DISSENTING REPORT BY COALITION SENATORS


DISSENTING REPORT BY COALITION SENATORS

Introduction

1.1        Coalition senators are deeply concerned about the impact of the proposed increase in the Passenger Movement Charge (PMC), especially in relation to the excessive Consumer Price Indexation (CPI) of this tax.

1.2        Our concern was elevated through questioning of concerned stakeholders, the Tourism and Transport Forum and the Australian Airports Association.  We remain unconvinced by the research as presented by the Department of Resources, Energy and Tourism (Department) and Tourism Research Australia, on which the government based its decision to pursue this legislation.

1.3        In short, we consider this research to be:

  • technically flawed, leading to wrong assumptions about the positive or negative impacts of a PMC increase; and
  • improperly presented to the committee:[1] a two-page summary presented to the committee which did not include key elements for our full information, including:

(a) the 15 March full report by the researchers; or

(b) feedback from industry and other stakeholders about the research.

1.4        We consider this to be evidence that the government is both dismissive of the concerns of the tourism industry and obstructive to the role of parliamentary committees in reviewing legislation before the parliament.

1.5        Many senators have received calls from ordinary voters in their states and duty electorates. Senators and members of the Coalition Friends of Tourism Parliamentary friendship group have been approached by a range of concerned industry associations, including:

  • Tourism and Transport Forum;
  • Australian Federation of Travel Agents;
  • National Tourism Alliance; and
  • the Australian Tourism Export Council.

1.6        This dissenting report:

  • reflects on comparative 'Departure Taxes' in a range of applicable jurisdictions;
  • considers Australia's PMC (its history and purpose);
  • outlines concerns with research (its limitations and its communications to the committee); and
  • details our concerns in particular with indexing this tax to the CPI.

International experience of the PMC

1.7        A number of countries levy a tax on passenger departures or arrivals by air. This includes the United Kingdom, France, Germany, Austria, Ireland, the United States, India, South Africa and New Zealand. In some cases the tax has been implemented for a number of years (for instance, the UK has had a PMC in place since 1994), and in others it is quite a recent phenomenon: Germany and Austria introduced departure taxes as recently as this year.

Aviation tax rates for selected countries;[2] figures in AUD correct as at 18/6/12

France

  • €4 (A$5) within the European Union
  • €7 (A$10) for other destinations

Germany

  • €8 (A$11) for journeys less than 2,500km
  • €25 (A$34)  to €30 (A$41) for longer distances
  • The German airlines association, BDL, claims that the tax introduced in Germany in 2011 has reduced the number of airline passengers in Germany by approximately 5 million. It also claims the airlines have lost some €740 million (A$947.7) in ticket sales, €500 (A$640.4) million of this has been borne by the German airlines alone.[3][4]

Austria

  • €8 (A$11) for flights within the European Union
  • €40 (A$55) for longer flights

New Zealand

  • NZ$25 (A$19)

USA

  • US$14 (A$14) on arrivals[5]

South Africa

  • R190 (A$23)[6]

United Kingdom

The UK government has recently introduced changes to its Air Passenger Duty (APD), confirmed in its 2012-13 Budget. The following is a summary of these changes:

  • Increase APD, effective 1 April 2012 (see Table 1). The new rates for 2012‑13 represented an 8 per cent rise over the 2011-12 rates
  • From April 2013, APD rates will be indexed to the Retail Price Index (RPI)[7]
  • The APD expanded to include private business jets of 5.7 tonnes or more, effective 1 April 2013
  • The rates were cut to the short haul rate of £12 for economy class and £24 for business class as of 1 November 2011[8] for direct long haul flights departing from Northern Ireland. Westminster also devolved the power to set these APD rates to the Northern Ireland Assembly. This decision was in response to fact that airports in Northern Ireland faced competition from airports in the Republic of Ireland, where the equivalent tax is lower.[9]
 
APD figures in the UK

Table 1.1 United Kingdom Air Passenger Duty (APD) charges effective 1 April 2012 (AUD figures correct as at 18 May 2012)

APD rates for the 2012-13 financial year (as at 1 April 2012)

Distance from UK (miles)

