Taxes, State Aids & Subsidies


State Aid to Airports and Airlines

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Consultation on the draft Guidelines on state aid to airports and airlines

HACAN (Heathrow Association for the Control of Aircraft Noise) represents residents under the flight paths to Heathrow Airport.

Response from HACAN

We want to make the following points:

State aid to airports and airlines should be very limited indeed. There may be social and equity reasons for state aid in some very, very limited circumstances. For example in the UK, there may be a case for state aid to support services to the remote islands off the coast of Scotland. A service like this must fit under the definition of a Public Service Obligation (PSO) where: ‘part of the area potentially served by the airport would be, without the airport, isolated from the rest of the EU to an extent that would prejudge its social and economic development. Such an assessment should take due account of other modes of transport’. Such decisions should be reviewed regularly.

Aid only under conditions

The presumption that aviation growth will help the economic regeneration of an area should cease. State aid should only be given to aviation after a full Cost Benefit Analysis including consideration of other transport modes and environmental harms:

  • Aviation is a major cause of noise and climate change emissions. Therefore state aid should not encourage more flying which is the exact effect of subsidies. The EU should look at other ways to assist the economies of poorer areas.
  • It is risky for regions to base their economic development on aviation. The future of flying is uncertain: it is very dependent on oil. And it has only grown the way it has because of the considerable tax-breaks it receives. It is one of the fastest-growing sources of CO2 emissions. It is facing growing opposition across Europe because of its noise impacts on local communities. In addition when a local government looks to exercise its right to tax the local airport, the airline benefiting from the low airport fees will threaten to pull-out entirely. Therefore, it would be unwise for regions to base their future economic development plans on subsidized services of aircraft operators who have highly movable assets and a long track record of exploiting the subsidies regime for their own ends.
  • There is no proven connection between airport growth and improved connectivity. See the CE Delft Report HACAN commissioned and the press release.
  • The current system is being abused. Airlines are using subsidies to harm their competitors and boost profits. For example, Charleroi Airport is referred to as being in an economically depressed region but Ryanair’s subsidized operations there were never intended to serve the local community but to siphon traffic from Zaventem to Charleroi by offering cheap air fares subsidized by the local authorities through direct subsidies per passenger and reduced landing fees etc. Only proper oversight and control can justify a limited continuation of state aid.
  • The aviation industry, even without state aid, is heavily subsidized. A recent report from Transport & Environment estimated that VAT zero rating of airline tickets results in a revenue shortfall for Member States of about €10bn a year and the lack of fuel tax revenues is worth a further €20 to €32 billion to the industry.
  • The claims of the aviation industry that it, unlike rail, pays for its entire infrastructure are not true. An analysis by Transport & Environment gives the details.
  • The cost of the emissions, noise and airport pollution caused by aviation is
    costing the EU billions of euros.

We believe these reasons add up to a powerful argument to end state aid for economic reasons. If ever this situation is sorted out, state aid can be revisited but for now state aid to airports and airlines for economic reasons should end.

Aid for airport infrastructure must be phased out

Even the International Monetary Fund takes the view that aviation is not taxed heavily enough. ‘On pure tax policy grounds, the case for a generalized increase in taxes on international aviation is strong. Rates of tax are low at present, whereas there is quite persuasive evidence of significant cross-border damage from international air travel and, moreover, international air travel is in principle just as proper an object of indirect taxation as any other.’ Indirect Taxes on International Aviation, Michael Keen and Jon Strand, IMF, WP/06/124S

Finally, in the event that the EU decides that State Aid to the aviation sector must continue in some form, the following must at least be assured:

  • All grants (real and potential) of State Aid must be notified to the Commission and clearly accounted for in one publicly transparent database.
  • The Commission has proposed ending operating aid at the end of 10 years. It must be ensured that a glut of aid is not built up during this time.
  • Where operating aid is already being issued, it should be phased out by a reduction of 10% a year. However, in the meantime the Commission proposes to continue allowing new grants of aid. It is thus clear that limits need to be placed on the aid during those 10 years to ensure that aid does not build up during this ‘phase-out’. Thus we propose that the maximum intensity of aid that can be granted to airports should decrease by 10% a year, in line with the reductions required of airports which are already receiving aid, so that if aid is granted in the 10th year of the phase out, it can only be for 10% of operating costs at the airport.
  • Aid for airport infrastructure must be phased out as well. If the Commission has recognized that operating aid to airports and airlines is not a good use of tax payer money, it is not a good use of taxpayer money to build infrastructure for the sector either.

John Stewart
Chair HACAN

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Reduce to subsidies of airports in Europe

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Target of the decision the EU of last week is to reduce to subsidies of airports at Europe.

Full text available at Guidelines on State aid to airports and airlines.