When Ryanair gets serious...

Dannyboy83

Hello,

I thought this post was interesting.

Link: http://trueeconomics.blogspot.com/
Author: Dr. Constantin Gurdgiev

Per my continued opposition to absurd tax measures, see the following statement from Ryanair and my comment below:


Apart from landing another rainy cloud on Mrs Coughlan's fine parade (after all it does call Tanaiste out as being somewhat disingenuous in her claims), this statement is worth looking at a bit closer:
If the Irish economy is losing €600mln in tourism revenue, the VAT on this loss will likely be ca €80-100mln (as some services bear reduced VAT). This is the first round of losses to the Exchequer.
But every euro spent by a tourist in this country goes to pay for goods and services here, which in turn generates banks deposits and payments to suppliers. These payments are then used to generate new economic activity, thus triggering a second round of tax receipts. And the merry-go-round then goes on to the third round and so on.
Given the average OECD private spending multiplier is approximately equal to the M1/M3 multiplier, which is roughly 3.8-6 (depending on the range of years chosen, with the lower number coincidentally referring to the years of the most recent global markets boom), then these losses are indeed much greater than those claimed in Ryanair note.
Back of the envelope calculation suggests the Exchequer will be foregoing some €120-250 million more in revenue on top of the first round losses. And this is before we factor in income taxes and other taxes, such as charges on fuel that foreign motorists might pay while touring Ireland.
So we are now back to the old equation: put a €10 tax in place, lose some €100-230 million in revenue. Good luck running the country with these mathematics...
Note: that article attacking my and Ryanair analysis of the travel figures that predicted the yet-to-materialise substitution effects of Irish travel tax is available from the Irish Times site (here).

This would seem to prove that there is no case for further taxes on the economy (or certain sections or if at least), the government have already reached the threshold before dimishing returns/losses.

The second linked article to the Irish Times at the bottom, which suggests a tourist tax will be good for the industry, seems a tad far fetched.

What is your opinion, do you believe the government should repeal the tourist tax?

eoinbn

I would question the numbers. How do Ryanair know that less passengers are flying to Ireland directly because of the €10 tax? From a british PoV it would have a lot more to do with strength of the euro and the general high prices in this country.

P. Breathnach

Dannyboy83 wrote: »

...This would seem to prove that there is no case for further taxes on the economy (or certain sections or if at least), the government have already reached the threshold before dimishing returns/losses.

I see no evidence for that in the piece by Gurgdiev, or in the Irish times piece he linked. Are we to accept O'Leary's suggestion that the travel tax is the main, or even a significant component, in the fall in people making trips overseas?

The second linked article to the Irish Times at the bottom, which suggests a tourist tax will be good for the industry, seems a tad far fetched...

In what way is it far-fetched? If somebody decides not to take an overseas trip, then the money that might have been spent on that trip is available to be spent here. As the Irish Times piece puts it

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.

That seems to me very reasonable as a single proposition. The Times piece, however, does not actually contend that this is what is happening; it also argues that the basic premise is flawed; in effect, O'Leary is wrong about the travel tax being the main cause of passenger numbers falling, and even if he were right, the effect on the Irish economy might be good rather than bad.

There might be some substitution of Irish holidays for overseas ones, but I don't think the travel tax is a significant factor. Irish hotels and restaurants are offering far better deals now than they were doing in the not-so-distant past.

meglome

Here's one thing we do know... Ireland is expensive. So it would seem to me that the cheaper people can get here the more likely they are to come here, even if it is expensive. Whether or not his figures are correct is another story.

Diarmuid

P. Breathnach wrote: »

That seems to me very reasonable as a single proposition.

Really? That all the people who are not now going on a foreign holiday are instead going on an Irish holiday and are spending the same money at home. Pull the other one.

bijapos

The debate is ridiculous. There are dozens of reasons why someone picks (or doesnt pick) Ireland as a holiday destination. €10 tax has nothing to do with it. If someone abroad, say Germany, fancies a break they will have decided on Ireland on a lot of criteria, reputation, costs, hearsay, weather and so on. Flight prices in Europe are very similar at any given time, taxes etc are not itemised so when I book a ticket from Frankfurt to Dublin return I don't know where the €38.65 tax is going, I don't care either. Its the end price that matters AND YES MR O'LEARY THIS INCLUDES €10 FOR BOOKING WITH MY F***ING CREDIT CARD.

O'Leary has moaned about this since it was introduced, I personally don't like it but it has absolutley nothing to do with the amount of people flying in or out of this country. If someone is due a holiday and they intend spending say €1300 for two weeks away, including food, drink etc. do you really believe that they are going to cancel this for a €10 charge on thair flight. No they aren't.

If Ryanair wanted to even this out they could drop the €10 credit card charge but I don't seeing them slaughtering this particular cash cow just yet.

An idea was mooted a couple of weeks ago that the government gives free flights to tourists coming here, this I think is a good idea and worth another look. Something along the lines of filling empty seats on Aer Lingus, or Ryanair if they want at a certain price, say minimum stay 4 nights, possibly including a weekend. Why not? But pandering to O'Learys lobbying for no valid reason? No thanks.

P. Breathnach

Diarmuid wrote: »

Really? That all the people who are not now going on a foreign holiday are instead going on an Irish holiday and are spending the same money at home. Pull the other one.

That's not what I said, nor was it what was said in the passage I quoted from the Irish Times.

KindOfIrish

P. Breathnach wrote: »

There might be some substitution of Irish holidays for overseas ones, but I don't think the travel tax is a significant factor. Irish hotels and restaurants are offering far better deals now than they were doing in the not-so-distant past.

Are they offering sunshine nowadays as well?:)

craichoe

bijapos wrote: »

The debate is ridiculous. There are dozens of reasons why someone picks (or doesnt pick) Ireland as a holiday destination. €10 tax has nothing to do with it. If someone abroad, say Germany, fancies a break they will have decided on Ireland on a lot of criteria, reputation, costs, hearsay, weather and so on. Flight prices in Europe are very similar at any given time, taxes etc are not itemised so when I book a ticket from Frankfurt to Dublin return I don't know where the €38.65 tax is going, I don't care either. Its the end price that matters AND YES MR O'LEARY THIS INCLUDES €10 FOR BOOKING WITH MY F***ING CREDIT CARD.

O'Leary has moaned about this since it was introduced, I personally don't like it but it has absolutley nothing to do with the amount of people flying in or out of this country. If someone is due a holiday and they intend spending say €1300 for two weeks away, including food, drink etc. do you really believe that they are going to cancel this for a €10 charge on thair flight. No they aren't.

If Ryanair wanted to even this out they could drop the €10 credit card charge but I don't seeing them slaughtering this particular cash cow just yet.

An idea was mooted a couple of weeks ago that the government gives free flights to tourists coming here, this I think is a good idea and worth another look. Something along the lines of filling empty seats on Aer Lingus, or Ryanair if they want at a certain price, say minimum stay 4 nights, possibly including a weekend. Why not? But pandering to O'Learys lobbying for no valid reason? No thanks.

Its already proven,
http://www.anna.aero/2009/05/01/schiphol-hopes-to-reap-benefits-of-scrapped-government-tax/

When they tried it at Schiphol they saw an immediate decline of 5%.

I know from living in Germany that they look for the best value and introducing charges like this will just make them go elsewhere.

its a VERY Irish attitude "Ah sure its only 10 euros"

So its already been tried and found to have a negative impact, i don't think its something that can be argued in a positive light.