Profiting from the Pandemic: Why the time is now for a tax on excess profits

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The recent debacle surrounding the Covid-19 vaccine has highlighted the capacity of corporate transactions to undermine Governments and put critical services such as public health at risk. When things go wrong, as they invariably will when dealing with new drug processes, a new virus variant and a new political system, both nationally and internationally, the disparities in the public / private relationships are laid bare, where corporate profit is prioritised over public health. But health is not the only area at risk. 

The concept behind an excess profits tax is not new. First proposed in Denmark and Sweden in 1915, it was introduced during World War I and used to recoup profits resulting from the war[1]. An excess profits tax was also levied World War II and the Korean War in most countries where the profits were affected by the war. Not to be confused with the recent Belgian excess profit tax scheme, which was found to amount to State aid in contravention of the EU[2], this type of tax is essentially a “windfall gains tax”, which imposes a levy on the profits gained by corporations due to circumstances outside of their control, and particularly where the Research and Development (R&D) behind the source of those profits was wholly or substantially funded by public money.

The development of Covid-19 vaccines are a case in point. In a recent Policy Brief for the Institute for Innovation and Public Purpose[3], authors Els Torreele, Mariana Mazzucato and Henry Lish Li argue for the introduction of a ‘People’s Vaccine’ and the implementation of conditionalities to ensure “global, equitable, and affordable access to critical public health innovations, in particular where they have benefited from public investment from the start of any future development programme for vaccines and treatments”. Making the patent for vaccines public and allowing generic manufacturers to ‘scale-up’ production would contribute to a more equitable distribution in and across countries. This not only makes sense from a global-health perspective, but from an economic perspective too. The sooner the vaccine is widely distributed, the sooner economic activity can return. Levying a tax on the excess profits of the corporations currently producing the vaccine on foot of publicly-funded R&D would also aid support the economic recovery of those countries in which they are tax resident.

Pharmaceutical companies are not the only corporations profiting from the pandemic. Online shopping providers, online communications companies and IT corporations all saw a substantial increase in profits and, according to Forbes[4], Ireland’s top five billionaires increased their personal wealth by a collective $4.3 billion between January 2020 and February 2021.

In their recent Report ‘The Inequality Virus’[5], Oxfam highlighted the pandemic-related inequality, which saw the world’s richest recover their losses within nine months, while the world’s poorest face up to a decade of difficulties.

Taxing excess profits would be a move away from “winners” and “losers” and provide a more equitable pathway to recovery.

Further options:

We recently published an article on the Future of Corporation Tax which considered the commitments made in Ireland’s Corporation Tax Roadmap January 2021 Update and the proposals previously made by Social Justice Ireland to reform corporate taxation and move towards a Just Taxation system which would form part of our proposals for a new Social Contract. 

[1] War Profits and Excess Profits Taxes (jstor.org)

[2] Tax rulings: According to Advocate General Kokott, the Commission was right to consider that the Belgian practice of making downward adjustments to profits of undertakings forming part of multinational groups constituted an aid scheme (europa.eu)

[3] iipp-pb12_delivering-the-peoples-vaccine_final.pdf (ucl.ac.uk)

[4] Author’s calculations on comparison between the 2020 list - Forbes Billionaires 2020 and the Real Time Billionaires list as of 06^th February 2021 Real Time Billionaires (forbes.com)

[5] Davos 2021: New Oxfam report highlights rising inequality fuelled by pandemic | Oxfam Ireland