CAA Seeks Industry Feedback on Safety Tax

The saga of what has been a long drawn out and hard fought battle between the industry and government (through the CAA) commenced in 1984 when the latter initiated “The Independent Enquiry into Aviation Cost Recovery” which became known as the Bosch Report. It was the recommendation of that report that the government should continue to meet the costs of standard setting and enforcement, aiming to achieve full recovery of the costs of aviation safety regulatory services over a ten year period.

However, in 1990, to the concern of industry, the government announced that the industry would now bear the full costs of the safety regulation function. Following strong protests from all sections of the industry, this was modified in 1992 with the government stating it was prepared to fund a proportion from general taxation. The current position is that as from July 1 1995, general taxation will fund 50% of the cost of standards setting and compliance to a maximum of $22.8m per annum (indexed linked), with the balance to be recovered from the aviation industry.

The current cost of the safety regulation function is approximately $60m per annum which leaves a considerable shortfall which must be recovered, but the big question was from whom?

The question of who should pay

It has been a long held view within the industry that as the general public benefits from having a safe and reliable aviation infrastructure it should bear a share of the costs. At the same time, sections of the industry maintained that the users of the services provided, ie, the travelling public should also bear their share of the costs. The industry itself, which benefits from business or from pleasure, must of course bear its share.

In 1993 the CAA established a project team, which included specialists from the Strategic Services Group of Anderson Consulting, to identify the costs of, and to develop a long term funding strategy for, aviation safety regulation.

As a first step, the project team examined overseas funding strategies including those of New Zealand which is aiming at full cost recovery, the UK which recovers a substantial amount through industry taxation and licence fees, the USA which utilises passenger taxation and fuel excise, and finally Canada which fully funds the operation through general taxation. Apparently no overseas system met the government’s requirements.

The team next examined the major products and services provided by the Directorate of Aviation Safety Regulation (DASR), which has the primary responsibility for setting safety standards, providing regulatory services and ensuring industry compliance with the regulations. The team then proceeded to determine the main beneficiaries of those services as between the general public, travelling public and finally, industry. The next step was to explore the options between general taxation, industry taxation, licence fees and user charges.

The resultant funding strategy developed by the team and now put forward by the CAA for consultation purposes relies on a mix of:

• The government contribution from general taxation.
• A contribution from the travelling public (to be collected by a tax on Avgas and Avtur of about 1 cent/litre).
• An industry specific tax on the registration of aircraft.
• Annual licence renewal fees and user charges.

It should be particularly noted that at the same time there will be a reduction in fuel excise of 6.06 cents/litre on Avgas which will result in an overall reduction of 4.61 cents/litre. This will be of considerable benefit to the operators of piston engined aircraft, both business and private.

The following table sets out a summary of the proposed funding strategy: It will be noted that the proposed funding from the public purse is $1m more than the government’s stated limit of contribution of $22.8m. At presstime this had yet to be accepted by the government.

The effects of the proposed funding strategy

Whilst there will be little direct effect on individual members of the general public, and the travelling public will only see the outcome as a small rise in the costs of their airline tickets, there will be significant effects on the industry in terms of licence and registrations fees. This will particularly affect pilots, flight crew and Licensed Aircraft Maintenance Engineers (LAME) who will have to pay for the initial issue of a licence and its annual renewal. There will also be fees for examinations.

As an indication of the size of fees proposed the initial issue of a LAME licence will cost $170, with renewal for a two year period costing $70. Examinations (core/specific) will cost $80.

The initial issue of a PPL will be $75, CPL $220 and ATPL $255. Annual renewals will cost $13 for the PPL and $28 for both the CPL and ATPL. Exams for the latter will range from $52 to $157.

At the same time fees will be introduced for holders of Air Operators Certificates (AOC), Certificates of Approval (COA) and Airport licences. The cost of these will depend on the size of the operation but will range from as high as $130,000 for a high capacity RPT operator down to $200 for a charter licence. Similarly, COA licences will range from $42,000 for major overhaulers down to $300 for minor component overhaul. Finally airport licence fees will range from $850 down to $220 depending on the seating capacity of the aircraft being operated from the airport.

Annual aircraft registration tax

It is proposed that an annual aircraft registration tax be introduced but two options have been offered for consideration. The first splits aircraft into above and below 20,000kgs with a Boeing 747 costing $56,000 down to a Cessna 152 costing $75. The second option divides aircraft into four categories and would see a large commercial international aircraft at $50,000 and a Cessna 152 at $200.

As might be expected there is strong opposition within the industry to registration fees but as these will be passed onto the travelling public for RPT aircraft, and offset to quite an extent for piston engined aircraft by the reduction in the Avgas levy, it is difficult to see the opposition being sustained.

Consultation with industry

The funding strategy document has been widely distributed to all sections of the industry with an invitation to comment either through industry associations or individually direct to the Authority. The peak industry associations have already been briefed and briefing teams are currently touring the major centres. The final date for submissions is September 30 this year. A hotline has been set up on 1 800 67 6063 (freecall) for those seeking further information.

Comment

Aircraft registration fees will not be as simple to manage as vehicle registration as there are wider and deeper issues involved in non compliance. The CAA is aware of this and is addressing the issue through a working group. (Propeller clamps perhaps?)

A small matter is the question of the administrative costs of seeking payment of a $13 annual fee for a PPL. This should perhaps be extended to say a five yearly licence. On the question of licence fees, as the holders are beneficiaries within the aviation industry, it seems a reasonable argument that they should pay their share as proposed. It is assumed that the costs will be tax deductible.

Finally, given that the government is firm in its intention to reduce its contribution towards the cost of aviation regulation to a maximum of $22.8m per annum (representing the benefit to the general public), and that the cost of that regulation is approximately $60m per annum, the shortfall must be made good by the travelling public and the industry. The proposed funding strategy seeks to split the shortfall almost equally between the two and that appears to be reasonable.

Whilst as already mentioned, the major operators will be able to pass on their extra costs to the travelling public, (something less than $2 per ticket) blaming the government in the process, it will remain to be seen what the overall effect will be on the smaller operators, and most importantly on the private owner.