OECD: Shipping subsidies failing taxpayers

OECD: Shipping subsidies failing taxpayers

A new study released by the OECD and the International Transport Forum (ITF) has claimed that the current system of direct and indirect maritime subsidies is failing taxpayers.

The report recommends redesigning subsidies schemes to harmonise policies, clarify objectives, make them more conditional on positive impacts, avoid market distortions and improve transparency.

The authors noted: “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.”

According to the report, at least €3bn (US$3.3bn) per year is spent on just three maritime subsidies in OECD countries: tonnage taxes, tax exemptions for fuels for domestic shipping, and fiscal measures to reduce wage costs of seafarers.

The average spending on tonnage taxes in OECD countries has been an estimated €1bn (US$1.1bn) per year since 2000.

Exemption from taxation of ship fuels represented around €1bn (US$1.1bn) in 2016 for domestic shipping alone in OECD countries.

Impact studies do not find much evidence of the effectiveness of maritime subsidies in achieving their stated aims, according to the report.

The study found that local flags and seafarer employment within the EU have in fact declined while short sea shipping connections in the EU are still fairly limited.

However, it claimed that maritime subsidies might have increased the liquidity of shipping companies, allowing some of them to renew or expand their fleets.

“This has contributed to increased overcapacity, and ships have been pre-dominantly ordered in Asian shipyards,” pointed out the report. “The resulting cargo peaks, increased ship sizes and subsequent consolidation of container shipping lines have had mixed impacts on ports and shore-based employment.”

Although, OECD countries are spending large and increasing amounts of money on retaining national shipping industries – a highly globalised and mobile sector – the evidence suggests that there are limited benefits for the broader national economy in retaining nationally flagged vessels, noted the study.

The ITF believes that there is room for redesigning subsidies to make them contribute more efficiently to broader public policy goals such as decarbonising transport and reducing congestion and urban pollution.

More focus is required on reaching wider international agreement on common rules to wind back harmful tax and subsidy competition, it stated.

A solution also requires shifting the focus to subsidies that are explicitly tied to the achievement of more tangible policy goals and subjected to rigorous verification, claimed the report.