Max band distance (kms)

Reduced rate (lowest class of travel)

Standard rate (other than lowest class of travel)

GB£

A$

GB£

A$

Band A (0-2000)

3218.7

13

20.8

26

41.6

Band B (2001-4000)

6437.3

65

103.9

130

207.8

Band C (4001-6000)

9656.1

81

129.4

162

258.9

Band D (6001 and over)

-

92

142.0

184

294.1

Source: HM Treasury, Reform of the Air Passenger Duty: response to consultation, December 2011, London, available at:
http://www.hm-treasury.gov.uk/d/condoc_responses_air_passenger_duty.pdf (accessed 18 May 2012).

Table 1.2 Expected revenue from the Air Passenger Duty (APD) charge (AUD figures correct as at 18 May 2012)

Expected revenue from APD

Year (ending 31 March)

G B£ (billions)

A$ (billions)

2010-11

2.2

3.5

2011-12

2.6

4.2

2012-13

2.8

4.5

2013-14

2.9

4.6

2014-15

3.2

5.1

2015-16

3.4

5.4

2016-17

3.8

6.1

Source: HM Treasury, Autumn Statement 2011, Table C.3, November 2011, Printing Office, London, available at: http://cdn.hm-treasury.gov.uk/autumn_statement.pdf (accessed 18 May 2012).

Response from industry

1.8        The tourism and aviation industries in the United Kingdom have vigorously opposed these changes. Further, concerned stakeholders have called for the abolition of the APD altogether, as they claim such charges distort the market and compromise the competitiveness of the industry and the UK economy.

1.9        The World Travel and Tourism Council commissioned an Oxford Economics report into the economic impact of the APD. The report summary findings were as follows: 

Abolishing the Air Passenger Duty would raise the UK "gross value added" by between £1.8 billion and £2.9 billion in 2012, due to the boost to aviation and tourism sectors from increased passenger numbers. This would create an estimated extra 38,000 to 61,000 jobs.

The extra income available for consumers from lower airline ticket prices provides a stimulus to consumer spending, and could raise the UK "gross value added" by £1.3 billion and 30,000 jobs.

The overall benefit to the UK economy could be up to 91,000 jobs and £4.2 billion.[10]

1.10      Additionally, British Airways has claimed that it has had to reduce its employment expansion plans by about half, from a projected 800 jobs, and has postponed plans to bring an extra Boeing 747 into service.[11]

Amount of revenue raised

  • In its 2011 budget, the Irish Government estimated its travel tax would raise about €110 million (A$151 million).[12]
  • Upon introduction of the tax in Germany, the government stated that they expected to raise about €1 billion (A$1.4 billion).[13]
  • In the UK, the tax raises about £2.5 billion (A$4.0 billion) a year. This compares with £1.2 billion (A$1.9 billion) raised by other European Union countries.[14]

Recent developments in international PMCs

1.11      The tax has sparked much debate between the airline industry and relevant European governments in recent years, generally by governments introducing or raising aviation taxes at a time when many European airlines argue that they are struggling to remain competitive.

1.12      The German and Austrian governments introduced air travel taxes effective from the beginning of 2011,[15] with the German government branding its tax as an 'environmental' tax aimed at reducing air and noise pollution.[16]

1.13      In 2010 the UK proposed replacing the existing APD with a per-plane duty. However, after consulting with industry stakeholders, it was decided that this proposal could be in breach of the UK's international treaty obligations.[17]

1.14      Interestingly, the UK Chancellor recently admitted that the existing APD was mostly aimed to raise revenue and not, as has been claimed by consecutive UK governments, a 'green' or environmental tax aimed at reducing aircraft emissions.[18]

1.15      The South African government raised its departure tax in its 2011 Budget from R150 (A$18) to R190 (A$23) (almost a 27 per cent increase).[19]

