[Editorial] Bipartisan solution rather than a windfall tax

The main opposition party has raised the idea of slapping a so-called windfall profits tax on energy vendors to supplement households due to the spike in fuel and utility charges. Democratic Party (DP) Chair Lee Jae-myung last week proposed a 7.2 trillion won ($5.8 billion) relief program for households and small businesses faced with a jump in fuel prices. To finance the subsidy, he suggested a windfall tax on energy companies benefiting from the surge in international fuel prices. But a levy on a transitory spike in energy costs goes against the market and tax principles.

Oil refiners have enjoyed greater income from the rise in international oil and gas prices. But the profits are provisional from their earlier purchases before prices went up. They can turn to losses once companies run out of stock. If they should be taxed for their profits from increased oil prices, why did the government give subsidies to them for their losses of more than 2 trillion won when oil prices plunged in 2014. Companies, not the government, should account for the changes in the bottom line from fluctuations in input costs.

Lee argued that other countries also impose a windfall tax on energy companies. But that is misleading. The situation cannot be the same for domestic refiners whose bottom line relies on refining margins unlike multinational majors which have their own oil fields.

The DP also proposes a supplementary budget of 30 trillion won to help address energy and economic hardships. The new budget includes 150,000 won to 400,000 won for each of the 17 million households in the lower 80 percent income bracket. Drawing up an extra budget just a month after the 2023 fiscal budget passed the legislature is inappropriate. It can exacerbate inflationary pressure to harden people’s lives further. The hefty cash handouts by the previous Moon Jae-in administration during Covid-19 made prices soar, which had to be resolved by interest rate hikes.

The DP blames the government for the jump in gas bills. But the Moon administration shares the responsibility for freezing gas charges while international LNG prices tripled over a year from the end of 2020. The Ukraine war fueled gas prices to cause near 9 trillion won in operating losses for Korea Gas Corporation. The country is now paying the price from a stalled increase due to a populist move in fear of losing votes during elections.

Lifting gas charges is inevitable for a country entirely reliant on imports. What is more urgent is taking care of the low-income class during the cold weather instead of wrangling over who is responsible for the jump in fuel prices. Resorting to a windfall tax to fund the program will bring about greater side effects.