PAQ Research: Czechs’ fondness for beer undermining economic growth
Czechs know how to make good beer and enjoy it – consuming, on average, over 160 liters per person each year. And they have become increasingly fond of good wine, a fondness that is also driven by the fact that there is no excise tax on still wine in Czechia, making it highly affordable.
But there’s a downside. According to a study conducted by PAQ Research the health costs and losses in productivity incurred by excessive drinking by far exceed the amount collected in excise duty. I spoke to sociologist Daniel Prokop of the PAQ research company about its findings.
“Alcohol consumption in Czechia is the highest in the European Union and the negative impact on health care, the social sector and productivity is estimated to be between 30 and 50 billion crowns per year, while the revenues from excise tax on alcohol are much lower than that [13 to 14 billion crowns]. The problem is that there are many exceptions in the excise tax and it is not increasing overtime so the real value of the excise tax is decreasing. Still wine is not taxed at all. So, we have a lot of exceptions, decreasing real value of excise tax, very low excise tax on beer and we are now suggesting some changes and reforms which would increase the revenue and create a better pricing policy which would help cope with alcoholism and the negative impacts of alcohol consumption.”
There’s a big debate now on whether still wine should be taxed or not. What are your suggestions?
“I think that definitely from both the economic and medical point of view we should tax still wine because it is driving alcohol consumption - consumption of wine is increasing, consumption of spirits and beer is decreasing. Since wine is not taxed it is very cheap, you can buy a liter of wine for less than one euro sometimes in the Czech Republic. These exemptions create a bad stimulus to substitute consumption of spirits by consumption of very cheap wine. Our suggestion is to set the excise tax on wine and on beer on a comparative level to spirits – 60 to 80 percent of the effective tax rate on the ethanol and alcohol content. Because right now we have zero excise tax on still wine and the excise tax on beer is around 20 to 25 percent of the excise tax on spirits.”
Czechs are a nation of beer drinkers and many people say they will drink beer no matter what it costs. Can you really change that?
“I think you can change it a little bit. The point of increasing the excise tax is that it will increase the price of the cheapest beer and cheapest wine, beverages that are largely behind risk drinking. It would have little impact on the high quality local beers and local wines, while affecting the prices of very cheap beer and wine. And, one more thing that we are suggesting is to put the excise tax as close as possible to the volume of alcohol, for instance the excise tax on beer should be connected to the volume of alcohol in the beer, which is not the case right now. And this connection between the excise tax and the volume of alcohol creates an incentive for producers to decrease the volume of alcohol, which means that people could drink the same amount of beer but they would be consuming much less alcohol. So I think if you combine those affects – it will impact alcohol consumption and its consequences.”
So what do Czechs drink mainly – is it beer and wine – or beer and spirits?
“It is mainly beer –the consumption of spirits is lower than in some other countries, but also quite high- and consumption of wine is increasing because it is not taxed. So I think the point of this pricing policy is to make the taxing of different alcoholic drinks more equal and reduce the substitution of spirits with cheap wine.”
Will this not hurt Czech beer and wine producers?
“If you put a higher excise tax on wine according to the level of alcohol and tax it by the liter, it will increase the value of cheap wine. So if you have a bottle of wine which costs 200-300 crowns, the excise tax wouldn’t change the price that much, but if you have very cheap, low-quality wine for 20 to 30 crowns (around a euro) the excise tax would increase the price of this wine significantly. So I do not think it will harm Czech wineries so much, it will mostly burden the big producers of low-quality wine here. And one more thing – we are definitely counting on using the half-rate for small breweries and small wine producers which is allowed by the EU. So if they have a half-rate and if they produce high-quality, more expensive wine which would not be that burdened by excise tax, it would place a very low burden on local producers. It might even help them, compared to the big producers of low-quality wine and low-quality beer.”
So simultaneously you would be influencing what Czech alcohol producers produce and what Czechs drink…
“Definitely, it would lead people to choose local higher quality wine then the very low-quality wine. We don’t think it would have a drastic impact on small local producers. It would definitely impact the big producers of low-quality cheap wine and cheap beer.”
Do we know from other states how effective tax policy interventions are in reducing excessive alcohol consumption?
“Well, definitely the elasticity in wine and beer demand is at around 0.5 -0.7 which means that if you increase the price by 7 percent the consumption decreases by 5-7 percent. So definitely the price matters –it is not like it doesn’t matter and people would drink in the same measure anyway. Of course, it is important how you do it. If you have these exemptions –for instance if you have no tax on still wine and increase the tax on spirits it has a very limited affect because you are offering substitution by still wine. So the effect of the pricing policy is dependent on how systematic it is, that you leave no exceptions and it is better when it is tied to the volume of alcohol so that producers have an incentive to produce lower-alcohol beers, wines and so on.”
You already said that Czechs drink excessively. How bad is it?
We are top of the ladder in the European Union in the amount of alcohol consumed per capita. It is this combination of heavy beer consumption, spirits and increasing wine consumption. Some say that part of it is tourist drinking, but we could see that during the Covid pandemic when there was almost no tourism it only decreased a little bit, so the vast majority is local drinking. We are on the top of the statistics, definitely.”
Is there any signal that the government may be open to the arguments that you are presenting?
“I think the majority of cabinet ministers agree with them. There are some parties which have some local incentives not to do it, of course there is a lot of lobbying against such changes, but I think the politicians should be rational and strong in their thinking. We now have huge problems with the state budget deficit and you cannot afford not to use ten or twelve billion crowns per year which you could get from taxing alcohol. We need the revenue, we need to increase taxes. Better to increase the tax on alcohol than to increase the tax on labour.”
And save on health costs at the same time.
“Yes, the arguments against a rational reform in taxing alcohol are not that strong. One strong argument is that you shouldn’t burden the small wineries with huge administrative costs, but I think that there are ways to do it with less administration, so we should solve that and go ahead with it.”