It is impossible to resist the temptation to blame the high fuel prices on the greed of oil companies. In Europe, building on the positive experience of 2022, some countries, including Italy, have asked the Commission for support, which reacted coldly, to have a European taxation on extra profits. It is an attempt to give more solidity to a very weak idea. The taxation of extra profits was initially applied in the UK in the early 1980s to levy part of the exceptional gains caused by high oil prices after the 1979 crisis, also then linked to Iran. It was introduced within an oil taxation system that had substantial refunds in case of exploration losses. In these recent initiatives, there is no reduction of rates for years of low profits such as in 2020 or 2016. It is difficult to define extra profit, although the average of historical levels is helpful. But that excess indicates a kind of illegality on which regulatory authorities should investigate, if necessary.
Read more Urso: «Former Ilva, Jindal has updated the binding offer» [Catenaccio]
Ask the Sun
The questions are automatically suggested by 24Ore AI
based on the content viewed.
Italy is the country that has most tried to apply this tool in the past. The Robin Hood tax was introduced in 2008, when Brent reached 140 dollars, equivalent to 180 in current dollars, far from the 90 dollars of these days. After the appeal of some brave small oil companies, the Constitutional Court declared it unconstitutional in 2015, with a legal mess because the ruling was not retroactive. Since last February, there has been a 2 percentage point increase in the IRAP for energy companies, bringing the total to 30% taxation of profits, against 28% for other companies. That this is implemented in a country inspired by free market principles, enshrined in the constitution, is already an anomaly. The taxation of profits, which are indeed enormous, will in any case result in huge revenues for the treasury.
Read more Enhancing human capital: a dedicated Tax system is needed for young people
Raising rates is a judgment on the market typical more of a planned economy than a free market. The taxation of extra profits is dangerous because it distracts attention from the real cause of high prices, namely the lack of refining capacity in Europe, which was also closed because opposed precisely by those who today ask for the taxation of extra profits. Further upstream, there is also a lack of crude production capacity outside the Persian Gulf, even in Europe, where for years talking about drilling and refineries is like declaring oneself against climate policies that will save the planet. The high profits made by European oil companies, not energy companies, are on the order of 20 billion €, and their taxation at 50% would give extra revenue of 10 billion, but these must be compared with taxes that will anyway be on the order of 40 billion from normal taxation.
High profits are a signal that investments are needed in that oil sector that European energy policy, which also influences Italy’s, stubbornly denigrates in the hope that this will accelerate the transition to renewables. Building a new refinery in Europe today is impossible, it would cost 10 billion €. Similarly, it is impossible to drill new gas and oil fields. It is necessary to keep the refineries we have running, which require large investments because they are outdated. European oil companies must strengthen, have certainty, invest worldwide to bring us gas and oil in the future. The Italian refining system is largely owned by foreign companies that, faced with these punitive taxes, will not invest. More supply, more investments are needed to lower prices and guarantee energy security, not more taxes.
