What impact do air travel taxes have on the economy?: report
David Simpson
...
But
while tourism industries and airlines claim that air passenger taxes discourage travel and thus harm the wider economy, what does the evidence say? A report by the Centre for Economics and Policy in Australia attempts to model the impact of possible changes to Australia's air tax, the Passenger Movement Charge (PMC), on tourism output and the national economy. The report dated 15 March was added to the Tourism Research Australia website last week.
The PMC is a levy of Aus$47 on departing passengers, covering outbound international visitors and outbound Australian residents. Currently, around Aus$503 million is sourced from this tax.
The study considers the impacts of a 20% increase in the PMC. A computable general equilibrium (CGE) model is used to assess the impacts of the PMC on key macroeconomic variables, such as Gross Domestic Product (GDP), Gross National Income (GNI) and Economic Welfare, and on tourism industry indicators such as output and employment. The study also looks at the impacts on the international and Australian resident outbound travel segments.
The assessments rely on certain parameters in the model, for example making assumptions about tourism demand elasticity, for which estimates in the literature vary widely. However,
simulation results suggest that raising the PMC will provide a net benefit to the Australian economy, which runs contrary to conventional wisdom. This is largely due to Australian residents substituting domestic travel, or other domestic spending, for outbound travel.
According to the simulation, taxing all persons travelling overseas, combined with a tourism market that has a larger outbound resident travel sector relative to international visitors, and is relatively non-responsive to price changes, will generate results that can provide net overall benefits to the destination economy. On balance, the tourism industry can gain or lose, depending on the balance of inbound and outbound travel, and on the extent to which domestic tourism is a substitute for outbound tourism.
In this assessment, the tourism industry loses from the PMC through its impact on inbound tourism; its primary source for growth.
Regions more dependent on the international tourism sector (e.g. Tropical North Queensland)
will lose more as a result of raising the PMC, relative to those regions who are less reliant on international tourism. Similarly, industries aligned with the international tourism sector lose unequivocally, while industries reliant on the Australian outbound travel sector (e.g. travel agents) also lose.
This suggests that t
he PMC works, in effect, as a transfer payment from tourism to non-tourism industries, as most of the total economic positive effects accrue to the non-tourism industries. This effect is magnified as there is no tourism-specific use of the extra Government revenue benefit from increasing taxation of non-residents, which although it is 'new income', is in effect an additional export tax, on top of existing taxes that international tourists pay.
The European experience
The effects of passenger taxes may vary between countries:
Australia is in a different position to European countries, where travellers may have options to switch from air travel to rail, and airlines can change more of their long-haul flights to a neighbouring country with a different tax regime.
While Germany has followed the UK in imposing a tax with different bands according to distance to the capital city of the destination country (and Austria looks set to follow suit), Belgium and the Netherlands have previously done like Ireland, in introducing an air travel tax but subsequently abandoning it. The Dutch APD was abolished after representations from airlines as traffic at Amsterdam Schiphol Airport declined. The tax ranged from 11.25 to 45 euros, with an annual revenue target of 312 million euros, but the industry claimed the loss to the wider economy as a result of the tax was over a billion euros. Amsterdam airport had said that 1.3 million passengers were lost, as passengers went instead to Brussels or Dusseldorf.
"The airports didn't like it, the airlines didn't like it and tourists didn't like it - they were very quick to go over to Belgium or Germany and jump on a budget airline for half the price and go off on holiday - so abolishing it was a win-win for everyone," explained Robin Pascoe, editor of Dutchnews.nl, quoted on the BBC last year.
Belgium similarly introduced a departure tax in October 2008, but quickly withdrew it in 2009. But in Australia, with no land borders and New Zealand the only short-haul neighbour, the circumstances are different.
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http://www.cabi.org/leisuretourism/news/21558
