London, Rome, Athens, Vienna, Brussels, Madrid “Skim off crisis profits – cap costs!” If IG Metall has its way, the so-called excess profit tax on random profits from dominant energy companies is the right lever to get the sharply rising electricity, heating and petrol costs under control.
In Germany, a real religious war has broken out, which has now reached the traffic light coalition: large parts of the SPD and Greens are in favor of it, Finance Minister Christian Lindner (FDP) rejects the special tax, and Federal Chancellor Olaf Scholz (SPD) has not yet committed himself.
While the debate is still going on in this country, other European countries have already had experience with the taxation of crisis profits. In March, the EU Commission exempted the member states from the “temporary taxation of chance profits”.
In the “Repower EU” strategy, she refers to the International Energy Agency, according to which such taxes could bring in up to 200 billion euros. The money should then be available for companies that are particularly affected by the high energy prices.
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At the same time, however, the Commission sets strict limits. Excess taxes would have to be temporary and linked to a specific crisis situation. The different energy sources should be put on an equal footing and the measure should not apply retrospectively. The overview shows how Europe is proceeding – and who Germany could take as an example.
Great Britain
Only recently did the British Finance Minister Rishi Sunak introduce a so-called “windfall tax” for energy companies, which his party friends had previously criticized as “unconservative”. According to the British plans, energy companies are to pay an additional tax of 25 percent on their “extraordinary profits” in the oil and gas sector over the next 12 months. The total tax burden increases from 40 to 65 percent.
The Chancellor of the Exchequer hopes that this will result in revenues of the equivalent of around 5.9 billion euros. To ensure that the tax does not slow down Shell, BP & Co.’s investments, the government in London has significantly increased the allowances for investments in domestic gas and oil production.
The additional revenue from the excess profit tax should go to low-income families.
(Photo: Reuters)
Sunak wants to use the additional tax revenue to help low-income families shoulder the sharp rise in energy costs. The energy bills of most British households could double within the current year after the government price cap had to be adjusted twice to market prices.
The Minister of Finance left it open whether British electricity producers would also be subject to a random profit tax that would bring up to a further 4.7 billion euros into the state coffers. The companies are already up in arms against it and warn that such an approach could slow down the green transformation.
Italy
In March, the Rome government decided that gas producers, utilities and traders would have to pay a 10% excess profit tax on their extra profits, retrospectively on profits made in the fourth quarter of 2021 and the first quarter of 2022. The same period between 2020 and 2021 is used for comparison.
With this redistribution, it finances a large part of the aid for the citizens. Between September 2021 and March of this year, Italy already spent more than 20 billion euros to relieve families and companies of energy costs. The price of petrol was also artificially reduced by 30 cents per liter.
The law primarily affects large corporations: Due to the continued sharp rise in inflation, the government decided at the beginning of May to increase the special tax even further and to extend it by one month: now all extra profits made between October 1st, 2021 and April 30th of this year are even taxed at 25 percent.
The companies criticize the new regulation: Extra profits could also result from takeovers or restructuring – and are not exclusively due to the rising energy prices.
Greece
The government in Athens wants to skim off the electricity suppliers’ excess profits with a 90 percent special tax. The tax applies to the period from October 2021 to March 2022. Profits that are above the average values for the corresponding period of the previous year are used.
According to calculations by the regulatory authority RAE, the surplus profits of the vertically integrated electricity suppliers, which both produce electricity and supply end customers, amount to around 927 million euros in the relevant period. About two-thirds of this is accounted for by the state-owned Public Power Corporation (PPC).
The tax does not apply to profits that utilities have passed on to customers as rebates.
Finance Minister Christos Staikouras wants to pass on the revenue from the special tax to end consumers. Athens has already provided 6.8 billion euros to cushion rising energy costs. The total corresponds to 3.7 percent of gross domestic product (GDP) in 2021.
>>Read here: LNG terminal: Greece is becoming the hub for gas in south-eastern Europe
In relation to economic output, the Greek government subsidizes more than any other EU country. In addition, starting in July, Greece will introduce a procedure to cap the price of electricity, following the example of Spain and Portugal.
Spain
A tax on excess profits has been on the agenda in Spain for some time: the government decided last year to skim off the random profits of the energy companies. Nuclear and hydroelectric power plants are particularly affected. Overall, the state could have taken 2.6 billion euros.
However, the suppliers fought back and argued that the majority of their contracts with major customers have long terms, which is why they did not benefit from the high market prices with special profits. In late October, Madrid backtracked and excluded long-term deals from the measure. The revenue for the tax authorities was correspondingly low: between October and the end of 2021 it was just 132 million euros.
The Spanish government is capping gas prices given the high cost to consumers.
(Photo: Reuters)
From next Wednesday there is to be a second special levy for energy companies in Spain: The EU Commission had only recently approved a gas price cap in Spain and Portugal. The two countries, which are poorly connected to the rest of Europe via pipelines, are now allowed to keep the gas price at an average of 50 euros per megawatt hour for twelve months.
>>Read here: Spain and Portugal agree with the EU on a gas price cap
It is only about the gas that is used to produce electricity. The gas power plants are reimbursed for the difference between the market price and the price cap. The Minister for Ecological Transformation, Teresa Ribera, explained that this would make electricity 15 to 20 percent cheaper for Spanish consumers.
Austria
In Austria, Chancellor Karl Nehammer had startled investors at the beginning of May. At that time he announced the not yet fully developed idea of skimming off the surplus profits of state-owned energy companies. The share price of the electricity producer Verbund, which after all is 80 percent publicly owned, collapsed by 13 percent.
Concessions came from the producers themselves. Verbund is currently making big profits because the electricity tariffs are based on the high price of gas, but the company mainly produces hydropower at low prices.
First, the company is expected to pay out a special dividend of 400 million euros, most of which will go to the state due to the ownership structure. Second, it has announced an “energy bonus package” for residential and commercial customers. Those who received a higher electricity bill this year will not have to pay anything for electricity for two months. Households that already receive state support will receive free electricity for four months. A special tax is probably off the table.
Hungary
Hungary’s Prime Minister Viktor Orbán has also targeted energy companies. Like banks, telecom companies, large retailers, insurance companies and airlines, they will have to pay a special tax in 2022 and 2023.
The energy companies will probably have to give an additional 300 billion forints (around 750 million euros) to the state this year. On the one hand, the money should flow into a fund for national defense, on the other hand, Orban wants to distribute part of the money to the citizens to compensate for the high inflation.
More: An “excess profit tax” punishes brave investors.