Global Policy Forum

By Stefania Bianchi

EU proposals to introduce a tax on airline tickets as a source of development aid to help achieve the Millennium Development Goals must not compromise other resources for development aid, development experts are insisting.

The revenue generated would be an extra source of aid beyond the EU's poverty-reducing pledges made for the Millennium Development Goals (MDGs), which include a 50 percent reduction in poverty and hunger, universal primary education, and the reduction of child mortality by two-thirds. Ministers from the 25 member states will discuss a paper released by the European Commission, the EU executive, last Thursday (Sep. 1) which considers several aspects of any decision to impose an airline tax, whether mandatory or voluntary.

The study says that if a tax of between one euro (1.2 dollars) and five euros (6.2 dollars) is added to flights within the EU and of between two euros (2.4 dollars) and 10 euros (12.4 dollars) on international flights, it would raise between 568 million euros (707.8 million dollars) and 2.763 billion euros (3.443 billion dollars). France, Germany, Italy, Spain and Britain would generate about three-quarters of the total. "A co-ordinated EU approach would deliver a political message of European solidarity towards developing countries, facilitate and clarify the operation of the measure for airline operators and passengers, and ensure that EC (European Commission) Treaty rules were respected," the paper says.

But the report found that the levy may also curb demand for air travel, and hit airline profitability. It says levies of one euro on flights within the EU and two euros for places outside could curb demand for air travel by 0.5 and 1 percent respectively. The proposed tax of five euros on intra-EU flights and 10 euros on international flights would reduce demand by 3 percent and 4 percent respectively, the paper says. "The precise impact of these reductions in demand on the airline industry is difficult to predict, but it is certain that for an industry with high fixed costs even a small reduction in demand could have a significant impact on the profitability of air carriers," the report says.

Europe's big four countries -- Germany, Britain, France and Italy -- agreed on the concept at a G7 (the seven leading industrialised countries, the United States, Canada, Britain, France, Germany, Italy and Japan) finance ministers meeting in February this year. Britain, which currently holds the rotating presidency of the bloc, is pushing for the scheme to be introduced. But several other EU member states, mainly popular tourist destinations like Greece and Spain, and peripheral members such as Sweden and Finland, oppose the tax.

Development groups have welcomed EU efforts to increase development resources, but they say that the airline levy proposals should not replace other aid efforts. CONCORD, which represents several European relief and development non-governmental organisations (NGOs), says it favours the setting-up of a system of global taxation "based on the principle of a fair redistribution of resources."

It says that introducing such taxes would make it possible both to generate "predictable and stable resources for development", and to "redress the negative effects of globalisation, such as pollution and financial speculation." The group says the EU must embark on a study to find the best ways to combine and administer such taxes. "The means is only appropriate if it is implemented with the commitment of the EU and in consultation with the developing countries, " Agní¨s Philippart, EU policy and communication officer for CONCORD told IPS.

Louise Hilditch, interim international policy director at ActionAid, says other initiatives rather than the air travel levy could raise more money for development. "We welcome initiatives to boost the resources available for development, but there are other proposals on the table that will mobilise more resources, the main one of which is the proposal to allocate 0.7 percent of gross national income to development," she told IPS.

Hilditch acknowledges the progress the EU has made this year towards an interim target, and says the UN summit marks a good opportunity to step up the bloc's official development assistance (ODA) efforts. "All those member states that are still without a timetable for reaching 0.7 percent should take the opportunity of the Millennium Summit to publish one," she said. "Additional debt relief out of new resources (for development) in pursuit of the MDGs is another important proposal on the table that many EU member states have done their best to sabotage since its agreement in July. If these commitments were implemented in full, we may not need to look at a levy on airline tickets."

The tourism industry has reacted strongly against the proposals, saying that air travel is vital for developing countries. "There are several channels through which aid can be raised -- at state level, EU level, individual level and through the private sector. In particular, after the tsunami, the response on the part of individuals all over the world was phenomenal," the World Travel and Tourism Council (WTTC) said in a statement.

"Aviation is a global industry whose benefits reach all sectors of society, and it provides a potential form of income for even the most remote areas. Therefore, encouraging people to travel has a beneficial effect on the economies of developing nations, not only in Africa but in Asia, Latin America and virtually every country in the world. As such, governments should encourage people to travel rather than taxing them for doing so," it added.

Airlines are also worried that a tax could hit them at a time of cutthroat competition. The Association of European Airlines (AEA), which represents Europe's major carriers, says the proposals could cripple the industry. Earlier this year Ulrich Schulte-Strathaus, secretary-general of the AEA said the proposals would turn airlines into "tax-collectors".

"Already, large portions of our cost base are controlled by our suppliers and service providers. To try and squeeze out of our already heavily-taxed industry an additional sum equivalent to eight times the annual profit is wholly inappropriate," he said.