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Political Suicide? In Poland New Taxes Raise Prices on Alcohol, Tobacco and Sugary Drinks

Before the Christmas break, Poland's government passed changes to excise tax laws that will make alcohol, cigarettes and sugary drinks all more expensive. Such moves are usually unpopular, but this government – led by the Law and Justice (PiS) party – has a strong mandate and its supporters seem unfazed, if not completely oblivious. Though PiS has become notorious for pushing unconstitutional and unnecessary legislation, this particular move is completely rational. These new tax hikes make the most sense within a welfare state where the national health service serves the vast majority of the population. Widespread benefits can be had from discouraging unhealthy behavior, garnering more revenue from substances that are harmful to people, and hopefully ending up with a healthier (and therefore less costly) populace.


Let's start with the big picture: Economists and political scientists assume rationality in everything, including tax policy. Public choice economics presented this relationship as a competition between state and society, in which the state attempts to squeeze as much money as it can out of society (e.g. Brennan and Buchanan, The Power to Tax). The levers of rationality shift if we introduce new factors. Let's say for example that the government will benefit from higher levels of economic growth, then tax policy should shift to meet this goal. If we take the neo-liberal perspective, that could mean lower corporate taxes, low taxes on capital investment gains, and so on. Of course, with vastly different ideological slants, it could mean anything deemed to be beneficial at a given time for a particular ruling group. So rationality in this case is relative at best.


However, this is not true of all "rational" factors affecting tax policy. In this case, Poland's new higher taxes on alcohol (tobacco and sugar drinks) present a clear rational, if not also moral, choice. In advanced (especially European) countries the existence of a national health service elevates the population's health and well-being to the order of a public good. We can contrast this situation with that of the United States, where there are few direct relationships between the overall budget of local, state and federal governments and the health of citizens. American governments, left to their own devices, have a mandate to protect private property, but not human life. In the US, privately funded advocate groups need to make direct appeals in order to ensure that voters are conscious of elements of public policy that affect their health and safety.



Private orgs in the US promote taxing sugary drinks because "healthcare savings" will be for individuals paying for insurance, not the government.

However, in countries where the state apparatus handles much of the healthcare, there is clear rational incentive for the population to be healthy. Why? Because healthy people cost less than sick people. It's as simple as that. Surprisingly though, there are few countries where efforts are made to address the legal vices that cause the most harm. And no, I haven't forgotten about tobacco. Of course, there have been strong moves over the past 25 years to address tobacco addiction, to make smoking more expensive, to stigmatize smoking and to push smokers out of restaurants and bars. This is all well and good, but sugar and alcohol do more harm to more people than cigarettes.


The Economist magazine published an article in June 2019 that uses British data to make the point that legislation on harmful substances does not correlate to the harm that they do to the health of individual users and society. Alcohol policy around the world is a prime example of this disconnect, since it is by far the most harmful drug, but is also one of the least regulated. In some countries (Poland included) alcoholic drinks are available 24/7 in convenience stores and gas stations. The social and health costs of alcohol, though well known, are rarely acknowledged and even more rarely have an effect on overall consumption. A report published in 2013 estimated the yearly costs of sickness related to alcohol in Poland at around 15 billion Polish złoty ($4 billion USD) or ~20% of the national health service's overall budget.

Source: https://www.economist.com/graphic-detail/2019/06/25/what-is-the-most-dangerous-drug

For all these reasons, Poland's new higher taxes on alcohol, tobacco, and sugary drinks make a lot of sense. The clear signal to the society is to consume those products less or stop entirely. Libertarians and some free market conservatives will deride such moves as putting the finger of government on the scales of the economy. People should, they would argue, be able to make their own choices without the voice of the "nanny state" telling them what's good and what's bad. In response I would argue that allowing people to make bad choices only make sense when the harm done can be limited to the individual making the bad choice. For the most part, this is not how things work, since each of us individually is interconnected into families, communities and societies. If you live in a country with national healthcare, then your choices affect everyone else around you. A word about Poland's healthcare is important for context here.


Poland's national health service is regularly ranked as one of the worst in Europe. The European Health Consumer Index (ECHI) for 2018 put Poland at 32 out of 35 countries ranked. Polish citizens wait longer for care, don't have access to lifesaving drugs, have fewer specialists, have worse outcomes, and generally receive lower quality care than in other European counties. Only Hungary, Romania and Albania scored worse.



Poland's healthcare system is in bad need of reform, and unfortunately the current PiS government does not seem serious about making any positive changes. That said, part of the success of any national health organization is prevention. In this case, the tax hike is an attempt to prevent a whole host of problems that public insurance, and ultimately the citizens themselves, will pay for. New studies show, at least in the American context, that higher taxes on alcohol actually work. The Journal of Studies on Alcohol and Drugs published a review of recent scientific research coming to a consensus that excise taxes are actually the most cost-effective way to reduce the harm created by alcohol use and abuse. Unlike advertising campaigns that may fall on deaf ears or expensive counseling programs, increased taxes on alcohol bring money in, and they can actually change bad behavior.


What will these new taxes look like?

The excise taxes on alcohol and tobacco have been increased by 10%. That does not mean that all prices paid at the store will go up by 10%, just that the excise has been raised by that amount, plus whatever the store is charging for the product. Price increases will be as follows:


0.5 liter of vodka - 1.40 zł

bottle of beer - 0.06 zł

bottle of wine - 0.15 zł

pack of 20 cigarettes - 1.02 zł

50 grams of rolling tobacco - 1.69 zł

100 gram of e-cigarette oil - 3.38 zł


In total, the government expects a boost to the national budget totaling 17 billion złoty ($4.46 billion USD). This is a relatively modest boost, amounting to about 0.4% of the national budget each year. But of course, if this change can bring better health outcomes, then the savings could be enormous.


Alcohol is an important part of the economy and culture of Poland. Despite objections from industry groups and lobbyists, PiS has gone ahead and approved this tax change. They even passed this legislation without the customary "societal consultation." It is obvious that the government does not wish to talk openly about something that would be undoubtedly unpopular if it were more widely known. But ultimately this is a move in the right direction. Taxes can and should be used to induce better social outcomes.

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