Relaxing beer excise tax policy to encourage economic growth

This conclusion was made by experts of the Gaidar Institute for Economic Policy, who assessed the results of public regulation impact on the brewing products market.

The presentation of the foregoing research was made on January 15 at a panel discussion, The Issues and Outlooks in the Development of Brewing Industry in Russia, which was held as part of the Gaidar Forum 2015 in Moscow.

The research was intended to assess the impact of the recently adopted beer regulations on the public health data and the economy, as well as analyze possible scenarios of the development of Russia's brewing industry until 2020.

The alcohol-related death rate has dropped by 56% while alcohol consumption has decreased 18% over the past decade. However, a statistical analysis shows that there is no relationships between beer consumption and alcohol-related death rate and other public health data. The period of 2003-2007 saw a most substantial decline in deleterious consequences of alcohol consumption, when hard liquor consumption was declining as beer consumption was growing. Therefore, the tightening of beer regulations failed to improve the public health record.
The results of independent clinical research show that beer is the least harmful alcoholic beverage compared to other types of such beverages. Despite this fact, it is Russia's beer market that has been subject since 2010 to a series of strictly restrictive policies, including the ban on beer advertising, the restriction on sales, and increase in the beer excise tax. As a result, the system of regulation and taxation of Russia's brewing industry appears to be one of the most restricting in Europe.

Russia's beer excise tax policy has made beer price 1.5 times the price of hard liquors (calculated as alcohol percentage). Such a ratio of excises prevents from compensating for the difference in the production cost of beer and hard liquors, nor does it allow the ratio in consumption of beer and hard liquors to be changed to mitigate an adverse impact on the public health.
The currently applicable beer regulation and excise tax policy have already entailed losses in the economy equal to 61,000 job cuts and a Rb 59bn decline in GDP, and beer consumption dropped by 2,3bn liters in the period between 2009 and 2012.

A research, Measuring the Impact of Public Regulation on the Beer Market, included among other methods a correlation/regression analysis. To measure the economic effect, interviews with industry-specific experts were held, Leontief's inter-industry balance tables were used. The research was based on the open data published by the Federal State Statistics Service (Rosstat), Euromonitor, WHO.

The resulting estimates show that neither the adopted policies, nor the Russian Government's current plan as part of the Concept of Implementation of the State Policy of Reducing the Scale of Alcohol Abuse and Preventing Alcohol Addiction in the Russian Federation until 2020 will have a positive effect on the public health and the national economy.

The discussants at the panel discussion underlined that relaxation of the regulations of the beer market can save 15,000 lives and increase GDP by Rb 271bn (at the 2013 values) in the period until 2020.

The following steps are viewed as reasonable for the purpose of stabilizing the situation in the alcohol market and enhance the competitiveness of legally produced alcoholic beverages:
- make alternative approaches to the regulation of the brewing industry, e.g. such as introducing a special regulation of the production and turnover of beer and beer-based beverages which is not supposed to cover other types of alcoholic beverages, in order to prevent further adverse effect on the economy and economic growth recovery.

- introduce "legislative holidays", i.e. impose a temporal suspension, at least until January 1, 2017, of the development and coming-into-force of new legislative initiatives which are intended to tighten the regulation of the brewing industry and related sectors.

- impose a ban on the coming into force and a respective delay of the coming into force of federal laws for as long as all the related by-laws are fully developed taking account of the opinion of industry's operators and the results of a public discussion and the regulation impact assessment.

- initiate and conduct a revision of the previously adopted laws and regulations as part of the procedure for post-evaluation of the regulatory impact (which also includes lifting the ban on selling beer and beer-based beverages at non-stationary points of sale).

- reduce the excise rate for beer and beer-based beverages with 4.5% ethanol in a final product for the purpose of stimulating the consumption of beer with less ethanol content.

The discussants at the panel discussion, The Issues and Outlooks of the Development in the Brewing Industry in Russia, which, besides brewers, was attended by representatives of The Gaidar Institute for Economic Policy, the Ministry of Economic Development and the Ministry of Finance consider it necessary to inform the core government authorities at the federal and regional levels of the research results and the proposed measures aimed at addressing the available issues, as well as to establish a working group under the auspices of the Government Commission for the Enhancement of Competitiveness and Regulation of the Alcohol Market with the participation of representatives of the concerned ministries and government agencies directed by the Minister of Economic Development of Russia for the development and implementation of the proposed measures.