The German Aviation Tax, will it last ?

Germany is introducing in January 2011 an aviation tax (luftverkehrsabgabe). Germany is not the first nor will it probably be the last to introduce a Ticket Tax. Other countries abolished it recently. What are the chances for the German Ticket Tax ? First we walk along a number of countries with aviation tax experience. Then I come back with my expectation about the Luftverkehrsabgabe.


 

The UK introduced an APD (Air Passenger Duty Tax) back in 1994. The tax was gradually raised and differentiated towards distance. At this moment the tax is 11 Pounds for a short haul flight (< 2000 miles) and 55 Pounds for a long haul flight (>6000 miles). From November 2010 the rates will be lifted to 12 – 85 Pounds. Non-economy tickets pay the double.


France also has such a tax since July 2006, it is only 1 Euro inside Europe and 4 Euro outside the EU. The rate for non-economy is tenfold. The destination of the money is determined by law; the millennium target for poor countries (UNITAID). In France there is no opposition to the Taxe de Solidarité sur les billets d’avion worth mentioning.

Malta too introduced a Departure Tax of 23 Euro. One that did not apply to its own citizens. This was in contravention to EU rules however, so it was changed to 12 Euro for every outbound passenger. The Ticket Tax was cut in 2008.


The Danish had a ticket tax that was quickly withdrawn due to the adverse effects on the economy and the tourism sector in particular. The tax was repealed in 2007, mainly due to the syphoning of passengers to the Swedish airports Malmo and Goteborg. Curiously enough, the Swedish government attempted to get a Departure Tax through parliament in that same period (2006). The procedures followed the usual pattern: Ryanair threatens to leave, the tourism sector complains, the unions are against the proposal and a strike of the personnel on Goteborg and Malmo-airport looms. This puts the socialist Swedish government under heavy pressure. The socialists lose their majority at the elections and the new government shelves the Ticket Tax.


The Dutch government introduced a ticket tax in July 2008. It was sold as an eco-plan. Dutch air travelers made a much wider use of German and Belgian airports. The financial crisis deteriorated the economy, the tourist sector suffered. As part of a economic recovery plan the tax was abolished exactly one year after the introduction. After the Dutch, the deficit-burdened Belgian government came in October 2008 with proposals for a Ticket Tax. The plans were heavily attacked. The Ticket Tax never made it to parliament. Ireland followed in 2009 with a tax of 2 Euro for Intra-Ireland Flights and 10 Euro for European Flights. Ryanair withdrew airplanes from Irish Airports. The German government introduces a major overhaul of national finances in May 2010. A part of this Sparpaket is a ticket tax. It is also being sold as an eco-surcharge. After some initial skirmishes the proposal is 8 Euro for European flights, 25 for mid-range flight and 45 for the long haul. No taxes on Freight or Transfers.


The EU ponders levying taxes directly. Taxes on aviation, financial transactions and CO2 emission permits are all possibilities. The European Union has introduced legislation to include aviation in the EU emission trading scheme (Directive 2008/101/EC about EU ETS). From 2012/2013 airlines should pay for their CO2-emissions.


This short summary of the Ticket Tax in various European countries shows that there is a strong, permanent pressure from environmental and fiscal considerations to also subject the aviation sector to ‘normal’ taxes. This concerns VAT, which is not levied on tickets (this has been introduced on domestic flights in most countries). Furthermore there is the lack of excise duty on aviation fuel, which has been pushed to high levels for the most important mode of transport (car) and is an important source of state revenue.


The countries that have successfully introduced a lasting Ticket Tax are the UK, who have cautiously increased the tax-rate and who do not have to fear passengers voting with their feet by using the expensive channel tunnel. Ireland is looking to follow the same path, despite the severe consequences from Ryanair. France keeps their rates low, has a politically popular destination for the money set by law and their major airports have no significant competing alternative airports within a 2 hour radius. Additionally, at present the constant (fear of) passengers walking away to foreign airports has forced governments of adjacent countries to either cancel plans for a Ticket Tax or to repeal shortly after introduction. This brief history shows that the continental European countries that have attempted a Ticket Tax would have had more success if they had done so together. One wonders why there was no political coordination between the countries.


And the German Luftverkehrsabgabe, will it last ?


To my personal opinion there will be adverse effects for German aviation but it will bridge the time-gap to the ETS.


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