Maritime subsidies are wasting taxpayers’ money: OECD

Growing state-funded maritime subsidies are wasting taxpayers’ money and need a complete overhaul, a new study from part of the Organisation for Economic Co-operation and Development (OECD) suggests.

The Paris-based International Transport Forum, which operates under the auspices of the OECD, has today published an overview of direct and indirect subsidies available to maritime transport in OECD countries. It assesses whether they provide value for taxpayers’ money and offers recommendations how policy makers can increase the effectiveness of maritime subsidies.

Maritime subsidies are defined in the report as relating to support for national flags, seafarer employment, the competitiveness of maritime clusters, promoting high quality standards and maintaining maritime connectivity. They can take the form of budgetary expenditures, tax expenditures and transfers of financial risk to governments.

Among interesting statistics contained in the report, the ITF found that the average spending on tonnage taxes in OECD countries has been an estimated EUR1bn ($1.1bn) per year since 2000.

“The nature of the maritime subsidies currently in place is defensive, rather than strategic. They have grown in reaction to two developments: open shipping registries in developing countries (‘flags of convenience’) and subsidies in other developed countries. Thus, maritime subsidy schemes often include the notion of tonnage taxes as a way to level the playing field for the shipping industry of developed countries in competition with flags of convenience,” the report states, adding that the scope of these maritime subsidies has been extended in recent decades.

“Impact studies do not find much evidence of the effectiveness of maritime subsidies in achieving their stated aims,” the report states, pointing out: “Local flags and seafarer employment within the EU have in fact declined.”

The report went on to question the need for OECD countries to throw money at national shipping registers.

“The evidence suggests that there are limited benefits for the broader national economy in retaining nationally flagged vessels,” the ITF stated, suggesting the money could be better spent on other matters such as the decarbonisation of transport.

The ITF has urged countries with substantial maritime subsidies to carry out a systematic review of their subsidies. Within the EU, an evaluation of the Maritime State aid Guidelines is warranted, the ITF suggested today, claiming that tonnage taxes have not stopped a “race to the bottom”.

A global discussion on tonnage taxes could be linked to the OECD/G20 initiative on Base Erosion and Profit Shifting (BEPS), the ITF suggested.

The organisation also said it was important governments clarified the objectives of maritime subsidies as well as making them far more transparent. The most effective subsidies target clear and precise goals, ITF pointed out. Objectives should be formulated to allow for quantified evaluation of their effectiveness. Certain strategic goals could be achieved more efficiently with more targeted instruments, rather than generic instruments such as a tonnage tax.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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