Handelsblatt International correspondent Torsten Riecke analyzes interesting data and trends from all over the world in his weekly column. You can reach him at [email protected].
(Photo: Klawe Rzeczy)
Greece, Italy and Spain are doing it, Great Britain is not (yet). Federal Minister of Economics Robert Habeck also wants it, Finance Minister Christian Lindner does not want it.
The taxation of so-called accidental or excess profits from energy companies has been a source of controversy across Europe since the EU, at the end of March, described and approved the government’s grip on companies’ coffers, also known as the “windfall tax”, as a “useful source of national financing”.
The idea is as obvious as it is complex: Energy companies are making enormous profits thanks to the explosive price increases after the pandemic and especially since the outbreak of war in Ukraine. So they benefit more from geopolitical coincidences than from their strategic investment decisions.
Why not skim off these crisis and war profits in order to then distribute them to the citizens groaning under the high energy prices or invest in the climate-friendly energy transition?
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If the energy industry wants to avoid a special tax on its chance profits, it must face up to its social responsibility and think more carefully about how it intends to use its enormous profits.
Even the think tank of the Organization for Economic Co-operation and Development (OECD) now considers a “windfall tax” to be the right thing to do: “Well-designed and carefully targeted fiscal policy support could reduce the negative impact on growth with only minor additional inflationary stimuli,” the economists write of the OECD, “in some countries this could be financed by taxing dead weight.”
According to calculations by the International Energy Agency (IEA), the high energy prices this year could add up to 200 billion euros to energy suppliers’ coffers. The IEA is therefore expressly calling for an excess profit tax on the profits of the electricity companies in order to reduce Europe’s dependence on Russian gas.
Historical role models
Such courageous access to company profits has also happened in the past. During World War II they were a popular means of war financing. During the oil crisis in the 1980s, the US tried to siphon off the crisis profits from “Big Oil”. And in the late 1990s, former British Prime Minister Tony Blair wanted to socialize the profits from Margaret Thatcher’s privatization of public services.
As much as a random profits tax seems to correspond to our sense of fairness at first glance, its economic consequences are just as complex and contradictory. This begins with the fundamental objection that a tax introduced after the fact creates uncertainty and false incentives for companies. It may also be difficult to economically separate the profit shares from war and crises from other, more legitimate profit drivers.
And it ends with the justified question of whether it is really such a good idea to ask those companies who are now having to invest heavily for the double energy transition – away from Russia and away from fossil fuels – to pay more.
The answer to the last question in particular depends on what the energy companies do with their special profits. If, as is currently planned, they distribute profits from the crisis and war to shareholders primarily through share buybacks, they will not prevent an excess profit tax.
Share buybacks instead of sensible investments in the future
According to calculations by Bernstein Research and RBC Capital, the seven largest Western energy companies will return almost $40 billion to their shareholders this year. In addition, there are dividend payments of an estimated 50 billion dollars.
Those who would rather stuff their pockets with money than invest the profits strategically should not be surprised if the calls for state taxes are getting louder. The fact that energy companies such as Shell and BP have definitely recognized the signs of the times is shown, for example, by the withdrawals they have announced from Russia, which will lead to billions in write-downs.
More: Tax for crisis profiteers: Habeck and Lindner argue about a special tax