There’s a worrying trend right now for people to demand windfall taxes be levied the moment an industry starts to make profits.
Right now it’s the energy companies and oil producers under attack, but I bet it’s not going to be too long before the banks come under fire too. Never mind that they have barely made a profit in the past ten years; the moment everyone realises that higher interest rates gives them more wriggle room to make profits, I can guarantee there will be calls for those profits to be smacked with a windfall tax too.
But there are big problems with this approach.
First, because profits provide companies with the funds they need to invest in growth. For oil companies, that means funding exploration to replenish the oil wells that are being depleted. And invest in less efficient but more “acceptable” and ESG compliant projects.
Second, because profits act as an incentive to invest. If you take away the profits, you also largely take away the motivation to make them; because what’s the point of taking the risks involved in investing if you are going to have your profits taken away the moment you start to get a return on your investment and hard work? Companies are just not going to bother.
Three, using windfall taxes on private sector companies as a way of raising state revenue is a very slippery slope because it’s effectively nationalisation by the back door. Yes it may be politically expedient in the immediate term, and it will play well on the front page of the Daily Mail, but it opens up a whole bigger set of problems. Because where does it end? Do we start taxing Tesco or Marks & Spencer because they are running good businesses and making profits?
The Norwegians just slapped 62% on fish farming - an additional 40% “resource rent”.
The worrying thing is that if you ask the man in the street who can’t pay his electricity bill, he will say yes. But that is socialism, moving rapidly towards communism. You don’t need me to tell you that’s an extremely dangerous route to go down.
#funding #tax #oil #motivation #growth #people #investing #energy #banks #electricity #farming
Bespoke funding for premise fit outs.
Tax The Rich - great populist headline; always smacks to me of spite and envy. Whilst I don't defend the banks, I see no particular reason why they should be singled out for extra taxes.