T&E Study: Government Squanders Billions in Taxes on Air Travel

The German government missed out on four billion euros in revenue last year alone due to the under-taxation of the aviation sector. This is the conclusion reached by the environmental umbrella organization Transport & Environment (T&E) in a study published today. At the European level, tax losses due to the sector’s under-taxation exceed 34 billion euros.

“The federal government is missing out on billions to prop up an industry that not only destroys the climate but - like Lufthansa currently - is heading for new record profits. In times of high inflation and reduced social benefits, it is scandalous to hold on to tax exemptions for the most climate-damaging mode of transport. Finance Minister Lindner must finally fulfill his campaign promise and cut the most climate-damaging subsidies," said Sebastian Bock, Managing Director of T&E Germany.

With four billion euros, more than 100 new ICEs could be purchased annually, or the railway network could be digitized at a much higher pace with a budget 7.5 times greater, adds Jacob Rohm, advisor for climate-friendly mobility at the environmental and development organization Germanwatch, which is a member of T&E. As an example, the NGO calculates that an ICE costs up to 35 million euros. With 4 billion euros, significantly over 100 ICEs could be purchased annually. The Digital Railway starter package currently has a budget of 4.3 billion euros for 2023-2030, which amounts to about 538 million euros per year. With 4 billion euros per year, the budget for digitization could be increased sevenfold, resulting in corresponding capacity increases, they calculate.

Aviation on a Strong Growth Course

If the federal government takes no action, the study predicts that the lost tax revenues in Germany will increase by over 50 percent by 2025. The reason is the growth of the massively climate-damaging aviation sector. Eurocontrol estimates that traffic volume in Europe will already reach about 90 percent of pre-pandemic levels this year and 100 percent by 2025.

Demand for Kerosene Tax and VAT on Tickets

The NGOs call on the federal government to correct the exemptions. To close the tax gap, the study recommends imposing a fuel tax on kerosene and levying VAT on all tickets. Additionally, the emissions trading system should be extended to include departing flights that have a destination outside the EU. Until these measures are fully implemented, T&E recommends a German ticket tax at a sufficient level to close the projected tax gap of 6 billion euros in 2025. The study calculates the revenues that could be generated by abolishing tax exemptions, considering taxes that better account for the sector's catastrophic climate impacts. It identifies the so-called tax gap, i.e., the difference between appropriate and actual tax revenues in 2022.

Urgent Need to Shift to Environmentally Friendly Transport

In Germany, there is no kerosene tax, only a capped air ticket tax, VAT only for domestic flights, and a CO2 price that applies only to flights within the EU. Although the aviation tax generates revenue, it is capped at 1.75 billion euros per year in Germany. The study makes it clear that the proposed measures will lead to greater tax equity, a shift to more climate-friendly modes of transport such as trains, and CO2 savings. The impact on the environment is enormous: according to the study, 35 million tons of CO2 could have been saved last year if the taxation had already been corrected. When considering non-CO2 effects, the overall impact on the climate would be even significantly higher. To further advance the decarbonization of the sector, T&E suggests that tax revenues should be partially reinvested in green technologies, such as renewable fuels like e-kerosene. Germanwatch, in particular, suggests larger investments in the expansion of intra-European rail connections.