Adjournment Debate - Fiscal Policy

Wednesday, 24 November 2010

Dáil Éireann Debate
Vol. 723 No. 1

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Deputy Kieran O’Donnell: Information on Kieran O'Donnell  Zoom on Kieran O'Donnell  I thank the Acting Chairman and welcome the Minister for Defence, Deputy Killeen, to the Chamber. The Minister is from County Clare and this issue is of specific relevance and importance to Shannon Airport and the wider mid-west region. The reason I raised this matter is Shannon Airport Authority launched its five-year plan today. It projects that it will increase its passenger numbers to 2.5 million by 2015. One factor that may be instrumental in achieving this target would be the removal of the punitive €10 travel tax. It made no sense at the time of its introduction and many other countries have removed similar measures. I heard the Minister for Tourism, Culture and Sport, Deputy Hanafin, mention this morning that the travel tax was up for discussion in the budget. I seek confirmation from the Minister, Deputy Killeen, that this €10 travel tax will be removed. As a Deputy for County Clare and a Minister from the mid-west region, I do not doubt that the Minister, Deputy Killeen, will do everything possible at Cabinet level to ensure the removal of the travel tax.

If one considers this issue from the perspective of Ryanair, its passenger numbers next year are projected to be approximately 400,000. In 2009, the equivalent figure was just short of 2 million passengers. Moreover, Michael O’Leary has stated that a major factor in the reduction in the number of flight routes, which have fallen from a peak of 35 to six, is the travel tax. There must be an element of common sense in government and it makes no sense to introduce a tax that brings in only approximately €100 million but that takes from an airport and a region [129]by driving away tourist activity. This is short-sighted and a key feature of the Government has been that it has made decisions that are purely about short-term revenue collection but which have enormous consequences in the long term for employment and the number of flights arriving at Shannon in particular. The Minister is aware that passenger numbers are well down. The passenger numbers in 2010 are expected to fall by 800,000 from the equivalent figure of 2.8 million passengers last year to 2 million passengers this year.

One must ensure the measures in place do not discourage people from coming to Ireland. The Limerick and mid-west region have terrific amenities, a fantastic array of hotels and golf courses. Limerick city boasts such amenities as Thomond Park, the Hunt Museum, the city itself and the River Shannon. People should be encouraged to enter the region and the €10 tax constitutes a major impediment. The national plan produced by the Government today is 150 pages long. While I may have missed some of the small print, I did not see a reference to the removal of the aforementioned travel tax. The Minister should confirm either that this is mentioned somewhere in the document or, if it is not, that its abolition will be brought forward in the budget to enable Shannon Airport to increase its passenger numbers.

As the Minister is in the Chamber tonight, I will refer to another key element that will enable Shannon Airport and the region to drive forward, as the airport is a driver of tourism industry in the mid-west region and people in Limerick city are closely associated with it. Shannon Airport must be made independent, which always was the intention under the original legislation. The Minister should indicate when a review will get under way to ensure that Shannon Airport can be a stand-alone entity. However, on becoming independent to make decisions, it must be independent in a debt free way. It should not be laden down with debt and I have a number of views in this regard. First, one cannot compete with one’s employer and Shannon Airport Authority competes with Dublin Airport Authority and terminal two. This simply is impossible and is akin to operating with both hands tied behind one’s back. The airport must be allowed to operate independently and the Minister, Deputy Killeen, will be aware that Aer Rianta International was the brainchild of Shannon. It pulls in significant profits on an annual basis and I believe it should be allowed to return to the running of Shannon Airport. What is needed is an airport that is in command of its own destiny, that is not laden down with debt but is debt free and that can compete with the Dublin Airport Authority on an equal basis.

A key element in overall aviation policy is the immediate removal of the travel tax. The Minister should state tonight that this tax will be repealed in the budget, which would enable Shannon Airport to increase its passenger numbers to the benefit of the mid-west and the entire region.

Minister for Defence (Deputy Tony Killeen): Information on Tony Killeen  Zoom on Tony Killeen  Tá mé ag freagairt thar ceann an Aire Airgeadais. I am pleased to have this opportunity to comment on the air travel tax. The Minister accepts that the airline industry and the tourism sector, along with other industries within the transport sector and beyond, continue to go through a difficult trading period. The air travel tax introduced on 30 March 2009 was one of a number of budgetary measures that were necessary in the context of an overall response to the fiscal challenges we face and represent a genuine effort to broaden the tax base in a fair and equitable manner.

