Chirac’s flight tax ready for take-off

By David Cronin

Date: 02/06/05

When Jacques Chirac touted the idea of levying a tax on air travel to raise money for development aid during January's World Economic Forum, many commentators suspected he had an ulterior motive. The French president's intention, they alleged, was to upstage Tony Blair, who also sought to champion Africa's power at the Davos gathering.

Nonetheless, EU finance ministers look set to back the tax idea next week (7 June).

A major topic on the agenda for their Luxembourg meeting is how the EU can deliver on commitments by its member states to boost substantially the amount of money given to developing countries. The discussions are in preparation for the UN general assembly in September, where progress on reaching the Millennium Development Goals of drastically reducing the most extreme forms of poverty in the world by 2015 will be assessed.

It appears almost certain that the air travel tax will be a voluntary measure, although Belgium, France and Germany have undertaken to make it compulsory. Jean-Claude Juncker, the Luxembourg prime minister and current holder of the EU presidency, has said he is endeavouring to persuade others to do likewise.

But several other member states have made clear they are opposed to a compulsory tax and will instead leave it up to customers to decide if they wish to pay it, when booking a flight. Spain, Portugal, Malta and Cyprus are perturbed that higher airfares could have adverse consequences for their tourist industries. Ireland, home to no-frills airline Ryanair, has concerns that a mandatory levy could harm budget travel. And Austrian Finance Minister Karl-Heinz Grasser has complained that the tax burden on consumers is already too high.

The amount which would be levied is still under discussion but EU insiders think an agreement on introducing a symbolic payment of €1 to €5 per airline ticket is probable.

The European Commission has, however, broached the idea of a €10 levy on intra-EU flights and €30 on flights beyond the Union's borders. It estimates that such a tax could raise €6 billion each year.

The Dutch Finance Minister Gerrit Zalm has told European Voice he would prefer a binding tax but that this suggestion is "more or less a dead horse".

In fact, the Netherlands wants to go even further by also having an EU-wide tax on kerosene, the air travel fuel which accounts for a large share of greenhouse gas emissions. Like Japan, the Dutch have already introduced such a tax at national level.

An EU-wide kerosene tax is considered unattainable at this stage but some diplomats predict the Dutch will work to have it considered later this year. The Commission has calculated that an EU tax of €330 per tonne of kerosene would also generate €6-7 billion annually.

Gordon Brown, the UK's finance minister, has been one of the most vocal advocates of innovative approaches to increasing development aid. Yet his favoured method of doing so is through an international finance facility (IFF), whereby pledges to increase aid would be used as collateral for bonds on the world's capital markets.

A pilot scheme for using the facility for research on an AIDS vaccine has been agreed and the UK is canvassing other top industrialised countries for their support ahead of July's Group of Eight (G8) summit in Gleneagles, Scotland. The US, though, has said that its budgetary rules preclude its involvement.

A British official questioned whether the air travel tax would win international acceptance. "We don't think the Americans are keen on the IFF but they are even less keen on an airline tax," he said.

Oxfam is backing the air travel tax but wants it to be mandatory. "There would not be much objection to this from the public but politicians are lacking the will and guts to go for it," says spokesman Louis Belanger.

Some anti-poverty advocates insist that the tax must be in addition to raising aid from national coffers so that EU governments finally meet a 35-year target of donating at least 0.7% of gross domestic product (GDP) to poor countries. "New excuses might encourage some member states not to do what they are supposed to do," said Claire Terlinden of ActionAid.

The airline industry argues that the tax runs counter to the EU's goal of becoming more competitive. "Some seem to think that we are under-taxed but we would say the opposite," said David Henderson from the Association of European Airlines (AEA).

"The overwhelming response from the AEA Assembly recently was 'why on earth us'?" he added. "We transport ten million people to and from Africa, tourists and businessmen, who employ people and contribute to the economy. Our contribution in spending in Africa is equivalent to the GDP of some of the smaller countries."

Anticipation of discussions at the EU's Economic and Financial Affairs Council meeting on 7 June 2005 on the introduction of an EU-wide tax on flights to raise money for development aid.