Windfall on energy companies – a prudential move, a U-turn, or a simple tax grab?

Several Portuguese economists have criticised several arguments that Portugal’s government has been using to justify an extraordinary windfall tax on energy companies.

The reactions come after the government announced the tax measure last week – a measure that had been criticised by the Prime Minister, Luís Montenegro back in 2022 when the country was led by the Socialist government of António Costa which introduced a similar windfall tax measure..

How things change. The EU, it’s presidency currently led by the same António Costa, has been hearing out a group of NGOs who said last month that windfall tax on oil companies was needed to support vulnerable households, industry, and the energy transition.

As soon as the Commission announced it would allow the tax on extraordinary profits of energy companies to go ahead, Portugal’s Finances Minister Joaquim Miranda Sarmento confirmed that he would move forward with the measure “shortly,” drawing inspiration from previous measure applied in 2022 after the Russian invasion of Ukraine.

The Finance minister has not yet revealed what the differences will be, “it’s premature for now,” but Luís Montenegro’s position is well known, having made it clear about four years ago that it is a “populist” measure.

So why the differences of opinion? In Brussels, Portugal’s Finance minister pointed to several reasons, but the economists contacted by the news source Jornal Económico were not convinced by the arguments.

Óscar Afonso, a University of Porto economist points out that Luís Montenegro, then leader of the opposition, considered that “all companies already paid a lot of taxes,” arguing that there was “no justification for creating more.”

Confronted with the Prime Minister’s previous statements, the Minister of Finances argues that “the context today is very different,” primarily because at that time there was “a much higher tax burden.”

And the price increases, he said, “are also very different,” emphasising that in 2022, unlike this year, inflation “was already a widespread problem” and “did not stem solely from the shock of the Russian invasion of Ukraine.” Now, on the contrary, there is “above all, very high pressure on fuel prices.”

These statements, Óscar Afonso says, show that “when arguments fail, anything that springs to mind is used, as long as it has, at least, the potential to pull the wool over the eyes of the less attentive.”

The economist, who participated in drafting the Democratic Alliance’s (AD’s) first electoral programme, added that “the tax burden did, in fact, reach a maximum in 2022, due to the impact of inflation on tax revenues,” but underlines that, with the drop in prices, “it then decreased in 2023 and 2024,” increasing last year to 35.4% — “the highest in the series” since 2011, “excluding the 2022 peak.”

In other words, “if the logic of the argument is that the tax burden is low and that is why the new contribution on energy can be introduced, it doesn’t make sense.”

In the same vein, economist Paulo Trigo Pereira states that “the difference of opinion is justified because one is in the opposition or in the Government.” The arguments, he says, “are not entirely valid,” because “the tax burden is not very different.” Regarding inflation, he agrees “partially.” The former PS deputy, who defends the application of the tax, says that “those who have benefited most from the increase, in general, are the large companies in the sector.” But he reinforces that the difference of opinion has “political motivations.”

“Politics is the art of the possible,” economist João Duque also emphasises. “It’s the art of swallowing frogs. Or now that I’m the boss, I see things as they are. There are many ways to say the same thing.”

The president of ISEG, a school of business and economics, believes that the minister should be upfront, admitting that he is “having difficulties controlling the budget,” because of the succession of crises.

“It would be more honest to admit that. People would understand,” he argues. The economist, who disagrees with the measure, would prefer that energy companies be required to use extraordinary profits — “if they exist” — on “investments to change the energy paradigm.”

Image: epa12932076 Portuguese State and Finance Minister Joaquim Miranda Sarmento arrives ahead of a Eurogroup meeting in Brussels, Belgium, 04 May 2026. Finance ministers are due to discuss the euro area economic outlook, fiscal coordination and ongoing work to strengthen competitiveness and financial stability, according to the Eurogroup agenda. EPA/OLIVIER HOSLET
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