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Baltic Nations Race to Cut Alcohol Taxes

Baltic Nations Race to Cut Alcohol Taxes

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For drinkers in the Baltic region, there’s cause to toast.

First, Estonia announced it would reverse tax increases on alcohol after they hurt sales and dented budget revenue. Next, Latvia -- which saw an influx of thirsty visitors thanks to its neighbor’s excise hikes -- said it may cut its own duties in response.

Baltic Nations Race to Cut Alcohol Taxes

The moves could herald a race to the bottom on alcohol taxation, delighting those who enjoy a tipple while hurting government coffers. There are also concerns beyond state finances: Estonia’s tax hikes had brought booze consumption to a decade-low and doctors unions warn the new plans send “an unambiguous message that public health isn’t important.”

Estonia began to feel the pinch of declining revenue two years ago, when more of its citizens went south to Latvia to buy wine and spirits, and tourism from Finns -- many of whom visit predominantly to purchase cut-price alcohol -- also began to decline.

Under pressure from retailers and shipper Tallink Grupp, it will slash duties on liquor by 25% from July, trimming the price for a half-liter bottle of vodka by 1.5 euros ($1.30) to as low as 6 euros.

“The volume of alcohol purchased in Estonia will rise and the share of alcohol purchased in Latvia will definitely decline,” Finance Minister Martin Helme declared confidently on Monday to public broadcaster ERR.

But not so fast.

Latvia, Finland

Mindful of a threat to its own sales, Latvian said it’s closely following Estonia’s decision and will consider taxes next week. Stressing the importance of retaining competitiveness, Finance Minister Janis Reirs said a reduction could take effect as early as this year.

Estonia’s actions didn’t go unnoticed in Finland, either, particularly among brewers, who want the incoming government in Helsinki to refrain from raising alcohol duties.

“With reasonable beer taxes we ensure this historic profession remains in Finland,” Riikka Pakarinen, managing director of the Federation of the Brewing and Soft Drinks Industry, told the Kauppalehti newspaper. “This guarantees jobs and tax revenue to Finland, not across the Gulf of Finland.”

--With assistance from Aaron Eglitis and Kati Pohjanpalo.

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Andrew Langley

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