Economics 02/08/2009: An idiot's guide to tax policy

Remember that senile reply that the Irish Times has published to my conjecture that higher taxes in Irish airports will hurt Irish tourism and ultimately will cost the Exchequer? Feel free to refresh this case here and here - the original piece that caused the Irish Times editorial page implosion).

Well, don't take my word for it, or CSO's figures - these are not sufficient for our wise ex-IMF Directors. Here are the hard jobs...

"Ryanair, the World’s favourite airline, today (30 July 09) announced 20% flight cuts at its Dublin base for the coming winter schedule (09/10). Compared to winter 2008/09, when Ryanair based 18 aircraft, and operated 1,200 weekly flights, Ryanair’s Dublin schedule this winter will be cut by 22% to 14 based aircraft with 20% fewer flights at less than 1,000 each week. Ryanair estimates that its Dublin traffic this winter will decline by a further 250,000 passengers compared to last winter’s figures, as Dublin Airport loses over 2m passengers overall in 2009.

Ryanair’s decision to cut based aircraft flights at Dublin Airport is for the following reasons:
a) Dublin is one of Ryanair’s two most expensive base airports (Stansted is the other).
b) Costs at the DAA monopoly continue to increase at above inflation rates.
c) The Aviation Regulator continues to rubber stamp unjustified Dublin Airport cost increases while costs at most other UK and European airports are falling.
d) The Irish Govts €10 tourist tax makes Ireland an uncompetitive tourist destination at a time when other European Governments have scrapped their tourist taxes.
e) Traffic at Dublin airport is collapsing (down 11% or 1m fewer pax in the first half of 2009) under the weight of these high airport fees and this stupid tourist tax.

The fact that the DAA monopoly are proposing further price increases at a time when most other UK and European airports are reducing their prices, highlights the damage being done to Irish aviation and tourism by this high cost, inefficient, badly run airport monopoly. Ryanair has repeatedly called on the Government to scrap the €10 tourist tax which has had an equally devastating impact on Irish tourism. Ireland cannot grow tourism by taxing tourists. The Belgian and Dutch Governments have recently scrapped their tourist taxes, and the Spanish and Greek Governments have reduced their airport fees in some cases to zero this winter in order to reverse traffic declines.

Ryanair’s Michael O’Leary said: “...The high and rising costs at Dublin Airport, combined with an insanely stupid €10 tourist tax, are devastating tourism here in Ireland. These cuts come just one day after Ryanair announced 39 new routes to the Canaries this Winter where the Spanish Government has reduced airport fees to zero. Last week Ryanair announced 11 new routes to Oslo airports this winter where again airport fees have been substantially reduced. The response of the Government owned DAA monopoly to this 11% traffic collapse is to seek yet further price increases! The incompetent Irish Aviation Regulator has already proposed that Dublin airport charges for 2010 onwards will be “18% higher” than they would be if the DAA’s traffic was not declining. Sadly the DAA gets rewarded by the regulator with price increases for its abject failure to grow and stimulate traffic."

So how much revenue to the economy and the Irish Exchequer is being lost? May be Michael O'Leary can sum it up.

I have nothing to add, other than perhaps to ask the Irish Times editorial team to filter economically illiterate arguments out of its pages in the future - just because someone writing an article signed 'ex-director of IMF and career ex-civil servant from Ireland' doesn't mean that they actually have much to say that is valid. Quite likely, it means the opposite...