High energy costs: Clear reservations about an excess profit tax

In the debate about skimming off unplanned crisis profits from energy and other corporations, which the EU is also considering, Austria's leading economic research institute (Wifo) urges caution and restraint.

In Austria, such an intervention is "problematic", since the profits of the energy companies largely accrue to the public sector, since they are by far the largest shareholder and private investors only play a subordinate role.

In the case of energy companies that are fully state-owned, the entire chance profit would remain with the state anyway

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

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However, the scientists also make arguments against the tax that also apply to other countries.

Last but not least, the fact that skimming off profits cannot solve the pricing problems that are the cause of the organization of the European electricity market.

In addition, the scientists assert location-political concerns.

Because an ad hoc taxation of chance profits leads to uncertainty about the future tax rate.

This damages the trust of investors in the framework conditions and the credibility of politics.

They could not credibly assure that such an instrument would only be used once and that no precedent would be created for future extraordinary profit skimmings.

In addition, the Wifo researchers point out a large number of delimitation and determination problems in their analysis published on Thursday: Which sectors are used?

Which comparison period is used?

How is the tax rate designed, where does it start: on profit or sales?

How do you prevent multinationals from shifting profits to countries where the additional tax does not apply?

How can the tax be passed on to consumers or employees?

How is it ensured that desired returns for innovations are not taxed?

Five EU countries levy an excess profit tax

Notwithstanding such problems, the researchers cite a number of historical and contemporary examples of such taxation of chance profits deemed unjustified.

For example those to finance the burden of war in the world wars of the last century in America, France and the United Kingdom or the additional tax on the profits of American oil companies after the oil crisis in the 1980s.

During the Corona crisis, a tax on random profits was discussed in several countries, but was only introduced in connection with the crisis after Russia's attack on Ukraine.

Currently, “excess profits from energy companies in a broader sense” are collected from Great Britain and five EU countries: Greece, Italy, Romania, Spain and Hungary.

It is planned in Belgium.

In the Czech Republic, the Ministry of Finance presented a draft law on excess profit taxes for energy and petrochemical companies and banks on Wednesday, without naming the tax rate.

In Austria, given the large dominance of the public sector in the electricity companies and the energy group OMV, this is not advisable, the experts write.

This should also apply to the neighboring Czech Republic, where the state holds the largest share in the electricity supplier ČEZ.

Unlike in Austria, however, the regions are not involved here, and the money only goes to the government in Prague.

In Austria, on the other hand, the federal and state governments hold different shares in the companies.

An excess profit tax would then possibly only be due to the federal government, against which the states would be able to defend themselves and new problems of definition would arise.

However, the study does not address this topic.

A special dividend would be a better alternative

"The comparatively small share of random profits from Austrian energy companies that remains for private investors does not justify the introduction of a random profit tax in Austria," it says. In case of doubt, the authors prefer a special dividend in the amount of the random profit. a minimally invasive alternative to a random profit tax.” The semi-public Austrian electricity company Verbund has already announced that it will pay such a tax.

According to the authors, the "wiser measure" is an electricity cost brake with a price cap for a defined basic quota of electricity consumption.

At the suggestion of Wifo, the government had basically adapted such a model the day before with a start date of December 1st.

According to this, the state pays all costs over 10 and up to 30 cents per kilowatt hour for a basic quota of 2900 kilowatt hours per year.

The Wifo, on the other hand, would only replace the current procurement or production costs with an imputed profit markup for the energy suppliers.

Because then "the subsidized energy quota at a fixed price reduces the chance profits at the root and passes the price advantage directly to the households in the scope of the defined electricity quota".

If the procurement costs are more than 30 cents per kilowatt hour in the future, the corporations would have to bear the additional costs themselves; if they were less, they could perhaps make an extra profit at state expense.

But in the end it probably wouldn't matter either: in the end, Austria's energy policy always primarily affects the public sector.