Awindfall tax is a highertax rate onprofits that ensue from a suddenwindfall gain to a particular company orindustry.
There have been windfall taxes in various countries across the world, including Australia,[1] Italy,[2][3][nb 1] andMongolia (2006–2009).[5][6] During the2021–2023 global energy crisis, policy specialists at theInternational Monetary Fund recommended that governments institute permanent windfall profits taxes targeted ateconomic rents in the energy sector, excludingrenewable energy to prevent hindering its further development.[7]
Thomas Baunsgaard and Nate Verson of the IMF recommend implementing permanent windfall profit taxes on fossil fuel extraction but not temporary taxes or taxes onrenewable energy.[7] The taxes should always target a clear measure of excess profits and not be tied to price levels or revenue.[7] They also recommend ensuring that markets can add new capacity quickly if-needed to avoid a spike in prices.[7] Another 2022 IMF paper argues these taxes are a tool for efficiently taxingeconomic rents, which are often a result of monopolistic power or unexpected events like pandemics, war, or natural disasters, and contribute to windfall profits. Such profits have raised public and policy concerns aboutprice gouging, where firms are perceived to be profiting excessively from unforeseen circumstances.[8]
Eric Levitz argues that these taxes are worth pursuing as it would incentivize producers to invest in lowering prices during times of supply shocks by expanding production instead of giving out dividends to shareholders.[9]
In 2022,Joseph Stiglitz argued for windfall profit taxes for oil and gas in Australia to disincentivize raising prices.[10]
In 2022, an informal survey of 33 American and European economists at theIGM forum found majority support for taxing windfall profits.[11]
In 2023, a group co-directed byThomas Piketty suggested taxing windfalls from excess profits.[12]
As of 2023,Isabella Weber has also been advocating for windfall profit taxes.[13]
A 2008Wall Street Journal[14] editorial argued that income taxes incentivize companies to make more profits which results in more tax revenue. A 2022Reason article argued against windfall taxes.[15]
Queensland, Australia has a windfall profits tax on energy sources likecoal.[16]
Polling by theAustralia Institute as well asOxfam showed more than two-thirds of Australians supported windfall profit taxes.[17]
For fiscal years 2022 and 2023, The EU asked energy companies to return 33% of taxable surplus profits to governments to help fund energy affordability and address shortages.[17]
Rapid drop of photovoltaic equipment in the period 2011 to 2013 has created windfall profits conditions due to lagging response of regulators by adjustment of feed-in tariffs. Regulators in Spain, Greece, Bulgaria and Romania have introduced retroactive incentive reductions.[18] In the Czech Republic a windfall tax has been introduced on solar electricity and further clampdown of solar power companies was considered in 2014.[19]
In November 2022, Greece responded to soaring energy prices by imposing a 90% excess profits tax on energy companies. The Greek energy minister justified this decision by stating, "Our primary concern is to maintain affordable prices on consumer bills until the end of this major, pan-European energy crisis."[20] The tax revenues were used to subsidize energy prices.
In November 2022, the Dutch government introduced a temporary windfall tax as a strategic response to mitigate the impact of surging energy prices. This 33% tax targets companies operating within the oil, natural gas, coal, and petroleum refining industries. The tax applies to profits that exceed the averageprofit margins of these sectors by more than 20% during the reference period from 2018 to 2021,[21] as specified by the ministry. This measure is intended to buffer the financial shock experienced by consumers and stabilize market fluctuations in the energy sector.
Finland announced its intention to tax windfall profits at large nuclear and hydro plants built before 1997 by 2010 or 2011.[22][needs update] As non-CO2 emitting electricity generators, these plants have all seen their profits increase because of theEuropean Union Emissions Trading System.[22]
As of 2009, in Sweden,hydroelectricity is subject to aproperty tax andnuclear power plants to a capacity-based tax.[22] While neither are windfall taxes, they were raised in 2008 due to higher windfall profits.[22] In 2009, Norway, where hydro-electric power plants supply 99% of the country's electricity, similarly imposed a ground rent tax on hydro-electric power plants to reduce their profits by 30%.[22]
Mongolia implemented in 2006 taxation on theprofits made bymining companies operating in Mongolia.[5] A tax on unsmelted copper and gold concentrate produced in Mongolia, it was the highest windfall tax in the world.[23] The tax was repealed in 2009 and phased out over two years. Repealing the 68% tax law was considered essential to enable foreign mining companies to invest in mineral resources development of Mongolia.[6]
In theUnited Kingdom, an early one-off windfall tax was levied on certain bank deposits as part of the1981 budget under Margaret Thatcher. In 1997, the government ofTony Blair introduced a Windfall Tax for privatised utility companies. In May 2022, Boris Johnson introduced the tax for energy companies extracting oil and gas in the UK, to help fund a package to relieve theUK cost of living crisis.[24][25]
TheCrude Oil Windfall Profit Tax Act of 1980 (P.L. 96-223) was part of a compromise between theCarter Administration and the Congress over the decontrol ofcrude oil prices.[26] The Act was intended to recoup the revenue earned by oil producers as a result of the sharp increase in oil prices brought about by theOPEC oil embargo. According to a report by theCongressional Research Service, the Act's title was amisnomer as it was just anexcise tax imposed on the difference between the marketprice of oil and a 1979 base price adjusted for inflation andseverance taxes.[27][26] The report also stated that the tax only generated $40 billion in net revenue though it was projected to generate $175 billion, and because the tax was an excise tax on oil produced domestically in the United States and not imposed on imported oil, it reduced domestic oil production by 1–5% while dependence on imported oil increased by 3–13%.[27]
(Isabella) argues for fighting inflation without inflicting all this collateral damage on the economy. She proposes a windfall profit tax – basically taxing corporations if they, all of a sudden, get a windfall of profits.
Finland's economic affairs minister, incensed the nation's largest industries and energy producers by announcing the introduction of a windfall tax on the profits of "large-sized" hydro-electric and nuclear generators. The windfall tax will be charged on plants built before the adoption of the Kyoto Protocol in 1997, and where revenue has increased due to the European Union's Emissions Trading Scheme (ETS).
Despite its name, the crude oil windfall profit tax... was not a tax on profits. It was an excise tax... imposed on the difference between the market price of oil, which was technically referred to as the removal price, and a statutory 1979 base price that was adjusted quarterly for inflation and state severance taxes.