European tax systems are beginning to adapt their design to a new reality of extraordinarily high profits in the energy sector, but not to rising figures in banking. The extraordinary taxes, of a temporary nature, on oil, gas and electricity companies such as the one finalized by the Spanish Government are far from being something extraordinary in the old continent: the United Kingdom, Italy, Greece and —this very Tuesday— Belgium have announced in the last few months specific figures to tax the so-called benefits fallen from the sky, the extra profits obtained by energy companies as a result of the rise in electricity and gas prices. However, for now only one country, Hungary, has done the same in the case of financial entities, whose income statements are beginning to be boosted by the expectation of an increase in interest rates in the coming months.
The President of the Government, Pedro Sánchez, began to put lyrics this Tuesday to a melody that had already been playing since the end of June, when he took advantage of the presentation of the decree on anti-crisis measures to unveil a future specific tax on energy companies. Although the design of the tax remains unknown, in his appearance at the debate on the state of the nation, Sánchez announced two important details – that the total collection will be around 2,000 million euros per year and that it will be applied to the profits harvested in two exercises (2022 and 2023)—, and left for the Minister of Finance, María Jesús Montero, the specification of which companies will be affected —those with a turnover of more than 1,000 million euros per year: Iberdrola, Endesa, Naturgy, Repsol and Cepsa —. In Spain, both oil and gas companies and banks are already subject to a higher nominal corporate tax rate (30%) than the rest (25%), although deductions tend to lower the effective rate substantially in all cases.
Spain is far from the only country that has launched or announced extra taxes on the energy sector. Since the rise in the prices of crude oil, gas and electricity began a year ago, several European countries have explored this path. Among the big ones, the first to do so was Italy, which under the leadership of the liberal Mario Draghi launched a special 10% tax on extraordinary profits in March. A month later, it raised the rate to 25%, and a large group of deputies now intends to extend it to the profits reaped by banks and brokers that trade in energy products.
The Italian measure – which is retroactive because it affects the profits harvested since the end of 2021 – is intended to finance, at least partially, the 14,000 million aid package approved by the Draghi government to contain the blow to electricity prices and fossil fuels on homes and businesses. The Spanish technicians who are working on the definition of the new tribute have spent months with the magnifying glass on the transalpine country.
At the beginning of May, the center-right Greek government aired a plan to launch a “supplementary tax” that would tax 90% of the profits that fell from the sky (those in which the good work of the company has no relevance and that emanate only from the extreme volatility in the energy markets). The objective, again, is to allocate this extra collection to improve the precarious situation in which consumers have been left.
Two weeks later it was the turn of the United Kingdom, which also launched a tax on the profits of energy companies, but in this case 25% and only on oil and gas companies —not on electricity companies: exactly what Iberdrola and Endesa intend in Spain-. According to initial calculations, the new tax would raise almost 5.9 billion in a year and, like Italy, the money would be used to relax the price pressure that families are bearing. “It will be temporary and, if oil and gas prices return to historically more normal levels, it will be gradually eliminated,” slipped the Ministry of Finance, then led by the conservative Rishi Sunak, today a candidate for prime minister.
The last to announce a special tribute on energy has been Belgium. Almost at the same time that Sánchez unveiled his plan, still vague, to tax energy companies, the Belgian Minister of Energy, Tinne Van der Straeten, communicated her intention to create a one-time tax on the increase in the benefit of energy companies this year compared to 2021. As in the Italian case, the tax will only apply if the increase is 10% or more.
One of the options that the European Commission was considering in the menu of alternatives to tackle the problem of energy prices that it presented to the countries on March 8 was, precisely, the creation of a specific rate on energy companies. “Member states may consider temporary tax measures on windfall profits and, exceptionally, capture a portion of those returns to redistribute to consumers,” reads the statement. that document.
Hungary, the only one with a new tax on banking
The banking case is completely different. Although several countries (including the United Kingdom, France, Portugal or, most recently Sweden) have specific taxes on the financial sector, either to return the money earmarked for aid in times of crisis, or because of its systemic condition —and the associated risks—; only one, Hungary, has put in place a special tax on windfall profits.
The government of the ultraconservative Viktor Orbán announced at the end of May a special contribution that would have to be faced not only by banks and energy companies, but also by insurers and airlines, among others. The total collection target is around 1,950 million euros, of which just over 700 million will come directly from the bank’s income statement.
Another Eastern European country with a right-wing government, Poland, has talked in recent weeks of imposing a tax on windfall banking profits. The notice, still unfinished, came last week from the mouth of the former prime minister and current leader of the Law and Justice party, Jaroslaw Kaczynski, who threatened to launch a rate of this type if financial institutions did not improve the interest on deposits . In Poland the price of money is at 6%, the highest level in 14 years.
Beyond the tax, the newspaper Financial Times advanced ten days ago that the European Central Bank (ECB) is also trying to find a way to prevent the bloc’s banks from taking a slice of the ultra-cheap financing provided in recent times – especially since the outbreak of the pandemic – once interest rates start to rise. Something that is planned for now: except for a major surprise, the issuing institute will tighten its monetary policy next Thursday to deal with rampant inflation and the collapse of the single currency.
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