The German finance minister Hans Eichel will propose a European tax on aviation fuel at the meeting of European finance ministers tomorrow.
The *Telegraph* reports that [European Commission favours the proposal], but other reports indicate that Taxation and Customs Union Commissioner **László Kovács**, at least, is [more skeptical].
According to Der Spiegel, the German proposal is for a tax of about €300 per tonne of kerosene, which would add about €5-€10 to the price of an intra-European flight.
The unique tax exemption on aviation kerosene is a major distortion of transport policy, in effect giving air travel a massive subsidy over other options. This is an environmental catastrophe because it encourages unnecessary short-haul flights where rail or road travel would be less polluting. Aviation is the fastest growing source of greenhouse gas emissions. It’s not surprising, then, that rail companies and environmentalists are lobbying together for this plan. Taxing aviation fuel is a sensible solution, regardless of what the airlines say.
A aviation kerosene tax proposal failed last week at the G7 conference, and the British government ruled out unilateral introduction of such a tax. At the G7 level, the US is also opposed, which is why Germany and France are now pushing for it at the EU level. Germany hopes that by linking the tax to new spending on development aid, it can win over doubters like Britain and Ireland.
While politically expedient, linking the aviation fuel tax to development aid is more problematic than the tax itself. I don’t agree with Tim Worstall very often, but his concerns about the idea of using the revenues aviation fuel tax exclusively for development are worth noting:
This is something known as hypothecation and it’s something that we in the UK don’t do. We do not devote the income from a particular tax to spending on a particular cause and for a very good reason.
In this instance it is this: whatever we should, could, ought to be spending on funding development in the poor parts of the world has nothing at all, no connection with, how much we can, should, could, ought to be raising from taxing aviation fuel. The two are entirely separate, no logical connection at all. Should we not fund a drinking water scheme in Tanzania because a terrorist attack like 9/11 has led to a drop in the number flying?
Worstall is absolutely right. This policy makes sense as an environmental policy, a fiscal policy, and a transport policy. The aim of increasing development aid is also laudable. But confusing these seperate policy objectives is a mistake.
In a complete aside: Worstall is wrong to suggest that this is something “we in the UK don’t do”. This sort of stuff does happen in Britain, particularly at the local level. It’s usually called “ringfencing” and it leads to strange things like parking ticket receipts being used exclusively for road repairs while a local park is underfunded because it is paid for out of the general local council budget. That’s a bad idea too.
Update: According to EUobserver,
The Commission said on Monday (14 February) that it did not have a position on the issue.
“There is no consensus at the moment on these ideas”, said Commission spokesman Amadeu Altafaj Tardio.