Fuel and VAT tax exemptions on international flights could provide EU countries with an extra €39 billion a year, a sum approaching Spain’s swingeing budget cut in 2013, according to a new study by the consultancy CE Delft.  

The report, which was commissioned by the green campaigning group, Transport and Environment (T&E), blamed outdated EU laws, which privileged aviation over less polluting forms of transport.

"International airlines are like flying tax havens inexplicably exempted from paying the basic EU taxes every EU citizen and company is obliged to,” said T&E’s aviation policy officer Aoife O’Leary.

“Cash-strapped EU governments should seize the opportunity, collect this low-hanging fruit and generate revenues badly needed to cover their budget deficits,” she added.

According to the study, €32 billion a year is lost due to the airlines’ exemption from paying fuel taxes, while another €7.1bn goes missing because of VAT exemptions on international flight tickets.

Moving up the political agenda

The issue of tax breaks for airlines is moving up the political agenda, partly because petrol pump price increases are hitting consumers hard.

But the aviation industry is also facing intense pressure ahead of the International Civil Aviation Organisation (ICAO)’s triannual meeting in Montréal in September.

There, an attempt will be made to agree a market-based measure that could resolve the increasingly bitter dispute over the EU’s efforts to make airlines pay a price for their carbon emissions under the Emissions Trading System.

Writing in the China Daily last month, Achim Steiner, director of the United Nations Environment Programme, said airline tax breaks “give air transport an unfair advantage over rail and road, and offers less incentive to aircraft designers and operators to accelerate a transition to ever-more fuel-efficient planes.”

However the airline industry says that without such tax holidays it would be hard pressed to turn a profit.

A recent report by the International Air Transport Association contended that, despite a ten-fold growth in air travel since 1973, the industry’s current profit returns will not meet the $4-$5 trillion needed for its planned expansion, primarily in the Asia-Pacific region. And regional airlines contend they contribute significantly to reviving tourism in some areas of Europe, contributing to economic growth.

Airline demand and capacity are also both up around 5.7% on last year’s figures, operating profits are rising, and ratings agencies predict that they will continue to grow over the next year.

Airline emissions

Although airlines are today only responsible for around 2% of the world’s CO2 emissions, when NOx emissions, water vapour, soot and sulphates, contrails and enhanced cirrus cloud formations are considered, they account for some 5% of planetary global warming and the figures are rising fast.   

The EU cites estimates that by 2020, global international aviation emissions will be around 70% higher than in 2005 even if fuel efficiency improves by 2% per year. The ICAO forecasts that by 2050 they could grow by a further 300-700%.

The EU recently published proposals to cut direct state aid to the aviation industry, but T&E says they will allow European airlines to continue receiving €3 billion a year in subsidies to artificially expand demand by building new runways and cut airport costs.  

The consultation on the EU’s plans closes on 25 September.