Ritchie Baby on Windfall Taxes.

Yes, everyone\’s favourite retired accountant speaks out!

Let’s be clear: no one is saying windfall taxes should be imposed on all profitable businesses. No one ever has. What is being said is that those companies that are earning super-normal profits through circumstances entirely not of their own making and that do not in any way represent a return on entrepreneurial effort should be taxed on that unearned advantage otherwise afforded to a select few at cost to society as a whole.

There is no reason why this will ever deter investment: what is being taxed is not a return to investment.

Amazing, eh?

1) Who gets to decide what are "super-normal" profits? Looking at the BP accounts they seem to be making 25-30% returns on shareholder\’s equity this year (at least, the 6 months they\’ve reported for then annualised). Is that super-normal? Should we super-tax every company that does this well or better? Anyone want to compile a list?

2) Who gets to decide what is entrepreneurial return and what is not? Is investing in Russia 5 years ago entrepreneurial? No? Prospecting for oil entrepreneurial? No?

3) Have people never heard of the idea that making excess profits (ie, above the general risk adjusted rate of return) is what attracts new capital to the sector which, in turn, drives down those excess profits? That profits are he very signal which shows how capital should be allocated? No?


6 thoughts on “Ritchie Baby on Windfall Taxes.”

  1. 2 thoughts: (1) If there is a (near-) monopoly situation that may be a justification for some kind of governmental intervention ie if freedom to choose the service in question is not that free -note the use of “may” though, this is just a principle (2) if a company makes a profit it is for the owners to decide whether to be philanthropic with their money, perhaps without even telling anyone! The old concept of secret giving.

  2. Effing and Blinding

    Is there any business who has made their super profits entirely of their own making? Even monopolists must have some demand from customers (not entirely in the monopolist’s control) and are at the whim of suppliers etc. Not everything (good and bad) is within their control.

    Thing that bugs me about these guys talking about super-profits. If there are super-profits above that required to reward the risk and the opportunity cost of capital, surely the best advice Richie can give his readers is to get onto their brokers, empty the piggy bank and buy that stock now.

  3. Ironically, this is an opportunity for the UK government to demonstrate a steady economic hand.

    The oil companies are making big profits, but let’s live with it. No “windfall tax” because even they have bad years too. Construction companies are in hard times and are asking for a government handout (presumably the “windfall tax” revenue from oil companies). If so, I trust that construction companies will accept their “windfall tax” during any future building boom?

  4. Missing the point, missing the point.

    My magic fag packet says additional tax revenues in a year because of rise in oil and gas prices is in the order of £12 billion anyway (plus minus wide margin of error), which is about £500 per household.

  5. I’m no economist (a bad start, admittedly) but surely what we ought to be doing is giving the Oil and Gas companies a break in their corporation taxes, which they can then invest in new exploration/bringing new sources on stream – which would increase supply and…… you get the gist.

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