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Friday 23.08.2019 | Name days: Valgudis, Ralfs, Vitālijs

Lithuania holds fire on alcohol excise as Latvia readies reaction to Estonia’s 25% cut

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU

Linas Jegelevičius for the BNN

The much-praised unity of the Baltics in the 1990s has fallen through multiple times over the countries’ independent history and the last blow to it came this month from Estonia, which unilaterally made a 25 percent cut on alcohol excise tax in bid to lure alcoholic beverage lovers from neighbouring countries.

Latvia said it will be «forced» to respond, «in fact, absolutely against our will», according the head of Latvian government, Krišjānis Kariņš. Meanwhile, the ruling Farmers and Greens-orchestrated Lithuanian government, which has waged a big war against spirit in attempt to bring down alcohol use – related maladies in the country, seems to play a waiting game so far.

Finance ministry: No plans to change alcohol excise tax

Approached by BNN, communications specialists of the Lithuanian Ministry of Finance, were reluctant to comment Estonia’s decision and how a response of Latvia, Lithuania’s northern neighbour, can affect the strict Lithuanian alcohol policies.

On Thursday morning, Daiva Šalc, a communications specialist at the ministry, send BNN a written reply, saying that the ministry is not currently considering any changes to the existing alcohol excise tariffs.

Lithuanian government hiked alcohol excise tax four times over the last four years and the last increase of 10 per cent came on March 1 this year.

According to the amended Lithuanian Law on Excise Duty, excise of 1 832 euros is applied for one hectolitre of pure ethyl alcohol. The average price of 0,5 litre strong alcoholic beverage steeped around 0.39 euro as a result. The jack-up was expected to fill state coffers with additional 5 million euros.

The Government also expected that the measure will help further wean Lithuanians off from the drinking habit. But the Estonians’ lax attitude towards liquor and especially the expected cut in alcohol excise duty in Latvia will compel Lithuania to sooner or later take actions, experts say.

Economist: Lithuanians will go where booze is cheaper

«In terms of international tax competition, Estonia did a right thing to stay competitive and hold and edge over the nearest neighbours, so, logically, with booze in Estonia cheaper, its buyers will favour Estonia over the countries where it is more expensive, including Latvia and Lithuania. But from the point of morality, our northern neighbour did a bad thing, one very selfish.

With excise duty lower, the consumption of alcohol will certainly go up, perhaps in the entire Baltics, where many bad statistics, like suicide rates, mortality on the roads and et cetera, is primarily related to alcohol consumption,» Povilas Gylys, a prominent Lithuanian economist and a former parliamentarian, told BNN.

In his words, Lithuania is losing «awfully a lot» from the differences in prices in Lithuania and neighbouring Poland. «We here know that nearly entire border settlements on weekends go to Poland for cheaper food and other goods. We just cannot stem the flows, which is very bad for our economy,» he accentuated.

Notably, shops offering cheaper booze than in Lithuania are prevalent in Latvia over the countries’ border.

«Imagine, Latvians’ alcohol prices see a considerable drop as a result of a cut in Latvian alcohol excise duty. Then all the dwellers of our border towns, like Joniškis, Biržai, Naujoji Akmenė, Mažeikiai and others, will set on a journey to Latvia,» he pondered.

Politicians snub economic logics

Asked if Lithuania will have to grudgingly lower its alcohol excise tax in order to stay competitive regionally, Rūta Vainienė, economist and head of Lithuania’s Merchandise Enterprise Association, was hesitant.

«This is the question I am asking myself yet. From the economic standpoint, Lithuania has no other choice, but to follow the neighbour’s examples. But considering how avidly the government has been fighting alcohol consumption and its aftermaths in the country, I am not sure we will see immediate actions in the regard. Especially that politicians sometimes do not go by economic logics,» Vainienė underscored to BNN.

«We can just project that, with the tax lowered in Latvia, we will see increasingly more Lithuanians going there for cheaper alcohol. I am not sure however that it will impel our current lawmakers to act upon such situation. What I see is that our politicians in the Parliament simply close their eyes to the fact that our shoppers are streaming behind the border for cheaper goods. I won’t be surprised that Lithuania for now will put up with the alcohol excise tax reduction over its borders,» the analyst said.

Seimas will have to react in one way or another

Linas Balsys, an independent MP, told BNN that no initiative to reduce Lithuanian alcohol excise duty has reached the parliament. «I doubt very much if such a proposition would garner support from the ruling majority that stands firmly for higher alcohol taxes,» he underlined.

Although tax imposing and increasing is an exceptional right of each country, Lithuania cannot pretend that it lives in a «bubble», unaffected by alcohol policy changes in its proximity, Balsys noted however. «I am certain that the Seimas (Parliament) will have to react in one way or another, but it remains to seen how and when,» Balsys said.

The lawmaker, who is a member of the Baltic Assembly, an ultimate advisory body of Lithuanian, Latvian and Estonian legislatures, admitted he was «disappointed» that the Baltic unity was cracking up once again.

«We did discuss common alcohol policies in the Baltics last year. It goes without saying that coordinating actions in such an important field like alcohol policies is essential for all three Baltic countries.

Unfortunately, individual economic interests prevail when it comes to practical decisions,» the MP emphasised.

Resolution of Baltic Assembly defied

In October last year, parliamentarians and governmental representatives from Estonia, Latvia and Lithuania convened for the 37th Session of the Baltic Assembly to discuss current affairs and cooperation of the Baltic States, prioritising alcohol policies. A resolution adopted by the Session highlighted the importance of continued and improved cooperation in alcohol policy.

The resolution called among the other things on more active cooperation in the field of reduction of alcohol consumption and a targeted approach and to implement without a delay agreed decisions stated in the Memorandum of Intent on Cooperation in Reduction of Alcohol Consumption and some other key issues.

Liquor consumption edges down in Lithuania

According to Lithuanian statistics, in 2018, absolute alcohol consumption per resident aged 15 and older amounted to 11.2 litres (by 1.1 litres less than in 2017). In 2018, country’s retail trade and catering enterprises sold 2.9 million dekalitres of spirits (vodka, whisky, brandy and the like), which is by 153 thousand dekalitres (5 per cent) less than in 2017, and 3.4 million dekalitres of wine and fermented beverages, which is by 823 thousand dekalitres (19.5 per cent) less than in 2017.

Just as every year, the bulk of sales fell within beer – 21.9 million dekalitres, or by 1.4 million dekalitres (5.9 per cent) less than in 2017. In 2018, against 2017, retail prices of alcoholic beverages grew by 2.1 per cent, with the largest increase observed in prices of beer produced in Lithuania – 4.8, imported beer – 4, bitter – 3.9, vermouth – 3.8, vodka produced in Lithuania – 3.1 per cent, while whiskey went down in price by 2.5 per cent. The growth in prices of alcoholic beverages was conditioned by a higher excise duty applied since 1 March.

Leave a reply to JD

  1. JD says:

    Unfortunately the journalist did not do his / her job right, and the Lithuanian “economist” commented on something irrelevant without checking the facts. Even after the 25% decline, the alcohol excise on liquor in Estonia will remain slightly higher than in Latvia and on beer more than 70% higher. So the talk of “booze in Estonia cheaper” and “buyers will favour Estonia over the countries where it is more expensive, including Latvia and Lithuania” is utter nonsense.

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