A Nasty Tax Hangover

For centuries, Sweden has been part of the "Vodka Belt," the arc of northern countries stretching from Russia to Norway where hard drinking is a part of everyday life. Thanks to a politically potent temperance movement that gathered strength in the early 1900s and still wields considerable influence today, Sweden has used punitively high taxes and restrictions on retail sales to force drinkers to cut back. Sweden now has the lowest alcohol consumption in Western Europe, and the lowest level of booze-related illness.

But earlier this month the European Commission forced Sweden to begin lowering one of its barriers to drinking and to rethink others, provoking an anguished debate in the country over whether the state should any longer seek to control behavior like drinking. It's one of those rare moments when residents of a European country can see the long arm of Brussels having an impact on their daily lives. Adding spice to the debate is the fact that the Swedish government is also the owner of Vin & Sprit, the company that produces Absolut, the world's second-best-selling brand of vodka. Absolut employs one of the glitziest and most successful advertising campaigns in the world of global consumer marketing except in Sweden where alcohol advertising is banned. Needless to say, charges of hypocrisy are flying.

So far the debate has swirled around the European Commission's order forcing Sweden on July 1 to begin lowering its restrictions on alcohol imports as part of the harmonization of customs regulations for the European Community. Previously Swedes arriving from overseas travel could import only one liter of spirits, five liters of wine and 15 liters of "strong beer." Under the new rules, which are being implemented in stages up to 2004, Swedes will eventually be able to import 10 liters of spirits, 90 liters of wine and 110 liters of beer per person. Thus, a couple living in southern Sweden will be able to drive across the new

resund Bridge linking Malm and Copenhagen and bring back a year's supply of drinks from Denmark or Germany, which have far lower taxes. "If Swedes had known that allowing more alcohol into the country was part of joining the European Union, they would have voted no on the referendum on joining," says Lars Enquist, Sweden's Health and Social Affairs Minister.

Sweden's chain of state-owned liquor stores, known as Systembolaget, has told the government that unless taxes are cut, the entire retailing network will be undermined by the lower prices in Denmark. "If they don't cut taxes to the Danish levels, black market sales of alcohol will increase," says Anitra Steen, managing director of the alcohol monopoly, who estimates that 25% of drinks currently come from illegal sources. "We have to choose between the lesser of two evils." Enquist says the government will propose a tax cut later this year that will cost the government an estimated $375 million annually.

Arrayed against the liberalization trend is a surprisingly strong coalition, including the ruling Social Democratic Party and health authorities, opposed to relaxing Sweden's alcohol restrictions. Politicians like to point out that 100 years ago, average alcohol consumption was 50 liters a year per person. Now it's just 6.8. About 10% of the population now accounts for half the alcohol consumption, meaning there is a small population of extremely hard-core drinkers out there. "These are people who don't drink for social reasons but drink to get intoxicated," says Enquist. Gunnar gren, head of the national institute of public health, says research shows that cutting taxes to the Danish level would cause between 500 and 1,000 additional deaths a year from alcohol-related illness such as cirrhosis. "We're at such a low level [of consumption] that we are the most vulnerable country in Europe to changes in the laws," gren says.

But a small group of politicians who advocate harmonizing with the rest of Europe argues that the opponents of the recent changes are missing the point. Leif Carlson, a member of the opposition Conservative Party, says the government has chosen to ignore academic research that shows cutting taxes would primarily shift consumers from illegal, bootleg alcohol to legally obtained drinks. "The government's attitude is patronizing and elitist," Carlson says. "We've created a real criminal problem. Most people want to be law-abiding but one doesn't worry about the law when the price gap is so large."

The government's proposed solution contains its own moral dilemma. By cutting taxes to meet the competition, the state-owned liquor stores will invariably be selling more alcohol. Still, it maintains that state-owned shops do a better job than supermarkets of screening out underage drinkers and those with alcohol problems. But with a 70-cl bottle of Absolut vodka currently retailing for the equivalent of $25, more than a few drinkers are likely to say Skl! in the direction of Brussels.