Philip Lanand, chief economist of the European Central Bank, suggests that euro countries raise taxes on the rich and on companies that are making extra profits to finance more substantial aid to those most affected by the energy crisis. In an interview to the Austrian newspaper Der Standard, Lane explains that wages will have to be partially adjusted for inflation but that at this stage it would be wrong to think that we can fully recover the purchasing power lost by payslips since this would involve an excessive cost for companies and therefore the triggering of the feared run-up between prices and wages. The economist says he is agree with the accusation made by the unions against companies that they are raising prices regardless, taking advantage of the inflationary scenario which makes the price increases more justifiable. And addressing companies, he says: “They shouldn’t have the same level of profitability when inflation was low. Maintaining a collective balance is important. To return to lower inflationwe must realize that business profitability it will decrease for a while‘and that not even wages will be able to keep pace with inflation ”.
Lane recalls that this year we will be spending around 5% of euro area income on energy imports, whereas previously it was around 1%. “We will have to bear that burden collectively,” he says, adding that “the standard of living will worsen due to energy bills. This makes people poorer and for many it will feel like a recession. The reason is that we import so much of the energy we consume into Europe. In the United States it’s different, then there are winners and losers due to the high prices of energy “
The chief economist of the ECB then remarked that it is “the poorest people in our society who are most affected”. So “from the point of view of equity, but also from a macroeconomic perspective, governments should support the incomes and consumption of the most difficult households and businesses. The key question is whether some of this support should be funded by tax increases for those who are better off. This could take the form of higher taxes on higher incomes or on businesses that remain highly profitable despite the energy shock. This solution has a smaller push on inflation than theincrease in public deficits“. Lane’s remarks are in line with the European Union’s plan to collect 140 billion euros from a levy on extra profits in the energy sector to be used to cushion the blow of high prices. The plan will be discussed at the European Council next Friday. The plan, on the other hand, does not contain hypotheses of increasing the levy on higher incomes.
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ECB chief economist Lane: “Tax rich and corporate extra-profits to help those most affected by the crisis” – Il Fatto Quotidiano
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