Corporate windfall profits surge to $1 trillion amid cost-of-living crisis, NGOs’ study finds

A study published on Thursday by Oxfam and ActionAid reveals that 722 global corporations together made more than $1 trillion (€917 billion) a year in windfall profits in 2021 and 2022.

Of those corporations, 45 energy companies made on average €217 billion a year in windfall profits, while companies in other sectors including food and drink, banking and pharmaceuticals also saw gains surge, according to the two NGOs.

The analysis is based on Forbes’ Global 2000 ranking and defines windfall profits as those exceeding average profits in the previous four years by more than 10 percent.

Meanwhile, the two NGOs said, one billion workers across 50 countries took a $746 billion (€686 billion) real-term pay cut in 2022.

Oxfam and ActionAid are calling for a levy on excess profits that could be used to alleviate the rising costs of living and to fund development projects in the so-called Global South.

“There is an issue of unfairness, where companies are making huge windfall profits while people are struggling with their energy bills, with buying food at the supermarket. This is unacceptable,” said Chiara Putaturo, EU Inequality and Tax Policy Advisor at Oxfam.

“We saw that in some companies, 85% of all windfall profits generated in 2022 went to shareholders, feeding the pockets of already rich individuals. Top-paid CEOs across four countries enjoyed a real-term 9% pay hike in 2022, while workers’ wages fell by 3%,” she added.

According to Quentin Parrinello, Senior Policy Advisor at the EU Tax Observatory, critics’ argument that a windfall profit tax disincentives investment is not well-founded, but the design of the levy is critical.

“We’re seeing some big companies – not all – posting record profits, not because of productivity gains, not because of innovation, but because they’re able to gouge prices and inflate their margins,” he said.

“The windfall profits tax can actually incentivise investment because it’s rather money that will not go into the pockets of shareholders and be reinvested within companies.”

“To us, what matters a lot is that the design ensures we tackle the excess profit derived from price gouging rather than regular activity and return on investment,” he added.

In June, a report by the International Monetary Fund claimed almost half of the increase in Europe’s inflation over the past two years is due to rising corporate profits. European Central Bank President Christine Lagarde also said in June that corporate profits were the biggest driver of inflation in 2022 and will be again in 2023.

Last September, EU energy ministers agreed on a temporary windfall tax on fossil fuel companies benefiting from soaring energy prices. The levy, termed a ‘solidarity contribution’, is applied on profits exceeding 20 percent of a company’s average yearly profits since 2018.

While each EU member state must apply the tax, progress across countries varies with some yet to adopt the measures.

A spokesperson for the European Commission said the institution is assessing the manner in which each member state has applied the solidarity contribution or an enacted equivalent national measure, and if necessary, following up with the member state concerned to ensure full compliance with EU law.

The EU levy was met with resistance from some companies, which claimed it curtails investments in new technologies, including green technologies. Despite the mechanism, Big Oil companies made record profits in 2022.

The solidarity contribution is a temporary measure applying to 2022 and 2023 profits only. Oxfam and ActionAid are calling for a permanent tax extended to all sectors making extraordinary profits. 

Portugal is the only EU country currently targeting food distribution companies. Countries such as Hungary are targeting various sectors including pharmaceutical and media companies, while Croatia’s windfall tax applies to all companies exceeding a certain revenue threshold.

According to Parrinello, more consistency is needed across member states. “Different countries implement different schemes to tackle windfall profits. Some of them are taxing sales and profits with some limitations. We need to harmonize that as much as possible.”

Oxfam and ActionAid claim a windfall profit tax could generate hundreds of billions in funds that could be diverted to tackle poverty and climate change.