UK Tax On Long Distance Air Travel

For the first time, I seriously regret that we have had an election and change of Government.  I would have loved to see how David Parker and Helen Clark would have reacted to questions about the recent proposal from the British Government to introduce a tax which discourages long distance air travel.  Wasn’t our leadership on climate change by introducing the world’s most comprehensive scheme, applying to all sectors and all gases meant to stop this type of policy from happening?

When such measures are introduced I reach for the bible – the WTO legal texts.  My initial opinion was that there is nothing we can do about what is being proposed under WTO law.  If this was an issue applying to goods, and if there was a tariff binding in place we would have strong grounds for a challenge.  Unfortunately this is a services issue and the drafters of the General Agreement on Trade in Services envisaged a discriminatory tariff type tax being introduced in this way.  The GATS is all about equal treatment of domestic and external services suppliers and this tax will presumably apply as much to BA or Virgin as it would Air New Zealand or Qantas.  So there will be no discrimination.  That said it is discriminating against the ability of our domestic service operators – our hotels, hire companies, restaurants etc to offer services to UK customers as it will be relatively more expensive now to come here than to say holiday at home or in Europe.  There might be an angle there.  I look forward to watching the response of the Australian and New Zealand Governments evolve.  Meanwhile we shall be talking to our British contacts about this policy to see whether we can get it overturned by pressure from the business community.  We are not sure that the British business community would welcome New Zealand imposing a similar tax on our air travellers.  I suggest that New Zealanders spend a fair amount in the British economy every year…..

We find it hard to see this as some form of “green tax”as it seems to ignore efforts by airlines such as Air New Zealand to respond to “green concerns”. Air New Zealand has a number of fuel efficient planes on order – the 787 – and is pioneering research on biofuels.  This policy is unfortunately based on fuel consumption but on distance travelled.  Rather a blunt instrument that removes the incentive for airlines to keep innovating in this space.


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