The OECD warns that poor design of banking and energy taxes can weaken investment and certainty
The response of many governments to rising prices has been to create and adjust taxes to relieve pressure on families and, at the same time, guarantee the financing of public measures.. With this objective, twenty countries, including Spain, have implemented taxes on the extraordinary profits of companies, according to the annual report on tax policy reforms published this Wednesday by the Organization for Economic Cooperation and Development (OECD).. The Paris-based organization recognizes the logic of this fiscal measure, but warns that a poor design can weaken investment and generate uncertainty.
Over the last two years, half of the OECD countries have created new taxes on the extraordinary profits that some companies have generated as a result of the price crisis.. Germany, France, Italy, the United Kingdom and the Netherlands are among the countries that have launched this type of initiative.. And, of course, also Spain, which has introduced temporary taxes on banking and energy companies.. The first taxes the interests and commissions of financial entities that invoiced more than 800 million euros in 2019 at 4.8%, while the second is 1.2% and applies to energy companies that invoiced more than 1,000 million. in 2019.
The objective is, as the report states, “to increase income to meet additional fiscal expenses and limit inequalities”. And the OECD maintains that tax aid has played a “central role” in cushioning the impact of prices on families and companies, despite the consequent general increase in tax pressure. After the outbreak of Covid-19, the average tax pressure in the OECD as a whole rose six tenths to reach 34.1% in 2021. Spain registered a figure above the average, reaching 38.4%.
Specifically, the OECD report points out that taxes on corporate profits “in theory” should have “no detrimental effect on investment” if well designed.. However, he recognizes that there are “challenges” in their implementation when it comes to guaranteeing their effectiveness and points out that they can dissuade investment and generate uncertainty, “especially if they are poorly designed.”
Although the Paris-based organization does not specifically assess the characteristics of the taxes created in different countries, it does show the plurality of existing designs. Most focus on energy companies, given that, according to the report, they are the ones that have experienced large increases in profits since the end of 2021 and throughout 2022.. However, the Spanish banking tax is not an exception in Europe. The Czech Republic has also implemented a tax for financial entities, although in its case it taxes 60% of the profits that exceed 120% of the average profits obtained between 2018 and 2021.
In the case of taxes on energy companies, the OECD report broadly outlines three designs. On the one hand, there are countries such as Germany, Austria, France, the Netherlands, the Czech Republic and Sweden that have chosen to tax income obtained from a certain price limit.. In the case of Austria, the Czech Republic and Sweden, it applies only to electricity companies and the price threshold ranges between 180 and 194 euros per megawatt hour, while in the Netherlands, for example, only natural gas is subject to the tax.
Another option is the one used, among others, in Germany, Austria, France and Italy for fossil fuel producing companies, taxing profits that exceed 120% of the average profits obtained between 2018 and 2021.. The third alternative has been to impose a tax on the total income of the companies, as has happened in Argentina and Colombia.
What all these taxes have in common is their temporary nature.. In fact, some of them have already expired or will do so at the end of 2023. In the case of Spain, the application of taxes on banking and energy companies is expected to be extended until December 2024, although an evaluation will be carried out at the end of the period to decide whether to make them permanent.. In this sense, the OECD precisely warns against the withdrawal of fiscal measures and warns that their indiscriminate use can be counterproductive, which is why, as inflationary pressures subside, it recommends that governments better direct their fiscal efforts toward those they need it more.