HS Foreign 7.10.2003 - Tax cuts lead to domino effect in Nordic booze tourism

By Mari Manninen

The tax on strong spirits came down by nearly 50% in Denmark on Wednesday. The move was prompted by the low alcohol prices in neighbouring Germany, and by a desire to discourage excess travel in the pursuit of cheap drink.

Finland has also planned to bring down its tax on alcohol to avert a massive rush of alcohol tourism to Estonia when that country joins the EU next year, adding to the anguish of Swedish politicians, the country's alcohol business, as well as state officials.

Swedish decision-makers fear that Swedes - especially those living in border areas - will start increasingly travelling to Denmark and Finland to buy their alcohol.

Finnish Minister of Finance Antti Kalliomäki, who visited Stockholm on Wednesday, noted that the problem caused by price differences in neighbouring countries works like a chain. He also said that Denmark's tax cut is causing Sweden more problems than the average 33% reduction planned by Finland in March next year.

In Denmark a standard 0.7 litre bottle

of vodka now costs about 12 euros. In Sweden the same bottle costs about twice as much.

Reasons for the timing of the tax cuts by Sweden's neighbours include the acceptance of new members into the EU, and the expiration of the lower personal import quotas of the Nordic EU member states. The exceptional import quotas will run out for Sweden at the beginning of the year, which is a cause for serious nail-biting in Sweden.

As of January, a Swede returning from a visit to Denmark will be allowed to bring back 10 litres of strong spirits, 20 litres of fortified wines, 90 litres of table wine, and 110 litres of beer.

Anitra Steen, the head of Sweden's

state-run alcohol retail monopoly Systembolaget, has said on a number of occasions that Sweden also needs to cut its taxes on alcohol. Some researchers have even predicted that the whole sales monopoly might collapse if the taxation system is not altered.

Last year a state official appointed to examine the situation recommended a 45% cut in the tax on alcohol. Currently Sweden has the EU's highest tax on strong spirits.

Sweden's Minister of Finance Bosse Ringholm has said that the government is carefully monitoring developments, and that the taxation issue would be considered in the spring budget.

Six Parliamentarians of the governing Social Democratic Party reacted to Ringholm's statement. In Wednesday's edition of the newspaper Dagens Nyheter they said that Sweden should take its fate into its own hands while it still can and implement a sharp reduction in its alcohol tax.

The arguments for cutting the tax

are familiar in Finland as well. If legal sales of alcohol decline significantly within the country, it would lead to a shortfall in state revenues.

However, in Sweden arguments involving public order and health have been even stronger; if people buy their alcohol from abroad, and if the sale of bootlegged alcohol grows in Sweden, the use of alcohol will be beyond official control.

There are already signs that in Malmö, situated a very short distance from Denmark, there are extensive sales of illegal alcohol especially to young people. Illegal bottles are more risky than legal ones, and heavy demand is attracting criminals with a higher degree of professionalism.

In Sweden the elite has been almost unanimous in seeing high retail prices as a foundation for harm prevention, but an increasing number of people see lower prices as the only alternative.

Nevertheless, many experts in public health

, as well as in Sweden's powerful temperance movement, feel that talk of cheaper alcohol is dangerous. Sven-Olov Carlsson, chairman of the temperance organisation IOGT-NTO, says that if Sweden were to lower its alcohol tax, consumption would increase, along with accidents, diseases, and violence. He adds that municipal expenditure would also grow.

Carlsson concedes that if prices were lower in Sweden, people would bring in less alcohol from abroad. However, he calculates that 70% of alcohol consumed in Sweden would continue to come from domestic retail sources: Systembolaget, the beer shelves of grocery stores, and licensed restaurants. Therefore, he reasons that cutting alcohol taxation would increase consumption more than the expected increase in personal imports. Carlsson sees a clear connection linking the price of alcohol with consumption and the damage it causes.

Carlsson insists that Sweden should continue to demand that the EU grant it the right to the exceptionally low import quotas that it has had so far. He also says that Sweden should push for a minimum tax on wine in the EU, as it has already set for beer and strong spirits.

Sweden has already had to compromise

in the prices of some beverages as the result of pressure from the EU. In 1997 the tax on beer was cut after the quota for cheap imports from Denmark went up to 15 litres.

In 2001 Sweden had to lower its tax on wine because the EU felt that it was unreasonably high in relation to the tax on beer.

Helsingin Sanomat / First published in print 2.10.2003