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Land Value Tax in action (2)

From the BBC:

Russia’s foreign ministry has condemned the EU’s call for Europe-based airlines to avoid Belarusian airspace, calling it completely irresponsible. Spokeswoman Maria Zakharova, commenting after Russia had denied entry to two airlines that planned to avoid Belarus, said passenger safety was at risk…

Belarus will lose out on millions of dollars a year in over-flight fees as a result of European airlines avoiding its airspace.

Airspace is ‘land’ for economic purposes. It’s just there ‘for free’, nobody created it and there is a fixed amount – but it has a value to airlines in the same way as roads have value to road users, or the radio spectrum has value to broadcasters and mobile phone companies. Motorists are prepared to pay high taxes on fuel (as a crude but simple and effective form of road pricing) and airlines are prepares to pay to use airspace.

This is a far more efficient way of taxing air travel than Air Passenger Duty. There’s only so much you can wring out of airlines, which is the true ‘unearned’ element of ticket prices – where and when the departure and arrival (location value = unearned) has far more impact on ticket prices than the distance actually travelled (work actually done = earned) . If you impose an inefficient tax like APD you will not maximise revenues. APD acts like VAT or Sales Duty, so it puts marginal airports out of business (no revenue at all) and only captures part of the value attached to landing slots at major hubs (Heathrow, Gatwick etc) at a convenient time of the day.

The maximum that governments can wring out of air travel is to apply LVT principles – the countries of arrival and departure should auction off landing slots in (the same as radio spectrum auctions) and the countries in between charge over-flight fees. Some routes mainly fly over the oceans, where there are presumably no over-flight fees; this in turn boost the value of landing slots at each end; if a country gets too greedy with over-flight fees, airlines will avoid it and take another route, meaning the full value can  always be collected.

Provided the revenue collected exceeds the true costs to the countries concerned (noise and air pollution, impact on wildlife, the small risk of crashes etc), everybody’s happy; if not, they shouldn’t be flying there, such routes are clealry a poor use of resources.