With warnings of a global economic meltdown on the rise as central banks jack up interest rates in their efforts to combat runaway inflation, a new report authored by world-renowned economists and advocates calls on governments to enact windfall profit taxes and other “emergency” measures to prevent an entirely avoidable disaster.
Published Tuesday, the report notes that “the battle against the global pandemic has left many governments vulnerable, saddling them with massive debts they took on as tax revenues fell, health needs soared, and as they strived to soften the economic blow.” According to data from the Institute of International Finance, 32 emerging-market governments have a combined $83 billion in U.S.-dollar debt due in 2023.
“Now developing countries confront spiraling energy and food prices, higher interest rates, and more volatile capital flows: the world is standing on the threshold of an economic slowdown, and the effects are once again disproportionately falling on most vulnerable households, exacerbating poverty and inequality,” warns the new report launched by the Independent Commission for the Reform of International Corporate Taxation (ICRICT), an organization whose commissioners include Nobel laureate Joseph Stiglitz, University of Massachusetts at Amherst professor Jayati Ghosh, and Paris School of Economics professor Thomas Piketty.
The 27-page paper argues that governments have a fundamental choice in how to respond to the intertwined emergencies of an ongoing pandemic, war in Eastern Europe, supply chain disruptions, energy market chaos, high inflation, and worsening costs-of-living crises, which are fueling mass uprisings around the world as they threaten to push tens of millions more into poverty.
The new report says governments, in response, “can opt for austerity programs, cutting funding to public services and increasing the contribution of the poorest through inflation-enhanced consumption taxes, at the expense, once again, of the most vulnerable.”
“Or they can decide to increase taxation on those who have so far failed to pay their fair share: the multinationals and the super-rich, many of whom have also benefited from the crisis,” the report adds.
ICRICT lands strongly on the side of the latter solution, contending it would bring in crucial revenue from energy companies and other corporate giants exploiting the war and the pandemic and enable governments to “lessen the severity of this economic storm and counter the unacceptable levels of hunger, extreme poverty, and inequality.”
“Bold taxation actions by governments in the short term could avoid the worst to come,” the paper states. “It would also pave the way for more transformative tax systems in the medium term, while the international community overcomes the political impasse on how to better tax large multinational corporations in a digitalized world.”
The paper was published in the wake of urgent warnings from major global institutions, including the World Bank and the International Monetary Fund, that central bank rate hikes have pushed the world to the brink of a massive recession.
During an ICRICT press conference last week, Stiglitz — who has been highly critical of central banks’ approach to fighting inflation — argued that the case for a windfall profits tax is “very, very clear,” pointing specifically to Europe’s mounting economic woes.
“The revenues from that are necessary both to protect those who are being hurt very badly by the shock and by Europe’s mistakes in structuring the electricity market — but also to make the investments to make the European economy more resilient,” said Stiglitz. “So this is a case where the profits cannot be justified, and the uses of the funds are really imperative.”
Windfall profits taxes have been pushed by some governments in recent months. India first imposed a surplus profits tax on oil companies in July, while the European Union has proposed a tax targeting the excess profits of fossil fuel giants and other energy firms that have been making a killing amid Russia’s war on Ukraine.
The United Kingdom, meanwhile, approved a 25% windfall tax on oil and gas firms in May — but new right-wing Prime Minister Liz Truss has made clear she opposes windfall taxes and won’t support any new ones.
Critics have lamented the limited nature of the windfall taxes pursued thus far. Chiara Putaturo, a tax expert at Oxfam E.U., said earlier this month that the European bloc’s proposal is “a step forward but only addresses a part of the problem.”
“We need a windfall tax that applies to all companies profiteering from the crisis,” said Putaturo. “In the last two and a half years, big multinationals from a variety of sectors such as pharma, Big Tech, energy, and food have raked in enormous profits. Meanwhile, inflation is up and pushing more and more people into poverty. Revenues from a broad windfall tax will make sure that it is not the poorest who are paying the highest price.”
Ghosh, ICRICT’s co-chair, echoed that sentiment during last week’s press conference, noting that pharmaceutical companies profited hugely from the pandemic and that “food multinationals have never had it so good.”
“We are not regulating them. We are not taxing them. We are not preventing them from doing really terrible things, not just to people in developing countries but to the world and to the planet,” said Ghosh. “It’s extraordinary how government support of a few large companies is enabling a wide-scale increase in inequality, a massive destruction of our ecological foundations, and driving a very significant proportion of humanity into absolute starvation.”