Budget 2011 and Environmental Taxes

Written evidence submitted by the Australian Government

Introduction

Australia welcomes this opportunity to comment on the environmental aspects of the Air Passenger Duty (APD). Australia is concerned that the current APD unfairly discriminates against Australia (and other long-haul destinations). We have advocated that the APD be fair, non-discriminatory and transparent; that the UK travelling public, as well as family and friends in Australia, not be disproportionally disadvantaged; and that the APD be consistent with efficient environmental practices.

Details

Australia considers that the following factors show that the APD is not effective as an environmental tax:

· The distance-based banding of the APD is a poor proxy for environmental impact. The bands are based on the distance between London and the destination country’s capital (with the exception of Russia, which is split into two bands), not on the actual flight distance. This leads to anomalies, including flights to the west coast of the United States of America being taxed at a lower rate than flights to many Caribbean destinations which are less distant from London; and flights to Hawaii being taxed at a lower rate than flights to Singapore, which is less distant from London.

· The APD does not take into account the differing environmental impact of different aircraft – the duty is the same for a flight on an aircraft with high per passenger fuel consumption as for a flight on a fuel-efficient aircraft.

· There are no practical alternatives to flying for travel to long-haul destinations, so a higher tax is less likely to change travellers’ behaviour and improve environmental outcomes. In contrast, where there are alternative means for short distance travel (e.g. to continental Europe) those choosing to fly are taxed at a lower rate.

· Transport emissions are best dealt with by a multilateral solution that is applied universally. The proliferation of unilateral ‘environmental’ taxes on aviation creates inconsistencies between jurisdictions, distorting economic and environmental outcomes.

· The APD should be removed once the EU’s emissions trading scheme (ETS) is applied to aviation (from 2012 onwards) to avoid double taxation of airlines on ‘environmental’ grounds.

Conclusion

Australia considers that the UK’s APD, particularly in its current form, is not an effective environmental tax. Australia intends to make a submission to the UK Government’s APD consultation detailing its views on the proposed options for change.

20 April 2011