OPINION: Ryanair claims the levy will see a fall in travel, but will tourists spend more at home instead?
READING OR listening to comments on the merits or otherwise of the recently introduced €10 travel tax, one could be forgiven for thinking that it’s all been a big boo-boo – that Ireland loses seriously as a result.
The latest in Ryanair’s long series of critical comments emerged recently with the announcement of reductions in its planned winter flight schedules from Shannon and Dublin. It alleged in a press statement on June 17th that, if the fall in travel seen thus far this year continues, “it will mean the loss of 2.5 million passengers, 2,500 jobs at Dublin airport and €750 million of tourism spend in the Irish economy in 2009”.
And it’s not just after the Government on travel tax. On June 14th, Ryanair asserted that the UK’s similar tax may cut passenger traffic through its airports by 10 million, as a result of which the UK “will lose . . . . over £2.5 billion in tourism spend in 2009 alone, with the government losing £350 million VAT receipts”.
The proposition that passenger numbers are falling essentially because of travel taxes, and that major economic and revenue losses are implied for the countries concerned seems to inform others’ conclusions too. An implicitly disinterested party (Constantin Gurdgiev in the Sunday Times of June 14th) also drew on the latest travel data from the Central Statistics Office (CSO) and the Dublin Airport Authority to damn the impost. He figured that “the total expected shortfall [vs 2008] in passenger traffic through Irish ports and airports for 2009 is expected to reach well in excess of 1.8 million round-trip passengers”.
“The implied cost to the Irish economy of this contraction would be about 1,800 permanent jobs and a loss for the exchequer of about €200 million,” he said. “That’s some return on the ridiculous €10 per passenger charge introduced in the 2009 budget and a lesson in economics 101 for our Government: hike taxes, see revenue fall.”
Serious stuff, if true. But is it? First, the key relevant facts.
As to change in numbers of travellers, the CSO reports that we Irish took 10 per cent fewer trips abroad during the January to April period this year than in the same period in 2008. Incoming numbers fell off by 6 per cent. The Dublin Airport Authority tells us that passenger numbers through Dublin airport fell by 990,000 through end-May – of course, reflecting declines in both arrivals and departures.
As to economic effects, the CSO reports that tourists spent an average of €610 last year in Ireland (including payments to Irish sea and air carriers), while the average Irish traveller spent €878 abroad (including payments to foreign carriers).
What does each tourist’s €610 do for our economy? Based on the CSO’s input-output data and my guess at how their spending is spread among the hotel, restaurant, recreation, transport (including car hire) and retail sectors, each tourist’s €610 generates about a net €200 of wages, €110 profits, €150 tax revenue, €30 depreciation and €120 of imports. By the same token, Irish people who holiday at home rather than abroad will generate wages, profits and exchequer revenue for Ireland that would otherwise have been lost to the country.
How do the Ryanair-Gurdgiev assessments stack up? First off, they rest on the proposition that declining international travel is entirely attributable to the imposition of the €10 travel tax.
In effect they are suggesting that the general economic downturn and associated job and income losses have nothing to do with loss of appetite at home and abroad for overseas holidaymaking or other travel.
Tell that to someone who’s seen his or her job vanish, has suffered a serious loss of overtime or is now working short time.
The impact of our €10 person travel tax is unlikely to be anything but minuscule by comparison with the effects of the economic downturn.
Second, both largely – if not wholly – discount the fact that the greater part of the fall-off in international travel to date reflects falling numbers of Irish people going abroad. Neither is upfront with their assumptions about how many of the 2.5 million (or 1.8 million, take your pick) decline in passenger numbers will reflect fewer Irish going abroad rather than fewer visitors coming here.
Ryanair is blatant on this. At a spend here of €610 per tourist arrival, the number of incoming tourists must fall by 1.25 million to cause their alleged fall of €750 million in tourism spending here this year – precisely in line with their assumed 2.5 million reduction in passenger numbers, which equates a decline of 1.25 million round trips. In other words, their case rests on the proposition that none of the fall-off in travel reflects fewer Irish going abroad – which is flatly contradicted by already available statistics.
Insofar as the travel tax does have an impact (there is bound to be some), it cuts both ways. It will hit inward and outward travel. The economic and revenue outcomes for Ireland will reflect the balance between losses due to fewer inward travellers and gains arising because fewer locals fly – and spend – overseas.
The decline of 136,000 visitors in January to April compared with the same period last year implies a reduction in tourism earnings from overseas of €75 million (in the early months of the year spending by our visitors, and by Irish going abroad, is a bit lower than the respective year averages). Over the same period, 248,000 fewer Irish people went abroad. If these had not stayed at home, they would have spent €200 million overseas, and total spending in the Irish economy would have been €200 million lower than it actually was.
If Ryanair and Gurdgiev want to argue that the €10 tourist tax is the key factor dampening appetite for travel, they should acknowledge that – thus far in 2009 at any rate – the tax has resulted in a substantial net gain of €125 million in overall spending in the Irish economy.
One cannot be precise about what this might have meant for employment, profits and tax revenues. We would need to know how the 248,000 Irish people who did not go abroad from January to April this year spent the €200 million they clearly did not spend abroad.
But let’s give an illustration. Suppose they simply substituted home for foreign holidays? In that case the travel downturn – caused by the travel tax, according to its opponents – would have pumped an extra €125 million into the Irish tourism sector in just four months. That’s enough to sustain more than 1,000 jobs for all of 2009, to raise profits in tourism-associated businesses by €25 million, and to deliver €30 million-plus extra tax revenue.
In my view, we overlook Irish holidays in favour of overseas jaunts rather more than we ought, given the relative economic merits of the two. Put simply, if the million-plus Irish who make multiple trips abroad each year took one less trip overseas in 2009, the consequent extra spending in Ireland would yield more than 50,000 jobs and €250 million tax revenue. If the €10 travel tax encourages us to stay at home, I’m all for it.
Cathal O’Loghlin is a former assistant secretary of the Department of Finance and former director of the International Monetary Fund