Aviation most obvious sector for environmental tax shift – away from taxation of labour. T&E blog

Date added: 23 March, 2015

In a recent blog, Andrew Murphy from the NGO, T&E (Transport & Environment) writes about how ending the generous tax exemptions aviation enjoys would create a level playing field between all transport modes.  It would also help meet our 2030 climate targets, and answer the EU’s call for a shift away from labour taxation.  The European Commission has highlighted the need for a shift away from high labour taxation and towards environmental and consumption charges instead. That would be an effective way to boost employment, but little has been done on this during the past year. The OECD reported last year that European countries have some of the highest taxes on labour. In looking for concrete ideas for an environmental tax shift, aviation is the most obvious source. It is less carbon efficient than other forms of transport and within the EU is it expected to grow almost twice as fast as its lower-carbon competitor, rail.  Despite this, aviation receives some of the most favourable tax treatment of any industry.  In the EU it pays no VAT and no fuel duty, and these exemptions add up to almost €40 billion every year – meaning member states are missing out on labour tax cuts that might be able to create 400,000 jobs.
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Aviation most obvious sector for environmental tax shift

19.3.2015

By Andrew Murphy (aviation policy officer at Transport & Environment)

Ending the generous tax exemptions aviation enjoys would create a level playing field between all transport modes, help meet our 2030 climate targets, and answer the EU’s call for a shift away from labour taxation.

The Commission’s country-specific recommendations in its European Semester report last month highlighted the need for a shift away from high labour taxation and towards environmental and consumption charges. As a means of creating employment, the recommendation is a no-brainer, however precious little progress has been made since the Commission made the exact same recommendation last year.

The problem of high labour taxation is a distinctly European one. The OECD 2014 report on taxation as a percentage of labour costs finds that EU member states occupy the 14 top spots, with Belgium heading the table with taxation accounting for 55.8% of average labour costs.

As the EU struggles to bring down its high unemployment rate of 10%, a tax-shift offers one of the most effective means of both creating employment and achieving our long-stated environmental goals. One rough rule of thumb is that for every €1 billion in labour tax reductions, 10,000 jobs can be created.

In looking for concrete ideas for an environmental tax shift, aviation is the most obvious source. It is 10 times more carbon intensive than other forms of transport and within the EU is it expected to grow almost twice as fast as its lower-carbon competitor, rail.

Despite this, aviation receives some of the most favourable tax treatment of any industry. Due to EU rules, it is exempt from both VAT and fuel duty; exemptions not afforded to other transport modes. These exemptions add up to €40 billion every year – meaning member states are missing out on labour tax cuts that could create 400,000 jobs.

Ending these exemptions would create a level playing field between all modes of transport, help the EU meet its 2030 climate targets and provide a reliable basis for a shift away from labour taxation. Few policies can be said to achieve so many different objectives.

These exemptions originate not at member state level, but in complex and unworkable EU legislation in the fields of VAT and fuel duty.

So rather than reprimand member states once a year for failing to act, the Commission should propose amendments to these laws that will allow countries to introduce job-creating environmental taxes.

http://transportenvironment.blogactiv.eu/2015/03/19/aviation-most-obvious-sector-for-environmental-tax-shift/

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Earlier:

Does aviation pay its way?

July 24, 2013 (Transport & Environment)

In these times of austerity, deficit budgets of European governments are missing out on almost €40bn a year due to a lack of basic taxes on aviation. This briefing explains a new study that looks at revenue that EU Member States could receive if fuel tax and VAT were imposed on aviation, as on road transport.

Download:

 

The briefing, “Does Aviation Pay its Way?” concludes by saying:

The lack of fuel tax and VAT income means that in total EU governments (and therefore its citizens) are missing some €39.1bn a year in tax revenues –this works out to almost €80 for every man, woman and child across the EU. More importantly, the shortfall must be made up in other taxes. Other than VAT, the greatest source of government revenues in the EU is labour taxes. Rather than raising labour taxes to fund the aviation subsidies, lowering them could create 11,000 jobs for every €1bn in lower labour taxes. 6 Subsidising the aviation industry this way in a time of economic crisis and austerity with youth unemployment rates soaring to unprecedented levels is obscene and senseless. Moreover, many of the carriers benefiting are based in foreign countries so we are subsidising travellers and companies outside the EU.

 

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The CE Delft paper concludes:

Conclusion.

If the EU decided to introduce VAT on air travel in all countries or fuel taxation in the aviation sector, it would raise tax revenues of billions of Euros per year:

 Assuming an average 20% VAT and an abolishment of other aviation taxes, additional revenues are estimated to be € 7.1 billion.

 Assuming a fuel tax of € 330-530 per m3 , revenue estimates amount € 20 to € 32 billion.

  Assuming an average 20% VAT on jet fuel, revenues are estimated to be € 10 billion (based on current fuel prices) up to € 14-16.5 billion (prices plus fuel tax). However, where VAT was imposed on all inputs and outputs in the aviation industry this would not be additional but rather could be deducted by the airlines against the VAT receipts from airline tickets

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Posted: Monday, March 23rd, 2015. Filed in General News, Recent News.