DUTCH MOVING AHEAD WITH CONTROVERSIAL AVIATION TAX

C O N F I D E N T I A L SECTION 01 OF 02 THE HAGUE 000331 SIPDIS SIPDIS STATE FOR EEB/TRA/OTP (MWALKLET-TEAGHE) STATE ALSO FOR EEB/TRA/AN (MFINSTON) STATE ALSO FOR EUR/WE (TSMITH),EUR/ERA (PWALKER) USDOC FOR 4212/USFCS/MAC/OWE/DCALVERT LONDON FOR FAA CBARKS MONTREAL PASS TO USICAO USEU FOR KMORENSKI E.O. 12958: DECL: 04/09/2018 TAGS: EAIR ECON ETRD SENV EUN NL SUBJECT: DUTCH MOVING AHEAD WITH CONTROVERSIAL AVIATION TAX REF: STATE 24750 Classified By: ECON Chief Karen Enstrom, reasons 1.4 (b) and (d) ¶1. (C) SUMMARY: The new Dutch aviation tax is on track to take effect July 1, despite opposition from parts of the business community and the public. A March 19 court ruling dismissed complaints brought by the air travel industry, clearing a potential obstacle to implementation. Dutch aviation officials say privately that there is some disagreement within the government about the tax, which has become a political and fiscal -- rather than environmental -- issue. Nevertheless, they are resigned to the tax going forward. END SUMMARY. -------------- WHAT IS THE TAX? -------------- ¶2. (U) The new aviation tax will take effect on July 1, 2008, and will be levied on each passenger departing the Netherlands by air. In fact, travelers purchasing tickets now for flights on or after July 1 are already paying it. The tax does not/not apply to transfer passengers or cargo flights. The tax will cost EUR 11.25 (USD 17.66) for flights up to 2500 kilometers and EUR 45 (USD 71) for longer flights. The GONL will impose the tax on the companies that operate the Netherlands' airports, on the assumption that they are capable of submitting tax returns based on data supplied by the airlines. The measure is expected to yield EUR 350 million (USD 550 million) per year in revenues for the central government. ¶3. (U) The current Dutch government under Prime Minister Jan Peter Balkenende, which took office in February 2007, introduced the aviation tax as part of its environment-friendly election platform. Ministry of Finance State Secretary Jan Kees de Jager announced his rollout plan for the tax in a March 2007 speech in Brussels. He pushed the measure as a way of making the Dutch tax system "greener." Acknowledging that it may prompt Dutch travelers to fly from Germany or Belgium instead, de Jager raised the idea of an EU-wide tax as an ideal solution. However, he explained that "the Netherlands does not want to wait" for EU consensus. He also stated that he welcomed proposals to bring air traffic into the EU's emissions trading system (ETS),as a complement to the aviation tax. -------------- COURT DECISION CLEARS WAY FOR IMPLEMENTATION -------------- ¶4. (U) A group of tour operators, airports, and airlines tried to block the new tax in court. They argued that it is inconsistent with international and EU rules and agreements. Maastricht Aachen Airport and Ryanair also objected on the grounds that the tax amounted to disguised state aid and put them at a competitive disadvantage relative to Schiphol Airport and Air France-KLM, which serve mainly transit passengers exempt from the tax. A district court in The Hague decided March 19 that the tax is "not indisputably inconsistent" with international and EU rules and agreements, nor does it constitute disguised state aid. This decision clears the way for the aviation tax to take effect July 1, as planned. -------------- -------------- PUSHBACK FROM INDUSTRY AND PUBLIC MIGHT LEAD TO EXCEPTIONS -------------- -------------- ¶5. (U) After the court ruling, Schiphol announced that the new tax would cost the Netherlands at least 12,000 jobs, an estimate that the government disputes. (Note: The independent Netherlands Bureau for Economic Policy Analysis estimates that the tax could lead to slower employment growth -- 5000 fewer jobs created -- by 2011. End note.) Corendon, a low-cost airline serving Turkey-Netherlands routes, has announced plans to move its operations from Maastricht airport to Liege airport in Belgium due to the new tax. THE HAGUE 00000331 002 OF 002 ¶6. (U) The government is showing signs of budging in the face of industry and public pushback. De Jager announced March 28 that he is considering whether to reduce the tax for some popular vacation destinations, such as Turkey and the Canary Islands, that would be subject to the higher EUR 45 fee. He added, however, that any reductions would not take effect until 2009 because many consumers have already paid the tax by booking vacations for after July 1, 2008. -------------- - DUTCH AVIATION OFFICIALS: THE TAX IS "RUBBISH" -------------- - ¶7. (C) The Transport Ministry's Director of Civil Aviation, Jan Willem Weehuizen, and the Director of the Netherlands Civil Aviation Authority, John van Lieshout, discussed the aviation tax in a March 14 meeting with Emboffs. Weehuizen and van Lieshout made no effort to disguise their displeasure with the aviation tax and those who are trying to sell it as an environmental measure. They said that because the government had publicly committed to raise EUR 350 million from this type of measure, Transport Minister Camiel Eurlings is now "stuck" supporting this "strange" tax. Weehuizen said the challenge remained to implement this tax "without too many distortions in the field." ¶8. (C) Weehuizen said there was some disagreement within the Dutch ruling coalition about whether the tax was legal. He anticipated receiving a letter from the European Commission with questions about the tax. He said that there was agreement within the Dutch cabinet not to impose one measure "on top of another" -- meaning that if the EU ETS covers air traffic in the future, then the aviation tax will be withdrawn. (Note: This would contradict de Jager's public statements; see para 3. End note.) -------------- COMMENT: A DONE DEAL -------------- ¶9. (C) The Dutch aviation tax appears to be a done deal, as travelers are already paying it on post-July 1 tickets. The Finance Ministry, which has taken the lead on this measure, may try to mollify some opponents of the tax by tweaking the arbitrary 2500-kilometer test that determines EUR 11.25 versus EUR 45 flights. Everyone Post has consulted about the new tax thinks it is bad economics. However, the tax is not about environmental or economic sense but about government revenue and fulfilling a political campaign pledge. Dutch civil aviation officials are resigned to the tax going forward and are, instead, focused on minimizing any distorting effects in the market. END COMMENT. Gallagher