Tony Killeen (Clare, Fianna Fail)

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.

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 (€14) for flights within the EU and rises to £85 (€100) for long haul flights above 6,000 miles. Germany is currently in the process of introducing an air travel tax at a rate of €8 for journeys for 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 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 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 amongst 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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