While inflation eats away at the purchasing power of European workers, the largest European companies have considerably increased the sums they paid out to shareholders in the second quarter of 2022.

The global dividend index published by the investment firm Janus Henderson Investors shows a sharp rise in dividends paid by the 1,200 largest firms by market capitalisation. Especially European firms have paid out more money to their shareholders than last year, increasing the payout by 28.7% in euro terms.

According to the report, the rise is enabled by the large corporate profits realised last year as the economy recovered from the pandemic. The dividend payouts had already risen by 25.7% in 2021 after being slashed by 28.4% in the pandemic year of 2020.

Driven by recovery and high prices

In France, for example, Airbus made a large contribution to this rise in dividends as it resumed its dividend payouts after a two-year break. In other European countries, like the Netherlands, Belgium, Spain, Italy, and Sweden, rising dividends were mainly driven by the banking sector.

However, the report also stated that companies had profited from rising prices.

For example, German car producers Mercedes-Benz and BMW more than tripled their payouts compared to last year. “Dramatically higher car prices and an improvement in the sales mix to higher-margin vehicles have more than offset volume falls,” the report states.

The index only looks at the largest companies in Europe and the world and thus only offers an incomplete summary of the situation. Nevertheless, it animates the debate about who profits and who suffers from the current rise in prices.

Real wages decrease

Driven by high energy prices following Russia’s invasion of Ukraine, year-on-year inflation hit 8.9% in July in the EU on average. While nominal wages across the bloc have begun to rise as well, their growth does not make up for the loss in purchasing power caused by inflation.

Real wages are shrinking, while dividend payouts are growing faster than inflation. Dividend payouts were 15.5% higher in the second quarter of this year than in the same quarter of the pre-pandemic year of 2019.

This does not go down well with labour representatives who feel the burden of inflation is unevenly carried by workers. For the European Trade Union Confederation (ETUC), the discrepancy between dividend growth and wage growth shows that “excessive corporate profits – not wages – are driving inflation.”

Taxing the additional profits?

“These figures will be difficult to believe for millions of working people struggling with the cost of living crisis,” said ETUC Deputy General Secretary Esther Lynch, calling for a tax on excess profits that have been realised thanks to the high prices.

The so-called windfall tax is being discussed in several EU member states, mostly for energy companies. In July, Spain announced it would introduce a windfall tax on excess profits, aiming to generate additional tax revenue of €7 billion.

Also in July, European Commission Vice-President Věra Jourová said the EU executive was considering a “coordinated and sensible approach in the EU to windfall profits taxes” during a debate on the topic in the European Parliament.

Meanwhile, critics of the windfall tax argue that high profits are a good incentive for companies to invest, which should then lead to additional supply and lower prices.

[Edited by Zoran Radosavljevic]

Source: Euractiv.com