Breen raises the unfairness of the €10 Air Travel Tax for Shannon Airport during the Adjournment Debate.

November 6th, 2008 - Pat Breen

I welcome the opportunity to raise this very important issue.  Since the Minister for Finance’s call to patriotic duty, proposals contained in his budget have been unravelling one by one.  Last week we witnessed the grey revolution, today we witnessed the teachers’ revolution and the farmers’ revolution is on the way.  The ramifications of an ill thought out budget are coming home to roost. 

  Another of the Government’s pie in the sky proposals is the introduction of a €10 air travel tax for all departing passengers from Irish airports.  It is estimated that this taxation measure will raise €150 million in a full year.  However, like other budget proposals, no thought was put into the implementation of this levy.  The structure of the proposed tax discriminates against airports outside of Dublin.  It does not take a rocket scientist to figure out that passengers departing from Shannon, Cork or Knock Airports will have to travel a greater distance to the UK than those passengers flying from Dublin Airport.  However, as we all know, when aviation policy is being decided by the Department of Transport, Shannon Airport is not on the radar.  Furthermore, the Government jet is not subject to this tax.

  The measure is being implemented as a blunt instrument, in an unfair and inequitable fashion which is not acceptable, particularly at a time when Shannon Airport is already in the spotlight over proposals by Aer Lingus to shed 280 jobs and the tourism industry in the region is in free fall following the axing of the Shannon to Heathrow service.  It is baffling as to why Shannon Airport is now expected to take a further hit.

  The proposed tax has also placed a cloud over the retention of some of Ryanair’s current routes at the airport.  This week, Ryanair announced that the tax will reduce passenger numbers from 2 million to 700,000 if imposed in its current format.  While Ryanair’s motives may have more to do with the fact that its contract at Shannon Airport is up for negotiation in the next 18 months, the fact is that the tax is anti-competitive and must be reviewed.

  Ten UK destinations are serviced from Shannon Airport by Ryanair.  Approximately 302,000 passengers travelled from Shannon to London in the first six months of this year, a drop of 16% on the same period last year, while a further 254,000 passengers travelled to UK provincial destinations from Shannon during the same period.  In comparison, 6.5 million passengers used Dublin Airport to travel to and from various airports in the UK.  The majority of these passengers will now only have to pay €2, while passengers who depart from Shannon and other regional airports will have to pay €10.  There is no logic to this from an economic or regional development point of view.  While it is unfair for Ryanair to hold Shannon Airport to ransom in this fashion, it is particularly unfair to the travelling public who have to vote with their feet and travel from Dublin Airport. 

  This tax must be altered and I support the suggestion of my colleague, Deputy Michael Noonan, that if the Minister is insisting on introducing this tax, it should be a 300 km coastline tax.  Travel to UK destinations from any airport in Ireland should be treated in the same fashion.  In other words, the tax should only apply once the flight leaves the Irish coastline.  Others have suggested the introduction of a flat rate tax but that would be detrimental to the development of long-haul travel.

   I urge the Minister to review the tax.  Dublin Airport already has an unfair advantage.  There should be a level playing pitch at all airports.  Our tourism sector is in free fall and for the sake of the west of Ireland, I urge the Minister to rethink this proposal.

 

  Minister of State at the Department of Finance (Deputy Martin Mansergh): I am pleased to take this opportunity to clarify matters relating to the introduction of an air travel tax that the Minister for Finance announced in the budget, which will come into force for passengers departing Irish airports on and from 30 March 2009.  The Minister for Finance has answered Parliamentary Questions on this issue as recently as today.

  As has been stated previously, the general rate it is proposed to apply will be €10 per passenger, with a lower rate of €2 for shorter air journeys, that is, those not in excess of 300 kilometres.  The Minister decided that a relatively short air journey should attract a lower charge.  It is not unusual for the price of fares for longer journeys to be higher than those for shorter journeys and the tax reflects that position.  The Minister was also conscious that the tax would apply to both the outward and return journey in respect of domestic flights.  In addition, the Minister was cognisant of the greater competition that exists from other forms of travel for that sector, relative to longer flights.

