Taxes that won’t fly

European governments are competing with themselves to introduce the most absurd taxes on airline passengers. They say it's all to fund worthy causes that everyone supports. But these new taxes will hurt the very things they're supposed to help, says Giovanni Bisignani, director-general and CEO of the International Air Transport Association.

Two in particular could come into force this summer: a Swedish tax purportedly to improve the environment and a French tax to fund aid for developing countries.

The French tax will supposedly raise €210 million (about $252.3 million) annually for developing countries. But Bisignani points out that increased taxes could negate positive impacts air transport makes on an economy, including:

A 1.1 per cent increase in a country's gross domestic product (GDP) for every 10 per cent increase in air transport, according to Oxford Economics Forecasting.

The nearly 500,000 jobs and $26 billion in economic output in Africa alone.

Lower fares that help attract more tourism

The Swedish tax, on the other hand, attempts to discourage air travel in order to reduce emissions. But as Bisignani notes, blaming environmental problems on air transport is unfair considering:

Air transport supports 8 per cent of the global economy but contributes only 3 per cent of carbon emissions.

Fuel efficiency improved by 3.4 per cent in 2004 despite an inefficient European air traffic control system causing delays and longer routes.

Aircraft today burn only 3.5 liters of fuel per 100 passenger kilometers.

It is unfortunate that governments today see air transport as a profit centre rather than a vehicle of economic growth, says Bisignani. It is hard to imagine a competitive Europe in which the transport of people and goods is a constant victim of political posturing.

Source: Giovanni Bisignani, Taxes That Won't Fly, Wall Street Journal, March 1, 2006

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FMF Policy Bulletin/ 14 March 2006