Members may wish to note that both Germany and Austria have announced plans to introduce an air travel tax with effect from 1 January 2011 and the United Kingdom has increased its air passenger duty this month. It is worth informing the House that the UK’s passenger tax for somebody travelling to locations such as New York and Boston is £60. This puts our modest tax in some context. Ironically, that level of tax serves to promote Irish airports as cost-effective entry points for long-haul travellers wishing to visit the UK.

[130]The Minister has stated before that the impact of the tax on passenger numbers is being overstated. Analysis in the Department of Finance suggests that passenger numbers are influenced by a few key factors. These include relative income as measured by GNP, the numbers at work in the domestic economy and the sterling-euro exchange rate. This correlation stands up in the period before and after the introduction of the air tax, suggesting its impact on passenger numbers is minimal.

It is clear, therefore, that essentially domestic factors have driven down demand from Irish travellers who in the good times had utilised strong disposable incomes to travel frequently. Also, large numbers of non-national construction workers were frequent travellers between Ireland and their home countries. On the other side of the equation, it should be noted that traditionally 50% of passengers coming through Irish airports are from the UK but this cohort has been influenced significantly by the weakness in sterling. Sterling has fallen in value by around 25% relative to the euro over the last three years. UK data show that British holidaymakers responded to this currency movement through holidaying at home in large numbers last year.

Ireland is not unique in applying a tax on air travel. For example, as mentioned earlier, our nearest neighbour, the UK, has applied a similar tax for a number of years. Indeed, the UK recently revised its air passenger duty. The minimum rate, with effect from 1 November, is £12 or €14 for flights within the EU and rises to £85 or €100 for long-haul flights above 6,000 miles. Germany is in the process of introducing an air travel tax at a rate of €8 for journeys to EU destinations, €25 for medium haul destinations and €45 on long-haul destinations. The tax is to apply from 1 January 2011. Austria is introducing a tax on 1 January 2011 with a rate of €8 for flights within the EU and €40 for flights further afield. Similar taxes apply also in France, Australia and New Zealand. The rates for the Irish air travel tax are not unreasonable both for shorter and longer journeys, when compared to rates in other countries.

The Government acknowledges that low cost travel has been good for Ireland. The pioneers in this area deserve to be commended. However, in analysing the new tax, we must not overplay its impact. It should be recognised that visitors to Ireland are only subject to the tax on the return journey. The additional €10, or €2, in the context of a much larger purchasing decision involving travel, hotel expenditure etcetera should have only a limited effect on tourism numbers.

I would also point out that airlines benefit from an international tax exemption on jet fuel. The extent of this benefit is illustrated by the example that tax as a percentage of the price of one litre of petrol is currently in excess of 60%.

We have to bring a sense of balance to this debate. In the period up to 2008 we saw exceptional growth in air travel both to and from Ireland. At home strong disposable incomes and consumer confidence led people to take, in some cases, several air trips per year. However, it should come as no surprise that given uncertainties in the economy generally, consumers have shown some reluctance to take or plan trips abroad. An air trip abroad generally involves expenditure of several hundred euro. Therefore to blame the introduction of a modest air travel tax of €10, or €2, for the reduction in passenger numbers is stretching credibility. In addition, it does not stack up that an airline that complained vigorously about the €10 air tax on the basis of price sensitivity of customers, can then introduce a non-discretionary on-line check-in fee of €5 per flight, or €10 per return flight.

The introduction of a relatively modest air travel tax was an important revenue raising measure in the context of the significant financial challenges we now face. We in this House [131]are subject to pleadings from various interest groups, some with more robust cases than others. In these times we need to apply sound and balanced judgment to such pleadings.

The Government today introduced the National Recovery Plan 2011-2014. It has prioritised the need for the burden to be shared among all. The Minister continues to widen the tax base to put us on a more sustainable footing. However, the Minister has stressed the importance of creating the right conditions for growth and jobs.

As in the case for all taxes, the options surrounding the air travel tax will be considered in the context of the forthcoming budget.

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