WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

image credit: European Parliament

By Kristijan Fidanovski

On 16 April, wiiw Economist Kristijan Fidanovski and Senior Associate Hana Ross addressed the European Parliament’s Subcommittee on Tax Matters (FISC), presenting findings from our recently published study on proposed EU tobacco taxation reform, co-authored with the Vienna University of Economics and Business (Wirtschaftsuniversität Wien – WU).

Among other things, the study finds that a strengthened Tobacco Taxation Directive (TTD) would raise – or, in some cases, introduce – EU minimum excise rates for cigarettes, roll-your-own tobacco, heated tobacco products and e-cigarettes. This would result in higher prices, narrower price differentials between countries, reduced consumption, increased government revenues and lower premature mortality.

Central and Eastern European countries, where current excise rates are generally lower, stand to benefit the most. Our study focuses primarily on Bulgaria, Czechia, France, Italy, Poland, Portugal, Romania, Poland, Portugal, Slovakia and Spain. Across the EU, timely and undiluted implementation, alongside effective indexation, will be critical to maximising both fiscal and public health gains.

image credit: European Parliament

The EP hearing was chaired by MEP Pasquale Tridico and attended by MEPs from across the political spectrum. Six parliamentarians, including the EP Rapporteur on the new TTD, MEP Tomas Kubin, posed questions to our researchers. These questions focused on the potential impacts on cross-border purchases, inflation and illicit trade while also probing the study’s methodology and the feasibility of simultaneously achieving both fiscal and public health gains. In their responses, our researchers highlighted expected reductions in cross-border purchases and improved coherence of the EU internal market as key benefits of the reform. They also anticipate limited impacts on inflation and illicit trade, the latter of which tends to be more sensitive to non-price policies.

Overall, both the EP presentation and the study recommend timely and undiluted implementation of the revised TTD, supported by effective indexation to guard against future erosion from income and price shocks, which could otherwise make tobacco and nicotine products more affordable again. Finally, the simulated fiscal and health benefits of the new TTD are relevant to all eight Central and Eastern European countries in wiiw’s Health Economics and Policy Analysis (HEPA) tobacco tax portfolio – either through direct gains from potential adoption (for the three EU member states) or as an indirect impetus for future excise reform (for the five non-EU countries).

The study is available here, alongside a two-page summary.

A recording of the full European Parliament hearing is available here.