1.16      The Dutch introduced a departure tax in 2008 of €11.25 (A$15) for flights within the EU and €45 (A$62) for flights to other destinations. This tax was rescinded in 2009 after claims that it was driving airline passengers away from Dutch airports to airports in neighbouring countries.[20] According to the Association of European Airlines, the tax raised about €300 million (A$412 million) for the Dutch government, but cost the Dutch economy about €1 billion (A$1.4 billion) through lost passenger movements.[21] Schiphol Group, which manages Amsterdam's Schiphol International Airport, reported 4 million fewer passengers in 2009, equivalent to a decline of 8.4 per cent. This was attributed to the global economic crisis and the introduction of the passenger departure tax.[22]

1.17      The Belgium government announced a €40 (A$55) departure tax in 2008. After protests from affected airlines and airports, it ultimately decided not to introduce the tax.[23]

1.18      In 2011, the Irish government simplified and reduced an air travel tax that had been introduced by the previous government in 2009. The new rate was set at a flat €3 (A$4), down from €10 (A$14) for long haul flights and €2 (A$3) for shorter flights. The budget papers reveal that this measure is forecast to reduce revenue from this tax by €56 million (A$77 million); the Irish government stated that a recent decline in passenger numbers at Irish airports had more to do with the economic crisis and a weak UK pound, relative to the Euro, than the introduction of the Air Travel Tax.[24]

Summary of the international experience

1.19      Some form of passenger departure tax is levied by several governments around the world. These taxes are fairly controversial and generally met with discontent by aviation industry stakeholders. Many in the industry argue that departure taxes undermines the competitiveness of local airlines and drives passengers away to neighbouring airports (often in different countries) to avoid the tax.

1.20      Aviation industry research indicates that these taxes tend to have a larger deadweight loss than revenue raised. However, Irish government research notes that the impact of its Air Travel Tax is probably minimal, and that the prevailing economic conditions are far more important, and other governments argue that the taxes are part of an emissions reduction strategy. The aviation industry generally considers aviation taxes to be a revenue raising exercise, and indeed the UK government recently admitted that this was the main purpose of the APD in the UK.

Australian experience of the PMC

1.21      The PMC is a departure tax levied on all passengers departing Australia. The Australian Government has announced that the PMC will rise from $47 in 2011-12 to $55 in 2012-13, representing an increase of air ticket prices of about $8 per passenger.

1.22      According to the Tourism & Transport Forum (TTF):

This will mean a family of four from New Zealand, Australia's biggest source market, will pay more than NZ$280 just to leave our country... [reducing] the amount of money they spend while they're here, and that reduction in economic activity will threaten jobs.[25]

1.23      The rise represents a 17 per cent annual increase, compared to an expected CPI of only 3.25 per cent.

1.24      When the ALP came to power in 2007, the PMC was $38. This year's rise to $55 represents a 45 per cent increase in just five years, or 4.5 times the increase in annual CPI during the same period. Future PMC rises will now be indexed to the CPI, meaning ongoing continual increases.

1.25      The government's 'tax on tourists', according to Treasury figures, will therefore collect as much as $1.04 billion by 2015-16. 

1.26      Of this revenue, Tourism Australia, the agency responsible for attracting international visitors to Australia and encouraging Australians to travel domestically, will only receive $134 million in 2015-16 – that, is for every dollar the government provides in support for tourism, it requisitions for itself nearly $8 from the sector.

History of the PMC

1.27      The PMC was introduced by the Keating Government in 1994-95, replacing the existing departure tax[26] as a $27 per-passenger measure to cover costs of customs, immigration and quarantine ($19), and funding to cover short-term visas ($8).

1.28      It was increased in 1998-99 to $30 per-passenger, to cover costs of Australian Tourist Commission and the See Australia campaign, which cost $58m over four years. It was again increased in 2001-02 by $8 to $38 per-passenger to boost screening for Foot and Mouth Disease at airports; in 2008-09 by $9 to $47 per-passenger with no explanation or reason given; and finally increased in 2012-13 by $8 and indexed to CPI, with 10 per cent of the increase earmarked for new Asia Marketing Fund. 

