Can a tax that is the equivalent of the cost of two pints of Guinness, have such an impact?

Tánaiste Mary Coughlan said earlier this month that the Government will be having further talks with Ryanair over the issue, on which it has been campaigning for abolition, since its introduction on April 1st this year.

Coughlan said: "In the context of regional development, access to the regions would be very important and Ryanair’s role in that will be invaluable…We’ll have, I’m sure, further discussion between Ryanair and the Government on that matter."

However the Department of Finance said Minister Brian Lenihan has no plans to review the tax as it has already raised €67.3 m in its first six months of operation.

Commissioning/paying for a report does not necessarily compromise objectivity but at a minimum, if its findings are contrary to the position of the paymasters, it would very likely not be published.

This week for example, pensions company, Irish Life, published the results of a paid report that was produced by UCD economist Moore McDowell and the ESRI, the publicly funded think-tank, also published a report on the same subject. [ESRI supports single rate of tax relief on Irish pension contributions; Estimates savings in range €500 million to €1 billion].

McDowell's findings may well be the more useful for policy purposes but it is important to keep in mind that when the position of the paymasters is known, it must have some influence on the researchers.

Dutch aviation consultants Amsterdam Aviation Economics (AAE) who produced a report last year on the impact of a Dutch travel tax, were commissioned by the Irish airlines to review the effects of the Irish tax.

What has been striking about the Ryanair campaign has been its focus on the travel tax as the cause of blame for falling passenger numbers, while the impact of the severe recession hardly gets a mention.

There has been a decline in inward migration to Ireland;  a fall in the number of migrant workers in the country; a huge rise in unemployment and a collapse in household net worth.

AAE says a Dutch travel tax was introduced on July 1, 2008 but abolished one year later. The main reason for the subsequent abolition of this air ticket tax was that it became clear from its study that the tax alone had strong negative effects on passenger numbers at Dutch airports, together with negative effects in economic sectors linked to aviation, such as the airlines operating from these airports and the tourism industry. In the months after the tax was abolished (July, August and September 2009), the decline in passenger numbers (year on year) was significantly lower than in the months before its abolition.

The Netherlands has the lowest rate of unemployment in the Eurozone and the increase in traffic could well be attributed to economic recovery in the region in recent months.

The Dutch economy emerged from recession in the July-September period after contracting for four straight quarters; Ireland remains in recession.

Aer Lingus, Ryanair and CityJet, account for 83% of total departing passengers from Irish airports, and the ATT of €10 per passenger applies on all flights from Irish airports to airports which are situated more than 300 kilometres from Dublin Airport. For flights from Irish airports to airports within this limit, a reduced rate of €2 applies.

The Airlines transported around 11.8 million passengers from Irish airports in 2008. This implies an average load factor of 75%.

The report says demand reduction attributable to the ATT is estimated at 870,000 departing passengers and hence at little over 1.7 million passenger movements for the airlines alone (or around 2 million passengers a year taking all airlines into account.

The tax will generate €116 million in revenue for the Government in the first year of implementation and result in revenue losses of €482 million or more .

The report concludes that "the analysis clearly demonstrates that the imposition of the ATT has resulted in a decline in revenue to specific sectors of the Irish economy of a far greater magnitude than the amount of tax likely to be collected. Based on the actions of airlines to date and the revenue impact on the airlines who have had to absorb the tax in lower fares to maintain volumes, it is likely that the level of capacity will further reduce as airlines continue to redeploy their resources to lower cost markets in the European Union where no travel tax applies." 

Strangely again, the report makes no attempt to estimate the impact of the recession on traffic - - it's as if  a levy of €10 is much more important.

This isn't credible and a report from economists isn't necessary to support that view.

REPORT: The Implications of the Irish Travel Tax

Christoph Mueller (Aer Lingus), Geoffrey O’Byrne-White (Cityjet) and Michael O’Leary (Ryanair) said. “This tax is completely counter productive and costing the country more than it can ever hope to generate. It does not make sense to sacrifice huge revenues and lose jobs and passengers by imposing a tax which will generate just €116 million. We have always warned that the direct revenue generated by the travel tax would be significantly less than it would cost the State when the adverse impact on business, tourism, jobs and lost taxation receipts were taken into account. This view has now been vindicated by the findings of today’s report.”