Yesterday was one of those “high drama” days in the EU Council, where Member States tried and ultimately failed to unanimously agree on a nicotine tax directive (and unanimously they must). Magdalena Kersey at Rapporteur called it “thrilling”. Not a word one often associates with meetings of EU finance ministers, but she wasn’t wrong.
Member States thought they had a deal on the EU’s plans for nicotine taxation this week after a so-called “room document” appeared to unlock Swedish support for the proposal. Stockholm had been appeased with a low rate of minimum rates for nicotine pouches: €20 per kilo, which is more or less what they charge now, and a deferral of any decision to increase that minimum later on. This was the kind of proposal that Sweden could and did accept.
Finland then shocked the room by refusing to accept that, saying in effect that they were sick of cheap snus flowing over the nearly 2,000km Swedish-Finnish border and they didn’t want a repeat performance with pouches. So the cameras went dark and Ministers started negotiating again.
A new compromise left no minimum rates at all on pouches, deferring all decisions on rates to another day but confirming the principle that they should be subject to tax floors set in Brussels. Apparently, that was acceptable to Finland. A strange world, this, where a zero minimum is acceptable to a country that had just said a €20 minimum was too low.
But Malta and Estonia came thundering up the middle. The small island nation of half a million and its Baltic co-conspirator objects to the core principle sitting behind the Commission’s proposal, that tobacco tax minimum rates be indexed to rates of inflation and converge according to a country’s purchasing power parity.
This provision was removed by the Irish Presidency in a last ditch effort to get the file over the line. Tallinn accepted, but Valetta did not.
The file will now go to the next Ministerial meeting in December, where most observers expect Malta to fold. “Although there was no agreement yesterday, I still consider Ecofin a success” one negotiator told me. “I am almost certain MT will break”.
For what it’s worth, I suspect my source is right. I also have a sneaking suspicion the whole thing could be a miscommunication on Malta’s part because, if I understand it right, they wanted indexation gone, indexation went, but they still opposed the agreement. When I told a longstanding Maltese friend what was going on, his first reaction was “what the f… have we done now?”
Assuming I’m right, this will sail through in December without any further debate and the net effect of it all will be:
Minimum taxes on combustibles: The minimum excise more than doubles, from €90 to €200 per 1,000 cigarettes: from €1.80 to €4.00 a pack, or 60% of the average price. The minimum for roll your own rises from €60 to €180 per kg, and from 50% to 60% of the average price. Per cigarette it stays well below factory-made cigarettes, largely thanks to Spanish hypocrisy.
Vapes thrown under the bus. Unlike heated tobacco products and nicotine pouches, which are protected by Italy and Sweden respectively, vapers didn’t have any country willing to step in and defend them. This is somewhat odd, given that they’re the most used safer product in the market, but vapers were thrown under the bus in order to protect heated products and pouches. The minimum is €0.36 per ml (€3.60 per 10ml bottle) or 30% of the price, whatever the nicotine strength, including zero nicotine. It’s difficult to make direct comparisons, but this is significantly higher per “serving” as it were, than any other noncombustible category.
Pouches are recognised but not taxed. This has some interesting ramifications. Now they’re recognised as a taxable product in EU law, some Member States that have banned them may now decide to legalise and tax them, which would be an entirely sensible decision. We’ve already seen the beginning of such moves in Belgium and Germany. If this were a game of football, pouches were “man of the match”,
Heated tobacco gets a significant reprieve. It is at 55% of the price, or €80 per 1,000 sticks (€1.60 a pack of 20), or €240/kg. That is about 40% of the cigarette floor. Products that fit two categories default to heated tobacco.
So, unless you’re a vaper, you probably had one or more Member States fighting your corner. While the tax on safer products is far too high, the EU has recognised (tacitly if not explicitly) that there are safer products and that these should be taxed less. Someone should probably tell the Health Commissioner.
The usual suspects have been out there blaming the industry for yesterday’s failure. Simon Harris, the Irish finance Minister who chaired the meeting, said ““no deal is a victory for the tobacco industry and a danger for young people right across the European Union.”
Actually, most of the industry sources I spoke to yesterday wanted to get this whole thing approved and over with. Those left opposing it are the pro harm reduction wing of the public health “establishment” and nicotine users themselves.
On that basis, it’ll probably go through “on the nod”, as they say, in December.
Is this a good thing? Not particularly. In any sane world combustible products (you know, the ones that kill you) would be taxed into oblivion and the safer products given tax benefits. But alas, we do not live in a sane world, with Irish finance Minister calling vapes and pouches a public health emergency, almost totally ignoring cigarettes. And given how upside down nicotine policy is, the deal on the table is probably the least bad outcome one could hope for.