1.29      The PMC is currently $55 per-passenger, and rising (see Figure 1.1).

Figure 1.1 History and current status of the Passenger Movement Charge

Figure 1.1 History and current status of the Passenger Movement Charge

Source: KPMG Presentation to National Tourism Alliance Post Budget Forum, 9 May 2012. (See also TTF fact sheet 21 May 2012: "PMC – Stop Overtaxing Tourism")

1.30      Although the general trend of PMC increases under Labor is consistent with former Howard era, there are important differences: the Australian dollar reached parity with the US dollar in 2008 and has hovered in that vicinity until the present day, driving outbound rather than inbound tourism. Since that time, the industry has been experiencing market vulnerability and is much less robust to tax increases.

Cost recovery of customs, immigration and quarantine

1.31      The full cost associated with Commonwealth Offices at airports, including those of the relevant customs, immigration and quarantine agencies, is well known, despite the inability of the Australian Customs and Border Protection Service (Customs and Border Protection) to provide this answer to the committee at Estimates hearings. 

1.32      In November 2011, the Hon. Bob Baldwin MP, Shadow Minister for Tourism, placed a question on the Notice Paper regarding staff roles, distributions and funding for Customs and Border Protection, with no apparent increase in services provided through airports accounting for the increase in the PMC.[27]

1.33      The government cut Average Staffing Levels for Customs and Border Protection by 190 FTE in the 2012-13 Budget, but Customs and Border Protection has yet to announce if these will be head office bureaucrats or frontline officers. If the latter is the case the tourism industry would have grounds to propose a concomitant decrease in PMC.

1.34      Furthermore, the government is also shifting the cost of Australian Federal Police (AFP) officers at airports onto those airports corporations, which will likely attempt to recoup these costs through increased airline charges and therefore increased passenger ticket prices. The ALP has yet to expressly link the latest PMC increase to AFP costs; the Tourism and Transport Forum has announced it will review the upcoming Auditor-General's performance audit of the AFP to see such a link exists as a possible pretext for the increase in the PMC.

Cost recovery of marketing

1.35      The Coalition increased Tourism Australia funding along with increases in the PMC. Conversely, PMC increases have continued under Labor, whereas their funding for Tourism Australia has decreased: the real term dollar decrease in funding from 2007-12 was $18,946 (representing a reduction of approximately 16 per cent), and this reduction is estimated over the period of 2007-16 to grow to $22,943 (a reduction of approximately 19 per cent) (Figure 1.2).

Figure 1.2 Tourism Australia funding (A$) in real terms

Figure 1.2 Tourism Australia funding (A$) in real terms

Exotic disease and invasive pest screening

1.36      Although Foot and Mouth Disease risk has reduced markedly since 2001, Australia must remain vigilant in preventing the introduction of a range of other virulent and dangerous diseases. The cost of Foot and Mouth Disease detection has been replaced by the ongoing need to screen for other diseases and pests, including SARS and the Hendra virus.

1.37      The tourism sector understands its obligation to maintain the $8 per-passenger component of the charge to manage incursions by exotic diseases and pests, assuming that this is the main source of the PMC increase. The costs of this challenge should, however, continue to be shared fairly by the agriculture and tourism industries, as well as the customs, immigration and quarantine agencies. The tourism industry's share of the burden should not increase separate to other relevant portfolios, and an increase in the PMC is not shared by those other portfolios.

1.38      To prevent double counting, the government should design, and cost, a thorough on-going screening process for a range of risks, including a simple set of measures at all air and sea ports to cover the gamut of risks, with the administration cost shared across the relevant portfolios.

Concerns over research

1.39      The tourism industry has real concerns that little appropriate research has been undertaken to understand the potential impacts of the proposed increase and future indexation of the PMC.

1.40      The research that has been done is based on hypothetical elasticities of demand, which ignore the different impact that such a charge will have on inbound international passengers as opposed to outbound Australian travellers. Further, it ignores the significant difference between Australia's long-haul travellers and those from the UK or the US (for example), where the PMC makes up only one or two per cent of the total fare, and our key short-haul markets where the PMC makes up a much more considerable share of the total airfare.

1.41      For New Zealand, our top source market which represents one in five of Australia's international visitors, the PMC can make up almost one quarter of the total fare. The industry is concerned that no specific work has been undertaken to determine the impact on these key short-haul markets.

