High earners could pay more tax to support poorest: ECB economist

AFP

Frankfurt – High earners and extremely profitable companies could pay more taxes to finance support for society’s poorest as they struggle with record inflation, the European Central Bank’s chief economist has said.

Consumer prices are surging across the eurozone and elsewhere, spurred by high energy costs after Russia halted crucial gas supplies to Europe amid tensions over its invasion of Ukraine.

“The energy shock we are experiencing is huge,” ECB chief economist Philip Lane said in an interview with Austrian newspaper Der Standard published Tuesday.

“It is the poorest people in our society that are most affected.”

Governments need to support those suffering the most, and the question was whether this should be financed by tax hikes for the better off, he said.

“This could take the form of higher taxes on higher earners or on industries and firms that are highly profitable in spite of the energy shock,” he added.

Increasing taxes has less of an impact on inflation than if you increase public deficits to provide support, he said.

ECB president Christine Lagarde said this week the central bank supports targeted measures to help the most vulnerable households.

The idea of hiking taxes on high earners is already gaining traction in the eurozone. Spain announced last week it will slap a temporary levy on the wealthiest one percent of the population from next year to help pay for inflation relief measures.

Former European Union member Britain has taken a different approach — its new government announced a huge tax-cutting budget last week, which sent the pound plummeting to record lows against the dollar.

Eurozone inflation hit 9.1 percent in August, an all-time high, and the ECB earlier this month hiked rates by a record 75 basis points as it seeks to tame the surge.

The ECB also said Tuesday the growth of loans granted by banks in the eurozone to companies rose sharply in August.

Source: AFP