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The Adam Smith Institute is the UK's leading innovator of free-market policies. Named after the great Scottish economist and author of The Wealth of Nations, its guiding principles are free markets and a free society. It researches practical ways to inject choice and competition into public services, extend personal freedom, reduce taxes, prune back regulation, and cut government waste.

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We don't tax air. Is that a subsidy?
By Mark Griffin

We have to get used to absurdities, they are what govern our lives. But some people are so used to absurdities they are completely blind to them.

Take, for example the assertion that the government by not taxing something is subsidising it.

This is of course absurd, there are countless things the government doesn't tax - fresh air, for example - but please don't tell them that. They might think it competes unfairly with argon and neon, and slap VAT on it.

Ecologists would have us believe the government is subsidising air travel by not taxing aviation fuel at the same level as other fuels. This is wrong, they say, because it makes air travel more attractive than any other form of travel, although quite what competes with a flight from London to New York they don't say. But nonetheless they are campaigning vigorously to have this 'imbalance' removed by increasing taxation on aviation fuel.

Why not, a reasonable person might enquire, simply reduce taxation on other forms of travel? Making car, train and bus journeys cheaper would make them compete more effectively with air travel on longer journeys within the UK or to Europe. Why stop there? Reducing taxation on many other aspects of car ownership would greatly benefit those on lower incomes, not that they are people this government is concerned about.

Reducing taxation on hotels and restaurants would greatly increase domestic tourism. Reducing taxation on both together would make dramatic changes, which serves to underline the basic premise that taxation is always bad for the economy. Any other view is absurd.



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Adam Smith (1723-1790)
Adam Smith was the great Scottish philosopher and economist best known for "The Wealth of Nations", his pioneering book on free trade and market economics.

A wide selection of material about Adam Smith is now available on the Adam Smith website. This includes the full text of his two major works, The Theory of Moral Sentiments and The Wealth of Nations.