Energy companies should pay: 90 percent tax on war profits

Governments across Europe are looking for ways to relieve consumers in the face of high energy prices.

And they are looking for ways to fund that relief.

One idea is becoming increasingly popular: Energy companies that benefit from the increased prices should be additionally taxed.

Christopher Hein

Business correspondent for South Asia/Pacific based in Singapore.

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Michael Seiser

Business correspondent for Austria and Hungary based in Vienna.

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Julia Loehr

Business correspondent in Berlin.

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The most recent example is the Greek government.

She wants to tax the additional profits of energy producers at 90 percent.

This was announced by Prime Minister Kyriakos Mitsotakis on Thursday.

He described the levy as a "solidarity tax in favor of society".

The responsible ministries gave the first details on Friday.

Accordingly, all Greek citizens with an annual income of up to 45,000 euros are to be relieved.

You will be reimbursed up to 60 percent of the additional energy costs that you had to pay between December 2021 and May 2022.

The relief may amount to a maximum of 600 euros per person or household.

In May and June, households are to be relieved of an additional 50 percent of the energy costs above a monthly electricity consumption of 300 kilowatt hours.

Unlike in Germany, the focus in Greece is more on electricity costs and less on heating.

There are not so many details about the financing yet.

Defining “extra profits” from price increases is difficult.

Upon request, the Greek Ministry of Finance refers to the Greek supervisory authority for energy regulation, RAE.

They develop a calculation method.

The authority must now "pull the chestnuts out of the fire" for the government, wrote a commentator in the Greek press.

Potential constitutional complaints

A similar debate is going on in Italy.

There, Prime Minister Mario Draghi ignored the concerns of the finance and economics ministries and announced a two-step special tax on the additional income of energy companies: first 10 percent and now an increase to 25 percent, which should give the state 6 billion euros.

The tax is to be levied on the additional income that companies generated between October 2021 and March 2022 compared to the same period in 2020/2021.

It is questionable whether companies will accept this.

Constitutional complaints are not excluded.

Because the additional income could not only have come about through price increases, but also through legitimate gains in market share as a result of better competitiveness.

There is also criticism that the development of costs, such as those of staff, is not taken into account.

But Draghi acted politically and went public with the tax increase, to which there is no resistance among the parties.

The details are still being worked out by the business and financial company.

The topic is also on the political agenda in Austria.

Statements by Chancellor Karl Nehammer (ÖVP) are causing unrest in the industry.

On Thursday, he had thought aloud about skimming off company profits from the crisis.

As a result, the two listed electricity suppliers Verbund and EVN lost more than 5.4 billion euros in market value within one day.

Since four-fifths of the companies are owned by the public sector, the value of the state shares fell accordingly.

Tax extra profits from war more heavily

According to Austrian experts, a general special tax would be permissible.

However, the economy has criticized the government's plans.

The President of the Aktienforum, representing Austrian listed companies and CEO of the steel processing group Voestalpine, Robert Ottel, described Nehammer's statements as surprising and shocking at the same time.

These would damage the Austrian capital market, said Ottel.

The Federation of Industrialists also expressed concern.

Such interventions would damage the location and reduce the investment scope for the expansion of renewable energies.

In Germany, the Greens in particular are putting pressure on taxing additional profits resulting from the war more heavily.

Economics and Climate Protection Minister Robert Habeck (Greens) said at a conference of family entrepreneurs on Thursday that it upsets his sense of justice when oil companies, for example, benefit from the consequences of the war in Ukraine.

Finance Minister Christian Lindner (FDP), however, is against such a tax.

He points to demarcation problems.

Recently, vaccine manufacturer Biontech was also a winner of the crisis, without there being any demands for the state to skim off the corona-related profit.

Economists from institutes such as Ifo and ZEW also think the idea is not well thought out.

But Habeck is not giving up, he wants to look for a legally secure solution.

In Greece, meanwhile, the prime minister is working on directly influencing prices.

From July onwards, international gas price increases are to be “decoupled from Greek electricity bills”.

One is related to the other because a high proportion of electricity is generated by gas-fired power plants.

Mitsotakis, together with other governments such as Italy, is calling for a gas price cap for the whole of Europe.

With the goal of stabilizing Greek retail prices, energy producers should in future only receive prices that correspond to the marginal costs of each production technology plus a profit margin to be defined.

The Greek government expects total costs for all energy relief measures of 1.1 billion euros.