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Cheers - AE

Friday, 29 August 2008

Windfall taxes are for idiots

Being British I have a natural fascination with the weather. Talking about it, guessing what it's going to do next, looking at the forecasts, complaining when they get it wrong. It's natural, and fortunately the weather in Victoria in general and Melbourne in particular is just as changeable as in Britain, so no one thinks I'm a weird pom for wanting to look at what's going on with the weather back in Blighty. Or everyone I know is just too polite to say so.

But the long and short of it is I'm aware the British summer has been a bit of a let down and many people are looking ahead to autumn and winter without a lot of enthusiasm. There seems to be some worry that it's going to be a cold one (and the winter here in Oz has been the coldest for ten years or so according to some, so Britons may well be right to be worried). Of particular concern is the fact that the economy looks like it's going into the shitter, money is tight and gas prices have gone up. Actually let's not mince words, they've fucking shot up. So, it's without much surprise that I've seen stories of a possible windfall tax to batter the energy companies with ( Telegraph here and here, and Grauniad letters for example).

Well, it's no shock that NuLab like the idea, good old fashioned wealth redistribution that it is. But look, it's a really fucking stupid thing to do. Let's say I ran an energy company, say for example one that's just put prices up 30% or so and is being ripped to bits in the media for pulling in a zillion pounds a minute. Let's also say, just for the sake of argument, that in spite of this the wholesale price of the energy source the company supplies has gone up and as a result the profits are actually down 30%. Now, how do I feel about a windfall tax when profits are down? Do I feel like re-investing in future supply to hep the business and its customers down the line, or do I think that now isn't a good time in spite of a looming energy crisis on the distant horizon? And how do the shareholders feel? Now, those of a wealth redistributionist persuasion might well think that the me and my shareholders, rich bastards to a man and woman, can all go fuck ourselves and the little people can be put first for a change. Well, true, there will certainly be plenty of rich bastards, but the little people should first want to know whether any of their pension or super* fund is invested in that energy company, and if so how much and whether it's going to suffer as a result. They should also want to know how likely I am to increase prices even further to protect those reduced profits and/or shareholder dividends. If it was me the answer is very likely.

The attraction of a windfall tax is that it looks like it's going to be the wealthy who pays, but in reality that's naive. The ripples spread out and nearly everybody ends up contributing to it. It's human bloody nature to pass costs like this on to customers, and in the highly unlikely event that doesn't happen anyone who has invested directly or indirectly pays. In either case re-investment is hurt, and that seems like a really bad idea when Britain is going to have to shut down a bunch of power stations in the next few years and has done almost, but not quite, sod all about building new ones.

So the question isn't whether the energy companies are making so much can afford to pay a windfall tax. It's whether Britain's cold and poor can afford it.

*Australian for pension.
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