1.42      We note that the committee was not directly furnished with the research that was presented to the Department. Key concerns of the authors of this dissenting report regarding the research are as follows:

  • the relevant research, dated 15 March 2012, was not publicised widely (as the Department indicated to the committee), but provided after the Budget during the Estimates hearings;
  • the committee was not furnished with a copy of this research, rather a two‑page assessment thereof by the Department (appearing on the committee's website). Coalition senators obtained a copy of the research proper through our own initiative;
  • Coalition senators were not informed by the Department of shortcomings which include that the research did not adequately consider:

(a) the disproportionate impact on inbound tourism versus outbound tourism; and

(b) the differentiated impact on short-haul versus long-haul markets;

  • the research shows that although the Australian economy benefits as a whole, it will be at a cost to the tourism industry: 'There is an unambiguous negative impact on the tourism industry';[28]
  • this suggests that the PMC works, in effect, as a transfer payment from tourism to non-tourism industries, as most of the total economic positive effects accrue to the non-tourism industries.[29]

Concerns over CPI indexation of the PMC

1.43      At a general level, hypothecation leads to lumpy budgetary flows, removes the freedom of the Treasurer to apportion budgets according to need, and creates unnecessary complexity in what is already a difficult process.

1.44      Coalition senators consider CPI indexation as an unreasonable and most unacceptable proposal to apply as an annual increase for the PMC, as the PMC is already set at a level which the industry strongly feels represents an over-collection for government services specially provided for the facilitation of passenger movements.

1.45      Over the intervening years since the PMC was introduced, many levies and charges have been added but not repealed once the campaign associated with the levy has ceased. This has left an artificially inflated base rate on which the PMC has been increased. Placing CPI increase on what is already an over-collected base rate is inappropriate.

1.46      There is no correlation between a CPI increase and increased costs associated with passenger movements. As modern facilitation methods are rolled-out, such as SmartGate and other screening services, it is not reasonable to connect going forward the PMC increase to CPI. The CPI can experience significant increases or decreases along with economic conditions, and that pattern may not necessarily be in line with the travel and tourism industries at the time, creating a significant disconnect between the increase and the state of the industry.

1.47      Locking in a per cent increase relative to the CPI is again completely inconsistent with the tourism industry price elasticity. Travel and tourism pricing has a much broader and global elasticity which again would demonstrate that CPI is inconsistent as the benchmark for the movement of the tax. Such a tax would impose an automatic increase on the price of travel to and from Australia, without any regard for the global market conditions.

1.48      Any suggestion that the travel and tourism industries will be in a position to absorb an automatic PMC increase year on year, without consideration of mitigating economic factors, is a clear demonstration that the government does not understand the global ramifications and competitiveness of the travel and tourism industries, and is an insult to these industries which already contribute significantly on a range of other taxes and as a backbone employer of the nation.

1.49      Following the committee's public hearing into the PMC Bill, Coalition senators have been further informed in our thinking and motivated by a number of avenues, including:

  • a public affairs campaign led by Tourism and Transport Forum, the Australian Tourism Export Council, the Australian Federation of Travel Agents and the National Tourism Alliance, which focuses on the need to prevent CPI indexation as a minimum;
  • counter arguments put by industry following Minister Ferguson's assessment that 'our PMC is in line with Europe' (in fact, Australia will become the developed world's most expensive destination in terms of passenger departure taxes);
  • doubts over the constitutionality of hypothecating tax collection (both in and of itself, and for expenditure in a different portfolio);
  • concerns over comments by the Prime Minister on the Seven Network's Sunrise program, inferring that the PMC was relevant only as a positive measure designed to limit outbound tourism by Australians (contradicting the two-page submission to the committee by the Department); and
  • evidence that the government has misrepresented research of Tourism Research Australia (citing the National Visitor Survey) by promoting the idea the sector is recovering from the Global Financial Crisis.

Recommendation 1

1.50             Coalition senators recommend that the Passenger Movement Charge Amendment Bill 2012 be amended to remove provisions providing for CPI indexation of this tax in future years.

 

Senator Gary Humphries
Deputy Chair 		Senator Sue Boyce Senator Michaelia Cash

Navigation: Previous Page | Contents | Next Page