Merkel Government Unbending on Air Tax as Lawmakers Seek Review

The German Finance Ministry ruled out a change in the air traffic tax carriers including Deutsche Lufthansa AG (LHA) say hurts their ability to compete internationally as coalition lawmakers pressed for a policy review.

The levy, introduced in 2011 as part of an austerity package, didn’t prevent a record number of passengers taking off from German airports last year, Finance Ministry spokeswoman Nadine Kalwey said at a briefing in Berlin today.

“The air traffic tax is making an appropriate contribution to the taxation of mobility and therefore there are no plans to make any changes” to it, she said.

The comments came after members of Chancellor Angela Merkel’s coalition government pushed Transport Minister Alexander Dobrindt to reconsider policies airlines say inhibit their ability to compete against fast-growing carriers such as Dubai-based Emirates.

Germany’s “go-it-alone” policies such as the air traffic tax and Europe-only emissions trading are “weakening the German and European air traffic industry,” four coalition lawmakers said in a letter to Dobrindt, obtained today by Bloomberg News. The letter was first reported by Handelsblatt.

“This is especially true against the backdrop of the growing strength of global competitors that establish air traffic companies and air traffic hubs of significant strength and reach by means of large financial resources and strategic state support,” the lawmakers said in the letter, which is dated July 4.

Phase Out

Any additional general tax revenue should be used from 2016 to phase out the air traffic tax, the lawmakers said. In return, carriers should invest in new, less noisy aircraft and commit to maintaining jobs in Germany, they said.

While Merkel’s Christian Union bloc and the Social Democrats discussed abolishing the tax when they negotiated their coalition contract after federal elections in September, the sides concluded that balancing the budget takes priority, Transport Ministry spokesman Ingo Strater told reporters at today’s briefing.

The push for policy change highlights divergences between coalition members seeking to ease the strain on the aviation industry and those focused on reducing the budget deficit before the next federal election in 2017.

Lufthansa, whose planes make more departures from German airports than any other airline, paid the German government more than 1 billion euros ($1.3 billion) in air traffic taxes in the past 3 years. The company has called the tax “competitive discrimination.”

Chief Executive Officer Carsten Spohr on April 29 said fast-expanding Gulf carriers pose the biggest challenge to Lufthansa because they operate in a more lenient economic and regulatory environment.

Dobrindt plans to continue to monitor the impact the tax is having on the air transport industry, Strater said. The ministry is working on a new aviation concept.

Airlines in other European countries also complain that they face an excessive tax burden, with carriers including British Airways, Ryanair Holdings Plc and EasyJet Plc singling out the U.K.’s air-passenger duty for criticism.’

To contact the reporters on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net; Birgit Jennen in Berlin at bjennen1@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Angela Cullen, Eddie Buckle

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