“We haven’t commissioned to the best of my knowledge any independent research of our own. If committee wishes me to look at that, I will certainly consider that absolutely.” – Derek Mackay on the Government’s (lack of) analysis into the proposed ADT cut.
The Scottish Government put out a call for evidence for their proposal to cut and eventually eliminate air passenger duty (or, as it’s now going to be known, Air Departure Tax).
It’s just as well that we’ve done this as it has since been reported that the Government itself has done precisely zero economic analysis of the impact of the tax cut and, as it turns out, our report is the only economically based submission which is against the tax cut (The RSPB have submitted an objection on the grounds of a very well founded environmental impact analysis). More than half of the other submissions and the bulk of those in favour of the cut are from companies and groups within the airport and airline industry. There is a great deal of concern that unless the government does pull its weight and do the maths itself then this policy could pass through simply on the say so of those who stand to benefit directly from the tax cut and at the expense of those who will lose out due to the impact on tourism and the lost revenue to public services.
Preface and Key Points below the fold.
This report forms a response to a request for opinion on the Scottish Government’s plan to cut Air Departure Tax (formerly Air Passenger Duty) by 50% starting in 2018 and to eliminate it entirely at an unspecified future date. There is significant evidence that the economic impacts of the cut will not be as great or as beneficial as has been claimed.
- Even under the most optimistic circumstances put forward by proponents of the tax cut, additional revenue is unlikely to replace revenue lost by the cut.
- The case for increases in tourist traffic is substantially undermined by the impact of cheaper tickets inducing more domestic tourists taking foreign trips instead. Overall tourism numbers are at risk of reducing as a result of this tax cut.
- The spending of inbound tourists are generally more weakly linked to the economy than the domestic consumers who more likely to be induced to leave which may lead to a reduction in gross value added to the economy even if tourist spending remains constant.
- The reduction of the value of the pound sterling in the aftermath of “Brexit” is likely to have a substantially greater impact on tourism than the ADT cut is capable of inducing. The tax cut can only partially subsidise this Brexit effect.
- The case for business growth due to a cut in ADT appears particularly weak as business flights are driven by need and time pressures rather than price.
- The case for an ADT cut encouraging more visits to Scotland for the purposes of international trade and business deals is particularly weak as long haul business flights between the UK and the US and Asia is almost entirely price insensitive.
- If an ADT cut results in a transfer of revenue from ADT to corporation tax there may be deeper implications for the robustness of the Scottish budget under the devolved tax structure. This will be exacerbated in the case of corporate profits transferred outside of the UK entirely.
- Whilst the economy most directly linked to airport traffic will see an increase, this increase will ultimately be capped by the capacity of the airports in question. The seasonal nature of tourist traffic will exacerbate this impact.
- The greater impact on the transport network due to increased traffic needs to be considered in light of this proposal as do the economic imbalances created by the ADT cut inducing greater traffic in the Central Belt but little growth elsewhere.
- If the reduction in revenue due to the ADT cut is not at least recouped in full then additional cuts in public spending may be required. The negative impacts on the economy of this additional austerity would then be dependent on precisely where those cuts occurred.