  Ireland is not unique in applying a tax on air travel.  Many countries within the EU and worldwide apply similar taxes.  For example, our nearest neighbour, the UK, has applied a similar tax for over twenty years.  The UK applies an air passenger duty of £10 or €12.65 for a standard ticket for any destination in the UK or Europe.  For all other destinations the rate is £20 or €25.30.  Both these rates double for tickets other than economy class.  A new Dutch aviation tax entered into force in July this year.  The tax is charged at €11.50 for EU destinations and €45 for other destinations. In France civil aviation tax is charged at approximately €4 for EU destinations and €7 for other destinations.  The Belgian government recently announced its intention to introduce an air travel tax, however the details are not yet available.  Further field, Australia and New Zealand, which like Ireland are very dependent on air travel, also apply departure taxes.  The proposed rates for the Irish air travel tax are not unreasonable both for shorter and longer journeys, when compared to rates in other countries.

 

   Deputy Kieran O’Donnell: Passengers are still at a disadvantage.

 

   Deputy Martin Mansergh: A person travelling within the UK, for example, will be liable to pay the UK air passenger duty of £10 or €12.65 on each leg of the journey, i.e. a passenger departing from Manchester to London will be subject to the £10 tax and on the return journey departing from London to Manchester that passenger will also be subject to the £10 tax, giving a total tax liability of £20 or approximately €25.  In Ireland, a person travelling within the State will be liable to pay €2 in tax on each leg of the journey, giving a total tax liability of €4.  Furthermore, both the UK and Dutch rates in respect of longer flights are more than two and four times higher respectively than the Irish rate.

  The Government acknowledges that low cost travel has been good for Ireland.  The pioneers in this area deserve to be commended.  However, we must, in analysing the new tax, not overplay its impact.  For the purpose of illustration, at present a fare from Shannon to London Stansted airport that is initially presented as €10 with a similar €10 return fare will actually cost a passenger €85 when all charges are included.  This assumes no luggage is checked in, which would cost more.  Included in the €85 is a €5 credit card handling fee per flight segment.  This latter practice has been the subject of much criticism by consumer bodies.  Assuming fares remained the same the price of this trip would raise to €95 on foot of the new tax.

  A person flying from London Stansted airport to Shannon, or indeed from any airport in the UK to Ireland, is already paying, through the airlines, £10 or €12.65 in air passenger duty to the UK Exchequer.  Airlines do not appear to have any difficulty in applying the UK air passenger duty.

 

   Deputy Pat Breen: What about the Dublin to Liverpool route?  The Minister of State is being selective.

 

   Deputy Martin Mansergh: I am not aware of any airline that has threatened to pull out of the airports at London Stansted, Manchester or Birmingham because of the UK tax.  I do not believe those threats should be applied to Irish airports when a more modest charge is applied. Deputy Martin Mansergh: I am not convinced that the new tax would have a dramatic effect on passenger levels and the suggestion by some that the tax would see fares double for prospective passengers does not present the full picture.  In any event, for visitors to Ireland the price of travelling to and from Ireland is only one of the costs they will consider before choosing their holiday destination.  General Price levels and the availability of reasonably priced quality accommodation will be just as important.  I see no competitive displacement.  No one who would otherwise use the airports at Cork or Shannon will go to Dublin to save €8.  That argument does not stand up.

Deputy Martin Mansergh: The recent spate of failures in the airline sector was the result of the sizable spike in oil prices.  Price pressures are now subsiding and fuel costs, which had increased to as much as 50% of some airlines’ cost base, are falling dramatically.  Airlines benefit from an international tax exemption on jet fuel.  The extent of this benefit is illustrated by the fact that tax as a percentage of the price of litre of petrol is up to 60%.

  The new tax is estimated to yield some €95 million in 2009 and €150 million in a full year.  In the context of the difficult fiscal position the Government now faces, this measure is necessary, not unreasonable and fully justifiable.