Tuesday, May 04, 2010

Socialism for the Rich (part three): Ryanair, state subsidies, and aggressive tax avoidance

While governments across the world slash and burn public expenditure on health, education and social welfare programmes, subsidies to 'capitalist enterprise' are unaffected. The Irish Times reports that Ryanair, a so-called low-cost airline, has been paid €35 million a year by French local authorities just to use under-utilised airports, and that rival airlines in Europe have been infuriated by what amounts to harmful competition. German airline Lufthansa, for example, claims that Ryanair would run at a loss if it were not for the huge subsidies, estimated at up to €660 million annually, it receives from state and local authorities across Europe:

"Lufthansa says that if Ryanair was stripped of free or subsidised airport services in addition to cash, in the form of “marketing support”, it would lose money. “If all the airport subsidies and support paid to Ryanair were taken away, its economic situation would be very different,” says the Thomas Kropp, a spokesman for the German airline."

Many regional airports operate at way below capacity level, forcing desperate local authorities to either bite the bullet and close them down, or subsidise airline operators through all manner of incentives, ranging from free ground-handling facilities to free aircraft cleaning services. According to the Irish Times:

"Not only were some airports providing free staff for Ryanair check-in desks, they also cleaned the planes for nothing. Ryanair aircraft often landed free of charge, and where fees were charged they were offset by the massive “marketing support” demanded by the airline. This marketing money meant that, in return for cash running into many millions, the airports and their regions were promised publicity on Ryanair’s website and in its in-flight magazine."

Not content with massive state subsidy, Ryanair is also alleged to be avoiding taxes by employing staff in continental Europe on Irish contracts, thereby significantly cutting its payroll tax bill. The Belfast Telegraph reports that Ryanair is under investigation by French authorities for avoiding up to €4.5 million in payroll taxes due on staff employed full-time in France. Under European Union law staff can only be employed on contracts issued in another EU state if they are either working on a temporary basis or are genuinely employed in a variety of different countries.

Ryanair's motives for employing French staff on Irish contracts are fairly clear. With huge disparities between the cost of payroll taxes in France and Ireland, with the former providing massive social benefits to its citizens which are simply not available in Ireland, the incentives to gain a competitive advantage over rival airlines are enormous, argues the Belfast Telegraph:

"French social security and other payroll taxes are up to three times higher than in Ireland and fall especially hard on the employer. By employing French-based staff on Irish contracts, Ryanair is accused of gaining an unfair competitive advantage and, in effect, cheating the French government."


Blogger Tim Worstall said...

Err, but I thought you lot were in favour of regional policy through targetted tax and governmental subsidies?

4:05 am  
Blogger TJN said...

Hi Tim

Au contraire. We consider most such tax incentives to be market distorting and harmful to public interest and the ecology. Its not even as if Ryanair and its rival low-cost airlines are new kids on the block, so we're not dealing with a start-up situation or addressing a market failure.

But why no comment on the aggressive tax avoidance?

best wishes

John Christensen

6:51 am  

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