excise revenue for next year would have decreased by €12 million. Under the new plan, however, revenue is expected to grow by €7 million, reaching €18 million. At the same time, due to the anticipated stockpiling ahead of the increase, revenues for the 2026 state budget will decrease. Initially projected at €22 million, they are now expected to total €11 million.

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