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German chancellor Angela Merkel proposes a departure tax on airline passengers departing from German airports. Branded as an environmental initiative, the estimated annual revenues are €1 billion.
The International Air Transport Association’s (IATA) response is sharp, but also rash: “This is the worst kind of short-sighted policy irresponsibility. Painting the new tax green adds insult to injury. There will be no environmental benefit from the economic damage caused,” says the IATA in a press release highlighting three major concerns:
1. Climate change is a global issue. The solution requires a global approach, not uncoordinated regional taxes.
2. The timing is wrong. The new tax is a body blow to the weak economy and a fragile industry. Europe will be the only region with airlines in the red.
3. Lessons are unlearned. The Dutch government tried a departure tax, but repealed it as it was a complete failure. Why repeat past mistakes?
In fact, only the second concern is correct. The timing is unfortunate, indeed. However, the other two arguments seem rubbish. The first concern can easily backfire to the aviation industry.
Unlike other transport companies, EU airlines are exempt from Value Added Tax. This is odd. It seems to make sense for the EU to abolish this exemption while branding it as an environmental initiative.
The third concern overlooks a crucial difference. The Netherlands is a small country, whereas Germany is big. Many Dutch passengers could easily avoid the tax by departing from Belgian or German airports that are almost as close to their homes as Amsterdam airport or even closer.
However, relatively few German travelers can avoid the new tax by departing form airports in neighboring countries. For most Germans, foreign airports are simply too far away to be beneficial. Thus, the IATA overlooks that the Dutch lesson pertains to the Netherlands, not to Germany.
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