Reducing the rate of tax that airline passengers have to pay when departing from any airport in Northern Ireland could potentially cost the North more than it would deliver for the local economy, according to a new report published today.
Every passenger that departs from a UK airport must pay Air Passenger Duty (APD) although rates vary depending on the destination and ticket class, most people currently pay £13 on the price of a short-haul ticket.
In the South there is no equivalent of APD because it was abolished by the Irish government last year.
Two years ago the British government devolved APD on direct long haul flights from the North to the Northern Ireland Executive and the air tax was abolished in a bid to secure the Belfast to New York service with United Airlines.
Since then local airports and airlines which fly to and from Northern Ireland have campaigned to have APD scrapped completely.
Many argue that the current tax arrangements encourage Northern Ireland residents to travel to the Republic to access flights.
According to the Dublin Airport Authority more than 570,000 people from the North used the airport in 2013.
From next May the British government has decided that the air tax will be abolished for children under 12 and the following year for children under 16.
Leading industry figures including Willie Walsh, the chief executive of International Airways Group, have warned that they believe current levels of APD are damaging the North's economy.
But a major study carried out by the Northern Ireland Centre for Economic Policy (NICEP) has concluded that the net economic benefits of reducing the air tax would be relatively small because the Executive would have to pay for it.
The North’s Finance Minister Simon Hamilton said today: “According to EU rules, any reduction in APD rates in Northern Ireland alone would have to be funded from our own public finances.
“This tax is imposed and set by the UK Government and the onus is on it to deal with this at a national level. We will continue to stress to the Government that APD is an unfair tax which has an adverse impact upon travellers departing Northern Ireland’s airports.”
In its report the NICEP examines a number of scenarios and highlights that even if the British government were to devolve APD to the North there remained a “significant risk around the open ended nature of the cost” particularly if the British government at any stage decided to increased APD rates.
The NICEP said while there was evidence to suggest that “connectivity” was a critical factor in the investment decisions of companies but that the number of routes available was a bigger factor than the cost of the airline ticket.
According to the North’s Enterprise Minister completely abolishing APD from local airports is unlikely to “deliver a positive net benefit to the local economy” at this time.
Arlene Foster said: "The central conclusion from the report is that, when the cost to the public finances in Northern Ireland is taken into consideration, APD is not considered to be a strong economic development tool."
