Think-tank proposes 25% tax on excess profits of energy companies

Tasc report points out that increases in living costs are hitting poorest the hardest

A 25 per cent tax on the excess profits of energy companies could be introduced to help offset income inequality in a time of spiralling inflation and living costs, a new report suggests.

A similar move introduced in Italy has been used to fund temporary reductions in energy prices.

The report, entitled The State We Are In: Inequality in Ireland 2022, was published on Thursday by the independent economic and social think-thank Tasc.

“Similar measures could be pursued here,” it said of the suggested levy on energy profits. “An advantage of this measure over, say, price regulation is its precision. It targets excess profits and the proceeds can deployed as policymakers choose. An alternative measure could be to temporarily regulate energy prices.”

The report points out that increases in living costs are hitting the poorest the hardest.

It found welfare supports during the pandemic 'played an important role in mitigating and actually reducing levels of inequality in Irish society'

"Lower income households have been affected more by jolts to the economy such as the current inflation surge, because they spend so much more of their income on absolute essentials like energy and food," its author Robert Sweeney said.

The report specifically examines inequality and cost of living issues since Covid-19. Other measures suggested include a €1 an hour increase in the minimum wage and a sliding scale of payments for retrofit grants.

It found welfare supports during the pandemic “played an important role in mitigating and actually reducing levels of inequality in Irish society”, illustrating the potential for a “determined and coherent State policy on tackling inequality”.

According to Mr Sweeney, 17.5 per cent of households spent more than 10 per cent of their income on energy in 2020.

“[This] equates to energy poverty. It is very likely that energy poverty increased considerably in 2022 as the year-on-year inflation rate for energy products was 43.6 per cent as of March 2022,” he said.

Wage inequality

With inflation rates currently running at more than 6 per cent, the report suggests sector-by-sector collective bargaining, as practiced in “most continental countries”, could provide a means of reducing wage inequality.

It also pushes for an increase in public spending on transport and infrastructure investment to ensure major projects are delivered on time.

More optimistically, it finds overall income inequality has fallen over the past 25 years, largely due to the positive impact of measures delivered under the welfare state.

According to the document, the reopening of economies post-Covid was expected to place upward pressure on prices as supply struggled to meet pent-up demand. The Russian invasion of Ukraine has also escalated the price of energy.

“Nevertheless, the extent to which global inflation has re-emerged has taken most commentators by surprise,” it said.

“As well as eroding living standards, high inflation makes it difficult for households and businesses to plan, and can lead to a slowdown in investment. It therefore has had and is having major social, distributional and economic implications.”

Regarding welfare, Tasc recommends an increase in core social payments to cushion economically vulnerable households, targeting the state pension, Jobseeker’s Allowance and One-parent Family Payments.

“An increase in payments in the region of €15-€20 per week could be appropriate. This would allow for pressures faced this year, and also cost pressures next year,” it said.