The Hungarian government implemented a significant tax increase in the summer of 2022, labeled as an „extra profit tax.” Budapest’s decision caused an outcry at that time, with several market players, including Irish low-cost airline Ryanair, openly criticizing the government’s decision. But since then, similar unexpected taxes have been levied across Europe. Do we see a redistribution in the European economy?
Hungary’s „extra profit tax” decision impacted many sectors, such as the pharmaceutical industry, retailers, airlines, telecommunications providers, banks, insurance companies, investment firms, and the energy sector. Although the whole tax package has been subsumed under the „extra profit tax” umbrella term, only petroleum companies are taxed based on the actual extra profit they make between the purchase price and the world market price.
The impact of the skyrocketing energy prices hit all European countries, and many governments (in contrast to Hungary) have imposed an extra tax only on the energy sector. It is reasonable as energy companies have made substantial extra profits from the energy crisis. For example, UK’s BP made twice as much profit in the July to September period as it did a year earlier. So, it is not surprising that the UK Parliament has imposed a 25 percent extra profits tax on the sector.
But the UK and Hungary are not alone in imposing new taxes suddenly. Many European countries have introduced similar measures, including Greece, Italy, Romania, and Spain. The rate of the tax considerably varies, with Greece imposing a 90% tax and Romania an 80%, while in Italy, the new tax means 25% of the extra profit, and in Spain, only 1.2%.
At the end of September, the EU decided that member states should impose an extra profit tax of at least 33% on companies involved in oil refining, oil extraction, natural gas, or coal.
But there are other names. The Austrian vice-chancellor referred to the 40% tax Vienna had imposed as a „war dividend.” Austria’s 40% extra profit tax means an income of around €2-4 billion for the country’s budget. The vice-chancellor added that this was another step toward equality. But so, is an extra profit tax an anti-capitalist, socialist measure?
The United States can be accused of many things, but it is the champion of capitalism and a free market economy. It was the case already 150 years ago and especially in the 1970s. But at that time, the 38th President of the United States, Republican Gerald Ford, openly declared war on the oil companies. Finally, his successor, President Jimmy Carter’s administration, introduced a form of extra profit tax (windfall tax). This is notable because it was a very unsuccessful project. What is more, it did not tax the actual extra profit, just like Hungary’s new tax.
But the US also had successful extra profit tax packages. During the two world wars and other significant conflicts, such as the Korean War, real extra profit taxes were imposed, meaning the government took its share from indeed the corporate profits and did not draw a line, as the Carter administration or the EU member states now.
Extra profit taxes also have a history on this side of the Atlantic Ocean. Margaret Thatcher, a central figure of neoliberalism, cannot even be mentioned in the same breath as anti-capitalism or socialism. But the Thatcher government imposed an extra profit tax (windfall tax) on banks in 1981 and a year later also on oil companies, making vast amounts of money for the British budget. What is interesting about UK taxation history is not that London imposes extra profit taxes today but that they did not do it after 2008, when two-thirds of Brits would have thought it important to tax energy companies.
So, we can conclude that in challenging times, such as during wartime, it is not rare for states to impose taxes on companies that benefit from the critical times. And this is not a signal of a socialist or communist wave, as even the most pro-market governments had imposed such taxes. We can also see from history that these taxes were not in place over the long term. Thus, they cannot offer a path to redistribution.