No sooner does the industry appear to have righted itself than the threat of yet more taxation appears on the horizon. Global warming, development aid and national security are worthy causes, but why should airlines be the ones to pay.

Winston Churchill once memorably remarked that a nation attempting to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. The airline industry, as it too attempts to limp back to prosperity, may share his frustration at government's love of tax. No sooner is the worst of the crises over for air transport than the world's favourite tax cow appears to be back under the yoke.

It is open season around the world on making air transport pay for new national security measures, while adoption of the Kyoto Treaty on climate change in mid-February helped spur the calls for an aviation fuel tax. But perhaps most baffling of all is the proposal floating around Europe that a fuel tax might be levied not to save the environment but to provide economic aid to developing countries. That last recent bolt from the blue, more than any other, raises the fundamental questions to be asked of any tax regime: who benefits, who pays, and most importantly, does the tax achieve its stated goal?

By the first two tests, calls for airlines to pay their way on the environment have a point, as ably argued by the Green Party at the back of this magazine. The potential threat posed by climate change, and the benefit of avoiding it, is clearly spelt out. It is also a fact that aviation is a polluter, albeit a minority one, and can claim no particular immunity from incentives to curb emissions. Whether a straight tax on aviation fuel would actually achieve anything, however, is less clear.

The deterrent effect of a tax hardly registers alongside the impact of an oil price that has more than doubled in the past five years and soared by more than 40% last year alone.

The case for national security charges fails the test for different reasons. While there is no argument over the need to secure the world against terrorism, the question is why it must be airlines that foot the bill? Surely, by definition it is the prime responsibility of the state to keep the nation safe – that is what all the other taxes are for.

Yet under the most recent budget plan from the Bush administration, airlines will see the aviation security fee increase by as much as 120% on a one-way, non-stop fare. This may well, as promised, help cover about 80% of the cost of airport screening by the Transportation Security Administration (TSA), but the major carriers also reckon that it will add another $1.5 billion of losses to an industry already slated to lose $5 billion this year.

And carriers have no means to ensure that the money they collect, and will presumably have to absorb, will be spent wisely. Even Republicans from Bush's own party have aired their doubts. One leading Senator said the TSA "was just living too large and needed to tighten its belt". Another wondered aloud whether screening "is in tune with the future" and others doubt that it is getting more effective even if it is becoming more expensive.

Most revealing is the idea to make airlines help pay for economic development aid. Why should politicians ask airlines to foot this bill, other than from sheer force of habit? For decades the industry has been tapped for a miscellany of taxes, with the unspoken assumption that flying is one of life's little luxuries, a guilty pleasure, rather than a major driver of economic growth. "We keep telling national governments in Europe that the airline sector is not an endless source of taxable revenue," says Ulrich Schulte-Strathaus, secretary general of the Association of European Airlines.

In the USA, too, airlines already face as many as 14 fees and taxes, from the straightforward ticket tax right through to a fee collected against possible underground fuel-tank leaks.

Back in 1972, taxes were about 7% on a typical US domestic roundtrip fare of $200. Today it now hovers around 26% and only a little less, at 19%, on a $300 ticket. Compare that to the "sin taxes", such as the 18% imposed on a pack of cigarettes or 11% on hard liquor. Beer, perhaps a less sinful beverage, is taxed at 5%. Middle-class travellers now pay a higher effective tax rate on an airline ticket than they do on their annual income tax.

It is not that aviation should not pay its way – it should and does. After all, this is just about the only transport industry that actually pays for its own infrastructure. Neither should it shirk the need to address environmental or security concerns, but more random taxation is not the answer. Coherent economic mechanisms, such as emissions trading, could be, but do not hold your breath. To quote another giant of the 20th century, Albert Einstein once confessed that tax returns were too difficult for a humble mathematician to understand – it takes a philosopher. He has a point.

Source: Airline Business