Last winter, as new collective agreements were negotiated, Efling pushed for changes in tax policy for the benefit of low-wage earners.
To undergird its arguments, a detailed analysis of developments in taxation was commissioned from tax experts Stefán Ólafsson and Indriði H. Þorláksson. They showed how significant tax relief could be implemented with little disturbance to public finances, including a scenario which allowed for 20.000kr in monthly tax reduction for the lowest wages.
Their report also noted that income from rent, profits and speculative investments is taxed very lightly in Iceland. In fact, “the only just principle” would be to tax them “like other income”. The tax concessions enjoyed by the rich were “actually of greater value than the state’s expenditure on child- and interest relief to the general public.”
On the basis of this work, tax relief for the lower wages was demanded as part of the negotiations with employers and the government. ASÍ, the confederation of labour, united around demands of a similar nature, though not as far-reaching as those of Efling.
The government has now unveiled its tax reductions promised in relation to the collective agreements.
The union demands of a third and lower tax bracket were met. This gives the lowest wages a 10.000kr reduction in monthly taxation when fully implemented after two years. The effect is largest for those earning between 325.000 and 375.000kr, and tapers out at higher incomes. Those getting the largest tax cut will earn an additional 120.000kr/year.
The government had, in an earlier announcement in February, presented its ideas for a tax reduction of 6.750kr, to be implemented over three years.
The unions thus managed to get a better result than was on offer then. However, we need to aim higher.
Two tax systems
The proposals in the report by Stefán and Indriði assumed a much greater tax reduction for the lower and middle wages. They could be financed in part by raising taxes on the highest wages, and by taxing capital income the same way as wages, or at least by similar amounts to the rates in Nordic countries.
The government has in recent decades repeatedly tried to shift the tax burden off those with high wealth and income onto those who work on the lowest wages. This isn’t fixed in the new tax policy.
What results we do have, however, shows that significant gains can be won for low-wage earners without disturbing public finances in any way – even in these times of contraction.
If the proposals of Efling had been implemented, including a high-income tax, normal capital gains taxation, a wealth tax, a higher resource tax and more active measures against tax evasion, greater gains would have been possible for the large low- and middle-income groups.
It is the view of Efling that these matters of justice should be the main task of future tax policy, and will strive to make it so. Efling also rejects all ideas of poll taxing, such as road tolls, and increased patient cost sharing in the welfare system. These policies generally hit the lowest earners the hardest. With a fairer system of taxation, welfare for all can be improved, and with it we can combat a society where there’s luxury for the rich and minimum service for the minimum wages.
The new tax policies presented by the government are a step in the right direction, but there is a long way to go towards a fairer tax system for all. Privileges and concessions to those earning and owning the most must be eliminated.