European governments lost €34.2 billion in revenue last year due to extremely low tax levels in the aviation sector, a new study by the Green Group for Transport and Environment has found. This amount of €34.2 billion could cover 1,400 kilometers of high-speed rail infrastructure – equivalent to the distance from Hamburg to Rome(1).
The analysis looks at the revenue that should have been collected from air travel fares if the sector had not benefited from the exemptions. It compares these revenues with those actually collected in one year. This is defined as the “tax gap”. The sector pays no taxes on kerosene, little ticket tax or VAT, and a carbon price on intra-European flights only.
The British and French governments could have received an additional €5.5-4.7 billion if aviation had been properly taxed. The four European countries with the largest tax gaps are the UK, France, Spain and Germany, mainly reflecting the size of their aviation sectors. Although France, Germany and the United Kingdom impose a ticket tax, their low levels of ticket taxes are unable to bridge the gap.
Air France and Lufthansa are the two largest companies contributing to the tax gap in Europe, due to the scale of their activity. Europe lost between 2.4 and 2.3 billion euros in revenue from the activities of these airlines. The study differentiates between fees imposed on passengers and on airlines. Ticket taxes and VAT are levied on passengers, while fuel taxes and carbon pricing are directly attributable to airlines. Of the €34.2 billion gap, transport companies should have paid €20.5 billion in fuel taxes and carbon pricing.
“Europe is bleeding money by not taxing the aviation sector,” explains Joe Dardenne, aviation director at T&E. “Airlines are close to making record profits this year, while spewing dirty fuel into our skies. But governments are unwilling to touch precious national carriers.” It has. How can they justify to citizens that drivers pay more in taxes than Air France and Lufthansa for their fuel?
Unless action is taken, the tax gap will increase by 38% by 2025, as the sector is expected to grow in the coming years. Eurocontrol estimates that traffic will reach 92% of pre-coronavirus levels in 2023 and fully recover by 2025. By then, the tax gap could grow to €47.1 billion, T&E found.
Closing the gap and addressing the problem of low aviation taxes should be a top priority for governments. The study recommends implementing a fuel tax on kerosene, a 20% value-added tax on tickets, and expanding the aviation carbon market to include all departing flights. These changes would help fill the gap in government budgets. In the absence of these measures, T&E recommends implementing a gap-equivalent ticket tax in each country.
The study shows that higher taxes will have an impact on passenger ticket prices. This may result in reduced demand and savings in carbon dioxide emissions. The study found that ending the exemptions in 2022 would have saved 35 million tons of carbon dioxide, with the total climate impact higher than the non-CO2 impacts of aviation. As the sector seeks to decarbonise, revenues raised through taxes should be partly reinvested in green technologies, including e-kerosene.
Joe Dardenne concludes: “Taxes should not be seen as a punishment, but rather as a means of imposing a fair charge on those who benefit most from poor regulation in aviation. Those who are better off in society have been paying very little for their flying habits.” Moreover, taxes will not limit aviation’s ability to invest. On the contrary, taxing aviation will benefit citizens and the sector in the long run, with governments stepping in to finance the transition to clean energy, including aviation. “It is time to end the era of cheap aviation and emissions growth.”
(1) According to a report by the European Court of Auditors, the construction of an HSR line in the European Union costs an average of $25 million per kilometre. We have calculated that 1,368 kilometers of tracks could be built for a total amount of €34.2 billion. It covers the distance between Hamburg – Rome (1309 km).
