8: European fiscal issues

Trends in Excise Rates in European Countries

Having reduced their excise on spirits by 20% in 2002, Norway reduced this by a further 11% in 2003. Denmark reduced excise by 45% in October 2003. This reduction will bring the Danish rates nearer to those of Germany in order to reduce the high level of cross border shopping. The Finnish Parliament accepted a reduction by 44% in Spirits Excise from 1 April 2004. Our counterparts in Norway and Sweden see it as inevitable that their authorities will have to follow suit one day as, for example, approx. 35% of Swedish spirits is bought abroad and 15% is illicit. Thus, the countries that have advocated the strictest social policies have now seen it as appropriate to reduce spirits excise.
Increases in taxes can be counter-productive; for example, they can produce diminishing revenue to pay for public services rather than an increase in returns - as happened in Ireland and Holland in 2002/3. There is also a risk of following the Swedish example where 50% of spirits are home made, smuggled or bought across the border due to their high taxes at home.

Holland
Holland provides an interesting case study. Their Parliament decided to increase spirits excise by 18 % on spirits as from 1 January 2003 in order to collect an extra €70 mln. The result though was a decline in sales and tax revenues and the increased revenue amounted to only €11 mln. The related consequences were reduced revenue for public services and increased cross border shopping, grey imports and illicit trading. To counter this, their Parliament reversed its previous decision and on 1 January 2006 spirit excise reverted to exactly where it was before.

Ireland
Ireland currently has the highest excise duties on alcohol in the EU, with the exception of spirits excise in Sweden. Following a 42% increase in spirits taxation in Ireland in December 2002, growth in spirits consumption was checked. There was then a noticeable switch by consumers to other categories such as wine and cider. Although this may not have been entirely due to the excise increase on spirits, it is of note that spirits are a price sensitive category in Ireland comparison to beer, wine and cider. However, despite the tax increase, growth returned to the spirits market in 2004.