IATA warns Swedish Aviation Tax would hurt development of local and wider economy

The International Air Transport Association (IATA) has warned that a proposed Swedish aviation passenger tax would cost 7,500 jobs and negatively impact Sweden’s economic competitiveness. IATA also emphasised the Inquiry Committee’s own acknowledgement that the climate change impact of the tax would be negligible.

After a year of work, a Swedish government-appointed commission recommended in late November 2016 that airlines operating in Sweden should pay a tax of between 80 and 430 Swedish crowns ($9- $47) per passenger per flight to compensate for climate pollution. Under the proposal, the lower end would relate to domestic and European flights while a levy of between SEK280 (for city pair markets under 6,000km) and SEK430 (for city pair markets beyond 6,000km) would be added to medium- and long-haul international services.

“We urge Swedish businesses and the Swedish people to persuade the government to reject this tax and are eager to support them in this important task,” said Rafael Schvartzman, IATA’s regional vice president for Europe.

Aviation delivers major economic benefits to Sweden, generating 4.2 per cent of GDP and supporting 240,000 jobs. Analysis by IATA of the “green tax” proposals of up to SEK430 per ticket, shows that Swedish GDP would be SEK5 billion lower as a result of the impact of the tax. This will mean around one million fewer passengers and 7,500 fewer jobs in the aviation industry and the wider economy.

“This tax will be disastrous for the Swedish economy. Those promoting the tax are essentially suggesting that 7,500 Swedish workers are worth sacrificing to save 48 hours-worth of carbon emissions on Sweden’s roads,” said Schvartzman. “

The IATA forecasts show the competitive position of the Swedish economy would decline, dropping from 22nd to 78th in the World Economic Forum (WEF) Cost Competitiveness Index, worse than Finland, Norway, Denmark and the Netherlands.

“Sweden should be working with European and world partners to make a success of existing aviation climate policies, not imposing ineffective measures that cripple the economy while having almost no impact on the environment,” added Schvartzman

Aviation as an industry is committed to mitigating its environmental impact and was the first global business sector to set tough carbon targets, including carbon-neutral growth from 2020 and cutting 2005 emissions in half by 2050. October last year saw a breakthrough with the agreement of the 191 states at the International Civil Aviation Organization (ICAO) for a global carbon offsetting and reduction scheme for international aviation (CORSIA).

“Last year, ICAO’s member States, including Sweden, agreed that CO2 emissions are best addressed through a single global market-based measure and recognised that CORSIA should be the market-based measure for international aviation. The implementation of national or regional taxes on top of CORSIA is not only redundant, it also goes against the ICAO agreement and risks alienating States from implementing CORSIA,” said Schvartzman.

Flights within Sweden and to European States are subject to the European Union Emissions Trading Scheme and airlines pay emissions and noise charges at Swedish airports. All flights between Sweden and EU Member States and over 90 per cent of all commercial flights between Sweden and non-EU countries will be covered by CORSIA.

Understandably, there has been a lot of negative reaction to the proposal. Ten years ago, a similar aviation tax was close to being introduced despite strong industry opposition, but a change in government in 2006, meant the scheme was scrapped.

The reason for the change was that the tax was considered to have minimal environmental benefit while at the same time was seen to have significant negative consequences for transport, regional and industry policy, the same argument that IATA and others are claiming about the revised proposal.

The national aviation tax is calculated to result in up to 1.2 million fewer passengers each year. Hardest hit would be domestic aviation resulting in fewer domestic routes with fewer departures. “In 2006 when an aviation tax was previously being introduced, a number of routes were cancelled before the proposed tax was scrapped,” explained Anna Wilson, secretary general of the Swedish Air Transport Society.

“As a result of fewer routes, Rygge Airport was forced to close and Værnes Airport outside Trondheim was severely affected. For those Swedish regional airports that are already fighting for survival, there remains the risk that they will have to close if an aviation tax is introduced. The smallest airports will be hardest hit,” she added.

Several other European countries has unsuccessfully introduced aviation taxes, while the revenue-generating Air Passenger Duty (APD) in the UK has impeded sustainable air transport development across the country, according to airlines, and resulted in the loss of many routes. A study by PwC (PricewaterhouseCoopers) has shown the tax has cost more in lost income than it has raised in revenue.

A year-long tax in the Netherlands between 2008 and 2009 resulted in a 1.4 million passenger fall at the country’s Amsterdam Schiphol hub and similar effects forced Ireland and Denmark to scrap their aviation taxes shortly after their introduction. In Portugal, plans for an aviation tax were scrapped even before its introduction.

The Swedish government still plans to incorporate a form of the proposal, possibly amended, within their next autumn budget in October 2017, with the tax coming into force from January 1, 2018. It is expected to raise around SEK1.75 billion per year based on annual traffic forecasts. But, the question remains, how much it could ultimately impact the Swedish economy and its aviation sector in the longer-term?