Major reductions in taxes on alcohol beverages

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Featured in half-yearly report: Health Policy Developments Issue 5

Abstract

On 1 March 2004 Finland reduced its taxes on alcohol beverages by 33% on average. Taxes on spirits, beer and wine were lowered by 44%, 32% and 10% leading to corresponding price reductions of 36%, 13% and 3%. This measure is an attempt to reduce major price differences: (a) 1 January 2004 Finland had to abandon its national quotas on alcohol beverages imported by Finnish travellers to Finland from other EU member states, and (b) 1 May 2004 Estonia became member of the EU.

Purpose of health policy or idea

The tax reform affected the whole population as prices were reduced similarly throughout the country. The reform was directed particularly with regard to inhabitants in the densely populated Helsinki region, situating at a ferry distance of less than 2 hours to Tallinn.

Tax reductions aimed to prevent excessive private import of (still) cheap alcohol from Estonia to Finland.

Public health interests aimed to cushion excessive private imports of alcohol from Estonia.

Fiscal interests worked to maintain a relatively high level of state revenue.

Representatives of the alcohol business, as well as the hotel and entertainment industry, defended their employment and other interests.

Main points

Main objectives

Main Objectives/Characteristics of Instrument:

• to prevent  excessive private import of cheap alcohol from Estonia to Finland
• to maintain a high level of state revenue from alcohol tax
• to defend employment in the alcohol business in Finland.

Type of incentives

reduction of taxes on alcohol beverages leading to price reductions.

Groups affected

Central Government, Finnish Residents, Alcohol Industry

Degree of Controversy	consensual		highly controversial
Structural or Systemic Impact	marginal		fundamental
Public Visibility	very low		very high

The policy change is not directly relevant for health care.

Political and economic background

In the alcohol tax reform, the high-tax tradition on spirits (and beer) in Finland was broken. This was a direct response to the fact that Finland had to comply with the EU rules concerning private import of alcohol beverages within the common market.

The Government held that its decision was the best among bad alternatives. It also acknowledged that the decision will result in a substantial increase in alcohol consumption and related harm. A preventive alcohol programme was released in April 2004 by the Ministry of Social Affairs and Health, to deal with the expected problems: Alcohol Programme 2004-2007.

Purpose and process analysis

Current Process Stages

	Idea	Pilot	Policy Paper	Legislation	Implementation	Evaluation	Change
Implemented in this survey?

Origins of health policy idea

Lowering taxes on alcohol beverages is part of the anti-protectionist economic policy run by the EU. Finland became a member state in 1995. In 1996 it was decided that national restrictions on private import on alcohol will be abolished by 2004.

Initiators of idea/main actors

• Government

• Parliament

• Civil Society

• Scientific Community

• Private Sector or Industry

• Media

• Others

Stakeholder positions

The tax reduction issue was primarily defined as a fiscal, employment and national business concern. Social and health considerations were mentioned in the debate preceding the decision, but they never became a serious, major issue.

The expected changes in Finnish alcohol consumption and related harm were prepared along two relatively independent routes. First, the Ministry of Finance was in charge of the preparations of the law proposal on tax reduction. This process (spring 2004) was most secret in character. Second, the Ministry of Social Affairs and Health was responsible for measures to be taken to prevent the effects of the expected tax reduction, resulting in the Alcohol Programme.

The Finnish state-owned alcohol monopoly on alcohol beverages (> 4.7 per cent alcohol by volume) was much in favour of the law proposal, while the Finnish Brewers Association claimed that considerably bigger tax reductions were needed.

Civil society was conspicuously quiet in the debate.

Actors and positions

Government
Government	very supportive		strongly opposed
Parliament
Parliament	very supportive		strongly opposed
Civil Society
Civil Society	very supportive		strongly opposed
Scientific Community
Scientific Community	very supportive		strongly opposed
Private Sector or Industry
Alcohol Industry	very supportive		strongly opposed
Media
Media	very supportive		strongly opposed
Others
European Union	very supportive		strongly opposed

Actors and influence

Government
Government	very strong		none
Parliament
Parliament	very strong		none
Civil Society
Civil Society	very strong		none
Scientific Community
Scientific Community	very strong		none
Private Sector or Industry
Alcohol Industry	very strong		none
Media
Media	very strong		none
Others
European Union	very strong		none

Positions and Influences at a glance

Adoption and implementation

 The reduced alcohol excise duties came into force immediately, i.e. 1 March 2004. Preventive measures included in the Alcohol Programme are to a modest extent financially supported by the Ministry of Social Affairs and Health.

Monitoring and evaluation

All alcohol sales channels (state-owned monopoly stores, ordinary retail shops, restaurants, imports from abroad) are monitored continuously, as well as different types of alcohol-related harms. Evaluations are reported regularly, in-depth studies will be published in 2005 and onwards.

Expected outcome

Due to the tax reduction the Government estimated a growth in total alcohol consumption in Finland to 15%. Alcohol-related harms were expected to increase by roughly the same percentage. The decision-makers found these figures realistic considering given circumstances.

References

Sources of Information

In English:

Ministry of Social Affairs and Health. Alcohol Programme 2004-2007. Starting points for co-operation in 2004. Helsinki 2004. (published in Finnish and Swedish; summary in English) http://www.stm.fi/Resource.phx/eng/strag/progr/alcohol/alcohol.htx.

Österberg, Esa: The impact of the major tax reduction of Finnish alcoholic beverages 1 March 2004. Paper presented at the 30th Annual Alcohol Epidemiology Symposium of the Kettil Bruun Society for Social and Epidemiological Research on Alcohol, Helsinki, May 31-June 4, 2004.

In Finnish:

Karlsson, Thomas & Ruotsalainen, Jussi & Tigerstedt, Christoffer &  Österberg, Esa (2004): Vuoden 2004 alun alkoholiolojen muutokset Suomessa myyntitilastojen ja lehdistökirjoittelun valossa (Changes in the alcohol situation in Finland in the first half of the year 2004 in the light of sale statistics and the press publicity). Stakes, Aiheita 12, Helsinki.

Author/s and/or contributors to this survey

Christoffer Tigerstedt, DPolSci, Senior Research Fellow, Alcohol and Drug Research Group, National Research and Development Centre for Welfare and Health (STAKES)

Suggested citation for this online article

Christoffer Tigerstedt, DPolSci, Senior Research Fellow, Alcohol and Drug Research Group, National Research and Development Centre for Welfare and Health (STAKES). "Major reductions in taxes on alcohol beverages". Health Policy Monitor, March 2005. Available at http://www.hpm.org/survey/fi/a5/5