Beer-loving Czechs find proposed alcohol tax hike hard to swallow

08-11-2006

With an annual consumption of 156 liters per head Czechs are the world's biggest beer consumers. Now - a proposed increase in minimum alcohol excise duties in the EU states is threatening to send up the price of the Czech national beverage. On Tuesday the Czech Republic and three other EU members - Germany, Lithuania and Latvia - blocked the proposal. But the fight over the price of beer is not over. The excise duty price hike will be back on the EU's agenda at the end of November.

On Tuesday Czech brewers could raise their glasses to the outcome of the first round of talks in Brussels. However Tuesday's rejection of the EC's proposal has merely put the problem on hold. The minimum EU duty on beer and spirits has not been revised since it was last set 14 years ago. A revision to reflect inflation is therefore necessary. The planned rise would have added one euro cent /about 1.3 US cents/ to the price of a half a liter of beer. That may appear negligible to some Europeans, but the director of the Czech Association of Brewers Jan Vesely says it could have serious consequences not just for Czech brewers and consumers but for the country's economy:

Jan VeselyJan Vesely "With an increase of the excise tax and the consequent increase of valued added tax and retailers' margins we calculated that the overall increase would be one crown per half a liter of beer. This is a significant increase when you take into account that the average price of a half-liter bottle of the most common brand of beer is about seven crowns."

So you think it would put people off drinking beer?

"Yes, consumption would decline, mainly because one million hectoliters of the nation's annual consumption - possibly more - is cheap beer sold in supermarkets and hypermarkets for the price of three to four crowns. There the one crown increase would amount to a third of the overall cost - which is deadly. Apart from that - there would be a broader impact. The demand for malt would drop, as would demand for malting barley which could harm our agricultural sector because it is grown on some six hundred thousand hectares every year. It is one of the commodities that keep our agriculture stable, since there is a steady demand for it."

Ideally - the Czech Republic would have liked to see beer exempted from the inflation adjustment - especially since wine is also excluded. Such a compromise was proposed by Finland - which currently holds the rotating EU presidency. However the suggestion was vetoed by Sweden on health grounds. Jan Vesely of the Czech Association of Brewers says this argument does not hold water.

"This is the so called Ledermann theory that has been applied in the Scandinavian states since around 1945. It is based on three pillars. First - reducing the sales of alcoholic beverages through licensing of outlets, second - a ban on sponsoring and advertising and third - a dramatic increase of prices via an increase of excise taxes. All these measures were simultaneously applied in the Scandinavian states for a period of sixty years with no significant results. The consumption of alcohol dropped - but only "officially". There was an immediate increase in smuggling, mainly on boats from Germany, Poland and the Baltic states. Also the illegal home production of spirits increased dramatically with very harmful consequences to people's health because there is no hygiene or health control and people use whatever can be distilled. This method did not produce any positive results in Scandinavia - so it is nonsense to apply it to other countries which moreover have a totally different culture such as central Europe or southern Europe. This attempt to increase the minimal excise tax is just a bureaucratic attempt to throw all the people living in Europe in one bag to create some "normalized" Euro-citizen."

08-11-2006