As ordinary French people fret over the rising cost of living, the government is under pressure to levy a windfall tax on energy firms that have reaped the benefits of higher oil and gas prices pushed up by the war in Ukraine. While the government is divided, PM Elisabeth Borne says she won't rule it out if companies don’t behave responsibly.
The war in Ukraine has helped send the price of oil, gas and electricity through the roof.
Despite government caps on the price of electricity and gas until the end of the year, French consumers are contending with rising inflation, fuel hikes and dramatic increases in the cost of imported goods including food.
Yet these same energy price hikes have benefited French utility companies such as TotalEnergies and Engie, and shipping giant CMA.
TotalEnergies registered net profits of 5.7 billion euros in the second quarter of this year, compared to 2.2 billion euros for the same period a year earlier.
These “super profits” – as they’re known in France – have prompted calls from opposition MPs but also several members of President Macron's ruling coalition, for the government to levy a tax on what are basically windfalls.
A proposed law to impose an exceptional 25 percent tax was narrowly voted down by the National Assembly in July. The government had not backed the bill, but it received support from some members of Macron's party.
“If there are exceptional profits made, it seems normal that they are used to help the country in these difficult times,” said David Amiel, a Paris MP and member of LREM.
Last weekend Socialist Party leader Olivier Faure suggested taxing super-profits be put to a citizen’s referendum, though it turns out this is unconstitutional.
Precedents
Proponents of the windfall tax cite the example of the UK which in May introduced an additional 25 percent tax on companies extracting oil and gas in the North Sea, bringing it up to 65 percent. The government expects it to generate 5 billion euros per year.
Germany is also considering a windfall tax on energy companies and in August Spain unveiled plans to levy banks and power companies to help the country deal with a growing cost of living crisis.
The French government remains divided over the issue.
Economy Minister Bruno Le Maire is strongly opposed, but Prime Minister Elisabeth Borne has not rejected it outright.
“We would like companies that have no reason to increase their prices, to refrain from doing so,” she told public radio on Thursday.
While she preferred alternatives to the windfall levy such as firms lowering their prices to consumers or giving bonuses to their employees, she said the government would "not close the door" on a windfall tax if companies didn't behave "responsibly".
Super profits : "Nous souhaitons prioritairement que les entreprises qui n'ont pas de raison d'augmenter leurs prix ne le fassent pas", dit @Elisabeth_Borne. "Si certaines ne faisaient pas [preuve de responsabilité], nous ne fermerons pas la porte" à une taxe#le7930inter pic.twitter.com/p10rVN2Myb
— France Inter (@franceinter) September 1, 2022
TotalEnergies has committed to a discount of 20 cents per litre at the pump, in addition to the government's 30 cent discount which came into force on Thursday.
A winner for the state
Medef, France’s main business confederation, rejects such a tax.
"The state is the one reaping the most super profit this year through corporation tax," Medef president delegate Patrick Martin told RFI last weekend.
"In its current form, corporation tax [at 25 percent] is bringing more and more to state coffers."
Speaking to the Medef conference on Monday, Borne said the state had used the additional tax revenue “to protect French people’s purchasing power”.
Challenges
Opponents also argue this kind of windfall tax on energy companies would be difficult to apply in France, unlike the UK which is an oil-producer.
Exclusively targetting energy companies would be fiscally unjust, and smaller companies could find themselves taking a tax hit if they suddenly had a good year.
“I've seen amendments debated in July and August, telling us that firms have increased profits by 30 percent," Borne argued on Thursday. "But a company can have a 30 percent increase because it's had two bad years and has simply balanced the books."
“The least bad solution is to look at company profitability and calculate an average over the last five years,” economist Jacques Percebois, told Le Monde daily. “We could consider that profits over this average are 'super profits'.”
Defining 'super profit'
Even if a system could be worked out, there’s no guarantee it would reap rewards.
“Companies could say that because they’ve paid a windfall tax they are relieved of the rest and no longer need to help consumers, or their staff, or invest much," said Percebois.
For the debate to advance, Borne says France needs to work on defining super-profits.
MPs are to study the technical feasibility of the tax and see how similar measures abroad are working out. They will submit their conclusions in early October when parliament resumes.
A recent survey showed 60 percent of the French were in favour of such a tax.
