OPINION: Latvian Booze Tax Hike Marks End to Baltic Alcohol Wars

Estonia adopted a 25 percent tax cut to compete with the Latvian industry (Wikimedia Commons)

Latvia is set to finally increase its excise duty on alcohol on March 1, according to ERR News, an Estonian radio broadcaster. This move follows a bitter “war” among the Baltic States, particularly Latvia and Estonia, over their alcohol tax rates; the two neighbors reduced their rates by 15 and 25 percent, respectively. Latvia’s capitulation to Estonia’s demands for tax hikes marks another victory for economic protectionism in a region that would greatly benefit from further market liberalization.

Triin Kutberg, CEO of the Estonian Association of Alcohol Producers and Alcohol Importers, told the Baltic Times that each “rise in the excise duty in Latvia will help the Estonian domestic market” by “further [halting] cross-border trade.”

While advocacy for less cross-border trade between two members of the world’s largest single market area is astounding, this rhetoric mirrors a broad reversal of trade and immigration liberalization as East European states pursue aggressively protectionist policies. For instance, Hungarian Prime Minister Viktor Orban introduced steep taxes on large foreign retailers to benefit domestic companies with low turnover, according to the Financial Times. In addition, Pew Research found that 82 percent of Hungarians and 76 percent of Poles believe that migrants will steal local jobs—a more pressing concern among citizens than terrorism and crime. In perhaps the most drastic example, Kosovo imposed a 100-percent tariff on Serbian imports, according to BBC.

Estonia has no problems welcoming foreigners to take advantage of its own tax rates. According to the Postman, visiting Finns make 34 percent of all alcohol purchases in the country.

Estonia’s reversal of tax increases in 2018, intended to help the booze tourism industry recover, seemed to predict an end to some of Europe’s highest alcohol tax rates. Latvia’s comparatively low tax rates needed just a modest cut to win those customers back.

Instead of pressuring its neighbors to raise their own rates to protect domestic purchases, Estonia could signal its support for the European common market and expand its alcohol industry outwards to foreign consumers by further lowering alcohol duties. Latvia’s capitulation to Estonian demands marks a rejection of competitive market forces benefiting consumers across the Baltic and a return to the protectionist norms that dominate the rest of the region.