Economic Highlights
New Delhi, 25 July 2015
PPP Fails
ENHANCE TAXES, SAYS UN
By Shivaji Sarkar
Public Private Partnership (PPP) needs to be junked. Not
only is it for sheer private sector profitability but has failed the
development objective, the third UN international meet on Financing for Development,
popularly called Addis Ababa
meet, concluded. It goes back to the concept of development bank financing for
growth of developing economies.
The conference held this month to discuss Technology,
Finance and Statistics for Sustainable Development Goal (SDG), however, sets
the tone for a new financial and development architecture. India, despite
some reservations, took the lead for establishing the new order in furtherance
of achieving the MDG – Millennium Development Goal through SDG. The aim is to
forge a global partnership in economic prosperity.
Overall the meet reached the broad conclusion that
international funding is becoming difficult and advised nations to depend on
domestic public resources for achieving sustainable development “through
effectiveness in tax systems”. It stopped short of suggesting raising tax rates
but called upon countries to set “targets for enhancing revenue”.
The meet also found that corporates worldwide are the
biggest tax evaders and do so in various ways. Some large companies employ over
500 persons for “aggressive tax planning”. They invent loopholes to deprive the
countries of legitimate taxes across the world. And therefore, the Addis Ababa meet called
for upgrading UN mechanism and international cooperation to tackle this
problem.
However, in reality, there was no consensus on the issue of
tax evasion. Not creating an inter-governmental body
for cooperation in taxation "is a historic missed opportunity", Minister
of State for Finance Jayant Sinha told the participants.
The World Bank that promoted PPP now states that the model has
not only doubled the fiscal cost but also has extended the timeframe to 30
years. Very often governments have had to take over the PPP projects as these become
expensive, such as high toll on highways, and therefore politically
unacceptable.
Remember, PPP was premised on the concept that the private
sector was more efficient than the public sector. However, the reality turns
out to be just the opposite. In addition, it is not that India alone had
an unsavoury experience with PPP but that most developing and even developed nations
have suffered too. In India,
the rural roads proposed through PPP by the previous UPA government for example
got only 20 per cent of the funding and the task remains unfulfilled. And in Sweden
PPP is banned PPP, says Jayati Ghosh, Professor of
Economics at the Centre for Economic
Studies and Planning, School of Social Sciences, JNU.
The reason for the private sector finding long-term
PPPs unviable is because users find these expensive. It has been found that
once a government or public sector takes over the project is cheaper to operate
and more affordable for users.
Indeed, the failure of PPP has posed a major problem.
As MNCs avoid taxes, it has been found that they are not sharing public
expenses and funding the development process. The UN committee of experts on
international cooperation in tax matters has proposed enhancing the role of
development banks and looking for ways to create incentives to have more
contribution from the corporate (like corporate social responsibility)and
incentivise FDI to developing countries, particularly the least developed ones.
The Head of ESCAP, South and South West Asia,
Nagesh Kumar says that there is a proposal to allow companies in Bangladesh and Bhutan
to be listed at stock exchanges in India. Development banks in China, Brazil
and India
in many areas are found to be contributing significantly. And the German
Development Bank is the largest investor for innovation and other areas.
In yet another instance, Nobel laureate Joseph Stiglitz
headed panel has given a unique proposal to tax multinationals as one unit as
production is globally dispersed. The pooled taxes could be divided as per
business and sales in different countries. However, while the proposal can rake
in more taxes, the world has yet to evolve a collection and distribution
mechanism.
The Addis Ababa
document is significant as it calls for enabling conditions that allow
governments’ to raise monetary resources. Official Development Assistance
(ODA), largely south-south cooperation, has increased but remains far below
requirements as decided at the UN meet at Monterrey, Mexico in 2002, which reflected
global agreement between developed and developing countries on finance, trade,
aid and debt relief.
Additionally, tax havens are another corporate deviant. Both
developing and developed countries get almost 30 per cent funding through tax
havens such as Mauritius, Luxembourg, Netherlands
and even Delaware in the US. The OECD
countries themselves have taken this up as a serious issue given that they are
one of the largest losers of taxes.
Of the total FDI, developing countries get around 50 per
cent of it. At the same time, overseas remittances are under a cloud. (India gets
about $75 billion as remittances). The developed countries want place a check
on it as they consider it a drain as migration increases to the West.
This apart, transnational corporations have almost $25
trillion funds, of which at least one-third should be made available to the Third
world. There remains a $2.5 trillion investment gap a year for developing
countries.
The meet thus called for transparency in capital flow. The
global financial volatility is engineered through opaque flows. It is feared
that short-term capital is to flow into the developing countries because the
stable developed markets are less lucrative. Such flows could create bubbles
and lead to busts. It has mulled over capital control mechanism. The European
Union, South Korea, Indonesia and Thailand have taken recourse to it.
Opinion is in favour of moderation in short-term capital flows.
Illicit flows remain a concern but a solution eluded the
conference. However, there was agreement on the Green Climate Fund, with developed
nations having agreed to raise $100 billion a year by 2020 for funding
developing countries. This would be in addition to ODA commitment of 0.7 per cent
of gross national income. The EU has promised to achieve 0.7 per cent target by
2030.
The document despite serious global conditions seeks to
change the world order through better business practices, international
financial stability to check volatilities and systemic risks. Fearing upswings
in the food and commodity market it calls for checks.
Indeed, the meet has opened up a pandora’s box for a
corrective system. It agrees that experiments of “neo-liberalism” have not
succeeded but is unable to remedy the aberrations in global financing
mechanism. Would Sustainable Development Goal become a reality? – INFA
(Copyright,
India News and Feature Alliance)
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