Is it time to tax aviation fuel?
Tax is paid to Government on every drop of fuel that powers cars, buses, boats and trains. Yet bizarrely, aviation fuel remains tax free. In this weeks column, we examine if anything is likely to change in the years ahead.
The Flying Boom
Historically it was argued that Europe needed to encourage integration of member states after the carnage of two world wars. One way to achieve this was to remove taxes on aviation fuel to encourage trade and travel to prosper. This “golden age” of flight gave Europeans relatively low-cost air travel. It enabled (and still enables) employment mobility as workers move to where labour is in demand. Industry has flourished, none more so perhaps than tourism. Nations in Europe’s sunny south enjoy a year round influx of heat seekers from the cooler climes of Northern Europe. Ireland also hosts many international visitors.
Growth in Pollution
On the downside aviation is now responsible for 3% of the EU’s total greenhouse gas emissions. On a planetary level it is one of the fastest-growing sources of greenhouse gas emissions. The WWF say that if the aviation sector were a country, it would be one of the top 10 carbon-polluting nations on the planet. The numbers are staggering: in 2010, airlines carried a whopping 2.4 billion passengers with the figure expected to rise sharply in coming decades. However now a varied range of interest groups such as environmentalists and lobbyist are questioning the legitimacy of this special treatment. They say that when it comes to airlines, the polluter must pay principle is being ignored.
Firstly the environmentalists: they feel that for the COVID recovery to be truly green, all polluting sectors of the economy must contribute, sooner rather than later. They acknowledge that aircraft manufacturers have invested heavily to make their planes more efficient but the basic fact remains: flying creates pollution, just as all other means of transport do. Therefore it must be treated the same and pay a tax on fuel used. Indeed environmentalists are disappointed that tens of billions in aid was handed out to airlines during the pandemic without any movement on the pollution the industry creates. They say this was a missed opportunity.
Similarly the lobbyists representing train and bus operators feel it’s time for change: train and bus operators compete directly with airlines for the same custom. They say it’s not about penalising airlines, just making them compete on a level playing field. They say all travel sectors are suffering because of COVID so airlines shouldn’t expect special treatment. The airlines industry think that synthetic fuels could be much cleaner and wan’t time and space to get these working. Critics say synthetic fuels can’t change the basic issue and that ultimately a tax is needed. The air pollution caused by aviation is also a major contributor to health issues which groups representing public health say can’t be ignored.
Public finances are also being squeezed ever tighter and Finance Ministers across Europe are seeking ways of increasing their coffers. They too are beginning to see the merit in taxing aviation fuel on a pan European basis. Politicians realise that a balancing act is required. On the one hand, taxing aviation fuel on flights to Malaga for a couple with four kids (who only travel once a year) won’t be popular. However on the other hand, why should a person who never flies subsidize the frequent flyer through an effective tax rebate? Another aspect for consideration are flights to the islands and remote areas where alternative travel infrastructure isn’t in place: an ability to fly cost effectively to these locations is important to protect these populations.
How much tax?
So how much tax are we talking about? Well, if there were 33 cents added for every litre of kerosene used in flight (which is the minimum a road user would pay), it would add about €15 to the price of a budget airline flight across Europe. However renowned Irish economist Colm McCathy reckoned that by also adding VAT on tickets that fares on a flight costing €100 could increase by €30. Currently no VAT is charged by EU countries on airline tickets. McCarthy also predicts that it could take 10 years for a plan to be agreed across Europe.
Can change happen without taxes?
Greta Thunberg famously sailed across the Atlantic to minimise her pollution but it’s not only the famous who are acting. Even before COVID, many people were voluntarily deciding to fly less or opting for “stay at home holidays”, simply to avoid air pollution. Surveys show that 23% of Swedes avoided flying in 2018 primarily because of environmental concerns, a figure that is rising year on year. Since COVID many businesses have seen that online meetings can successfully replace traveling. Weary jet setting employees will likely be glad to avoid endless flights and it also reduces travel expenses. So demand from some sectors is likely to fall. Another trend is that of “flight shaming” where travelers find themselves scorned by certain sectors for hedonistic travel by air. Politico an American magazine report that flying is no longer seen as “glamourous, but as scandalous”.
Polluter Must Pay
Opinion polls and public surveys show a growing appetite for measures to reduce aviation pollution – 3 in 5 think emissions reduction need to be priority. However realists predict that not enough customers will vote with their feet and that ultimately tax will be needed. Time will tell. Meanwhile, and for as long as COVID restrictions last, a trip to Bundoran or Ballybunion might be as foreign as it gets.