The Nobel prize-winning economist Joseph Stiglitz has called for a windfall profits tax, arguing the idea is a “no-brainer” that has been taken off the table due to the influence of big companies.
Stiglitz made the comments to reporters during a tour of Australia after personally lobbying the treasurer, Jim Chalmers, to introduce the tax and warning that excessive interest rate rises could push Europe, the US, and then Australia into recession.
At a press conference on Monday the treasurer, Jim Chalmers, again ruled out a windfall profits tax despite a new report from the progressive thinktank Australia Institute finding rising profits are helping to drive inflation.
Stiglitz said a windfall profits tax was a “no-brainer” as companies made “huge windfall profits” during the Covid pandemic, and as the Russian invasion of Ukraine had increased energy prices.
“It makes a great deal of sense at this current juncture – it’s not as if the energy companies did anything to deserve it.”
“It was [Vladimir] Putin who engaged in that reckless action. Why should the energy companies be rewarded?”
The tax would discourage companies from exercising “monopoly power” and induce them not to increase prices, he argued, and prevent largely foreign-owned resource companies from extracting money from Australia .
Stiglitz told reporters the windfall profits tax “seems to be politically difficult for this government”, suggesting companies “have a lot of influence”.
In comments to employees of the Australia Institute, Stiglitz also praised environmental taxes such as a carbon tax, which he acknowledged may not be feasible in Australia, an apparent reference to the bipartisan consensus not to drive emissions reduction with taxes since the Coalition’s repeal of the interim carbon price.
The Organisation for Economic Co-operation and Development, headed by former finance minister Mathias Cormann, has also called on Australia to adopt a carbon price despite Cormann spending years in government fighting against the idea.
Later on Monday, Chalmers told reporters he accepted “wages aren’t driving the inflation problem that we have in our economy” but did not anticipate further revenue-raising beyond responsible changes to multinational tax and tax compliance.
“We’ve made it clear that a windfall tax is not something that we are considering,” he said.
“I had a long conversation with Joe Stiglitz about this this morning in my office. We’ve made our view clear on that for some time.”
Australia is currently enjoying unemployment of just 3.5% after a decade of wage stagnation, but with inflation set to reach 7% and interest rates on the rise, employers and the Reserve Bank don’t want wage growth to add to inflation.
Stiglitz warned it would be a “mistake” to allow workers’ wages to fall behind the increase in prices because “wages are not really the source of the inflation” in Australia, and falling real wages would “exacerbate” inequality.
Given inflation is “focused in a few sectors”, central banks should be careful using monetary policy – a “very blunt instrument” – to deal with the problem, he told reporters in Canberra.
Stiglitz said “a primary risk” is unemployment, warning: “If you raise interest rates too much and too fast, there will be, almost surely, an economic downturn.”
Australia was “not as likely to tilt into recession” as the US, he said, as it is in a “much more robust” position.
Stiglitz argued the US is “probably already” in a recession, with growth negative in the first quarter of 2022, preliminary data suggesting it will be again in the second quarter, and the fourth quarter of 2021 only positive due to an increase in inventories.
“What Australia has to be sensitive to is that there is a significant risk that Europe and the United States will go too far, and there will be a global downturn.”
Stiglitz said the lower bound of Australia’s inflation target, 2%, had been “pulled out of thin air” and there was “no theory or evidence that 2% was the right number”.
Stiglitz said there is a “strong theory” that during a high period of transformation, “it makes a lot more sense” to accept “a slightly higher rate of inflation if it facilitates that kind of transition”.
He warned that high interest rates made it harder for businesses to invest.
“We want to do everything we can to ensure that transformation happens rapidly and without a loss of jobs.”
