The reactivation by the Government of the idea of the 'income pact' as a priority to prevent the inflationary episode caused by the rise in energy prices, and aggravated by the war in Ukraine, from leading to an inflationary spiral that leads to the economy close to recession has also revived its offensive against allegedly excessive corporate profit margins. The issue has once again jumped into government discourse in the face of the ineffectiveness of the Government's measures to contain the escalation of prices, which is sometimes attributed in an indicated manner, sometimes explicitly, to the resistance of companies to reduce their profit margins. and has even given reel to the measure that the Executive intends to turn into a social band for the second half of the year: the creation of a sober tax on surplus profits obtained by energy companies.
The Government takes it for granted that companies in the energy sector have increased their profits in Spain on the back of the rise in the prices of energy sources and even from certain sectors of the Executive President Sánchez is encouraged to be more daring and include in that sack a fiscal surcharge to the banks or also to a limitation to the dividends that the companies distribute. The measures are apparently planted without a prior diagnosis based on data, in part because, contrary to what happens with wages, the information regarding business profits is "scarce and not very homogeneous", as the general director of the Institute admits. of Economic Studies, Gregorio Izquierdo.
One of the sources that he points out as the most reliable for knowing this information is the Central Balance Sheet of the Bank of Spain, which on a quarterly basis presses the opinion of hundreds of companies of different sizes and sector profiles to take an updated picture of their financial situation. The latest data that the institution has obtained from that source, presented by the Bank of Spain this week in a closed-door meeting in the Chamber of Spain, yield striking conclusions. The first is that, as is the case with wages, employers have generally noticed less than inflation has, that is, they are absorbing the sober impact on their scales of the increase in production costs and that in general lines have a tighter balance today than they have a year ago.
But the information compiled by the Bank of Spain says more. For example, that the companies that came from having wider profit margins just before the rise in inflation are the ones that have reduced their surpluses the most in the course of the last year, with an average drop of 6%. That the margins have also been reduced in the companies most exposed to foreign competition, that is, the exporting companies, and also in those that have suffered a greater impact on their production costs due to the increase in energy prices.
This first analysis carried out by the Bank of Spain based on the information provided by some 900 companies also revealed that the companies that have increased their profit margins compared to the scenario of a year ago are mainly those that have a high level of indebtedness. where you have more difficulties to cover your financial losses with more benefits, that is, you have a more vulnerable financial position and you need to improve it either to guarantee your survival or to facilitate your access to financing. Where have commercial margins also widened in the last twelve months? Well, in companies that have higher rates of job creation.
"The discourse that companies are shooting up their margins does not respond to the reality of profits does not respond to reality," said the general director of the Institute of Economic Studies, the CEOE's laboratory of ideas. "What the available information says is that business margins are growing in companies that have a more relevant financial expense or labor cost burden." Izquierdo also emphasizes that the increase in margins in companies with high financial costs distorts the image, since these reduce their real profit. “The economic situation of these companies is worse than what their profit margins show.”
The history that these data contain is different from that reported by the Government or that reported by the unions that have started a campaign of mobilizations to demand wage increases that compensate for the loss of purchasing power accumulated by the workers in the current inflationary episode based on that the margins of the companies allow it. One of the arguments they raise is that if inflation is at 10% and the wage subsidy of the agreement is around 2,5%, everything else is being raised by the companies.
“We cannot forget that we have a business fabric made up mostly of small and medium-sized companies, we have very narrow profit margins, and that there is also a marked sectoral profile that makes the situation vary a lot from one sector to another”, points out the chief analyst of the Chamber of Spain, Raúl Mínguez. His statement is also supported by data, those provided by the SAFE report on business financing prepared by the European Central Bank and the European Commission from thousands of companies throughout Europe, and which reveals that between October 2021 and March 2022, that is , at the height of the escalation in inflation, the number of SMEs that narrowed their margins is 27 points higher than those that increased it.
It is in this scenario that the Government wants to intervene, which for the moment seems to have chosen to limit its scope for action to energy and the construction of a new tax on its extraordinary profits. You do not have many other options apart from taxi. Private wages can be limited through collective agreements, wages and other public income such as pensions through a government law, but limiting corporate profits is a trickier issue. "There is no possible intervention, but there is all the self-regulation, which is producing and which is much more self-demanding than the production of other ambitions," says Raúl Mínguez, who warns about the risks of increasing tax charges on companies in a context of high inflation and a drop in economic activity.
The government and social agents have decided for now to leave the negotiations on the income agreement for the month of September, but if the experts agree on something, it is that any agreement should include all the agents: salaries, business profits and public income, including pensions
