Sunday, 22 August 2004

No EU solution in sight to Northern European alcohol rally

When Northern Europeans cross borders the reason is often to buy alcohol.

A whole industry of cross-border shopping has developed in these northern countries because the price of alcohol differs widely from country to country.

The average price of the locally most consumed bottle of spirits (0.7 litres) vary from 5.57 euro in Estonia to 20.09 euro in neighbouring Finland, according to the alcohol control database of the World Health Organisation, (WHO).

In Germany, the price is just 5 euro on average, while the Danes on the other side of the border have to pay 10.75 euro.

Topping the expense league is Norway where liquor is priced at 39.01 euro on average per bottle, followed by Iceland 28.37 euro and Sweden 21.54 euro.

The high prices are caused by heavy taxation of alcohol in the Nordic countries. This alcohol policy was agreed to reduce consumption and protect public health; in addition the state coffers benefit hugely.

And, seemingly, the policy has been working.

Norway, Sweden and Iceland, who charge the highest prices for alcohol are also among the five nations in Europe with the lowest annual consumption of pure alcohol per person.

According to the WHO, people in Iceland annually consume just 4.41 litres of pure alcohol per person.

By contrast, Luxembourgers have the highest consumption with 14.47 litres per year per person.

Meanwhile Czechs drink 13.59 litres, the Irish 11.36 litres, the French 11.03 litres and the Germans 10.92 litre per year.

All down to the internal market

But with the European Union’s internal market, Nordic alcohol lovers have found a way to avoid heavy taxes. Happy to cross borders in pursuit of a tipple, alcohol consumption generally is on the rise.

The Finns rush to Estonia; Swedes and Norwegians cross the border to Denmark, Germany or Poland while the Danes travel to Germany – all in pursuit of cheap alcohol.

Norwegian Prime Minister Kjell Magne Bondevik, at a meeting of Nordic prime ministers in Iceland (12 August), took up the issue and suggested a common Nordic approach in the EU to harmonise alcohol taxation and to stop the alcohol rally.

The Nordic ministers of social and health affairs are also to discuss the problem while Nordic prime ministers are to take it up at their next meeting in November.

Common EU taxes is no-go area

While received positively by the public, the Norwegian proposal for a common Nordic approach has few chances of success in the EU’s internal market.

The European Commission presented a report in May on the operation of the EU-wide system of minimum rates of excise duty on alcohol and alcoholic beverages

“It is clear to all that the widely divergent levels of alcohol taxation in Member States distort the market and facilitate fraud and smuggling, but without the agreement of all Member States nothing can change”, said internal market Commissioner Frits Bolkestein.

“A full debate is needed to establish whether there is now any consensus for improvements to the present situation”, he said.

But common taxes can only be decided by unanimity among the 25 EU member states – something very unlikely to happen.

Not a Dutch presidency priority

Moreover, not much help can be expected from the current Dutch EU presidency.

“We see neither minimum taxes nor import quotas on alcohol as a priority”, William Lelieveldt from the Dutch ministry of finance told Swedish Radio.

The Dutchman added that the majority of EU countries do not consider alcohol taxation a major problem. A certain competition among taxes is actually good for the EU’s internal market – also when it comes to alcohol taxation, said Mr Lelieveldt.

The domino effect

The domino effect on alcohol prices reached extremes last year when the Danish government from 1 October 2003 neared alcohol taxes to the German averages.

Cheaper prices in Denmark meant that Swedes and Norwegians travelled to Denmark to buy alcohol.

When Estonia entered the EU on 1 May – pressure also grew on Finland.

With alcohol prices in neighbouring Estonia being much lower of those in Finland, Finns often combine weekend trips to the Estonian capital, Tallinn, with alcohol shopping.

The Finnish government at first decided to lower their taxes by a third on 1 March 2004 to stop the exploding convoy of Finns travelling to Estonia to buy it on the cheap.

Then the government realised that the controversial tax cuts led to a severe drop in the Finnish state’s tax revenue.

In the first four months since the tax cuts, alcohol duties brought in €560 million to the state’s coffers, compared to €640 million last year – a fall of 12 percent, Finland’s leading Swedish-language daily Hufvudstadsbladet reported.

Finland now appears to have regretted lowering the taxes and the minister of the interior Kari Rajamäki is expected to suggest a rise in alcohol taxes again.

On the other side of the sea, the Estonians seem willing to offer a bit of a helping hand. The Tallinn government has suggested raising its alcohol taxes by 15-20 per cent in 2005.

40 per cent tax cut in Sweden suggested

The Swedish government is also on alert over the growing number of citizens shopping for alcohol outside the state controlled liquor stores.

A special committee of in Swedish Parliament on Monday (16 August) published a report suggesting that alcohol taxes should be reduced by 40 per cent in Sweden by 1 January 2005.

“The lowering of the taxes has in practice already taken place for the large part of the Swedish people shopping abroad. The problem is known and we need to act. If we don’t move – this will run out of our hands,” Swedish Prime Minister Goeran Persson was quoted saying by Dagens Nyheter.

The worry in Sweden – as in other Nordic countries – is that alcohol consumption might rise, if the taxes are lowered.

In Finland, consumption has risen by 10-15 per cent since taxes were cut in March, the Finnish Prime Minister, Matti Vanhanen, admitted to his Nordic colleagues recently, according to Dagens Nyheter.

State monopolies

To limit alcohol consumption and secure public health, wine and spirits sales are traditionally strictly regulated in Finland, Sweden Iceland and Norway.

Alcoholic drinks can only be bought in the state’s liquor and wine monopoly shops.

However, in July, the European Commission decided to bring the Swedish system ‘Systembolaget’ to the EU’s top court, claiming it is violating the free market and prevent citizens from importing their liquor from sources other than the state monopoly.

By Lisbeth Kirk

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