Iceland’s long-awaited tax reforms due to be implemented on 1st January have finally been announced to cautiously optimistic applause from unions and political analysts.
The government yesterday announced that the country’s workforce will soon become subject to a three-tier tax system; with a rate of 24.1 percent payable on monthly earnings under ISK 200,000, 27 percent on earnings between 200,000 and 650,000, and 33 percent on earnings over that.
Despite the overall increased tax earnings the new system will reap, individuals earning under ISK 270,000 per month (and couples on less that 540,000) can expect to pay slightly less tax.
If one spouse earns over ISK 650,000 and the other is not employed, the tax payer can apply to be moved down one tax tier.
The current flat rate of tax is 24.1 percent.
The above figures do not include the additional 13 percent local government tax, which will remain unchanged. This means that a Reykjavik citizen with salary in the second tax band can expect to pay around 40 percent tax overall in the New Year.
The tax-free exemption on total earnings will increase from ISK 113,000 to 119,000 per month; but there was no mention of if the universal tax-free discount on the first ISK 42,000 of everybody’s salary will be increased as previously rumoured.
Union leaders have welcomed the tax policy for shielding the lowest paid in society and for ensuring that essential services can be maintained.
Progressive Party MP Birkir Jon Jonsson warns, however, that the new regime will make life harder for families with children and those with medium-high salaries, RUV reports.
In addition to this, capital gains tax will increase from 15 to 18 percent.
The treasury expects an extra ISK 50 billion in taxes next year as a result.
>The tax-free exemption on total earnings will increase from ISK 113,000 to 119,000 per month; but there was no mention of if the universal tax-free discount on the first ISK 42,000 of everybody’s salary will be increased as previously rumoured.
This is the only sensible part of whole ” tax plan “. This is extension of what Geir Haarde / Ingibjörg Sólrún government did increase in response to the crisis.
>This means that a Reykjavik citizen with salary in the second tax band can expect to pay around 40 percent tax overall in the New Year.
Whole result of this idiotic idea of progressive income taxes is that many family will simply have enough, and leave country for a few year.
So it will bring tax revenues down.
Tax increase like this will simply reduce income to government within year. I would say dont Steingrimur J. and Jóhanna know better? But of course not.
They are the first hard left coalition this country has ever had and are completely detached from real world of working people and small business owner.
Never herd of the Laffer-Keynes-Khaldun curve?
Last thing Iceland tax payer want now is higher income tax eating away at income.
If it is done as consumption tax then at least there is possibility to decide not to pay it by saving money instead.
Of course adding extra RSK ( V A T ) on gasoline and food would be inflationary but far less damanging than this rise in income tax to individual families.
This obssesion with making every one equal -
- Equally poor -
of this hard Left government is still difficult for me to fathom in this 21st century when such idea were consigned long ago to dustbin of history.
Each person that does leave because of this next year will have real effect on income of government.
Red-Green idiots cant make more of this ” Nordic Welfare State ” they want so badly to give us taxpayer with so called free at point of use, unless there is growth of economy.
Most taxpayer who now is targetted in the 40% (27% + 13%) proposed raised bracket would rather choose to pay per use fees for they government services rather than see more of they income skimmed off and wasted in burecracy and paying City Councillers and others for they phone allowances etc. before eventually gets into budget for the actual so called government services.
The people earning higher always pays more taxes under flat tax than lower earners to begin with it is double insult to take more from them when all are hurting badly and many in this ” higher ” income brackets have lost the most assets
– but these higher brackets are simply for the normal average earner per month. We are not talking about the stellar salaries for you to be on 40% ta
This will only result. I am looking forward to see this ideas smashes to pieces by opposition in parliament.
Hey Steingrimur , how about scrapping the EU application ridiculous ness .
That alone would save a lot more than 1% increase in income tax over the next years.
>If one spouse earns over ISK 650,000 and the other is not employed, the tax payer can apply to be moved down one tax tier.
And here we see a trap to keep people unemployed. Of all the ridicilous counter incentives in this bills this is the most nonsenical.
>In addition to this, capital gains tax will increase from 15 to 18 percent.
Already they raised this from 10% to 15% in July. Now up to 18%?
This tax just is extra on top of the income tax from business owner who are having it hard enough already. So called corporaton and capitalist gains taxes always do get taken out of the pockets of people in the end. In this case mainly it will fall on the people who are owning and starting new export business.
>The treasury expects an extra ISK 50 billion [ USD 410 millions ] in taxes next year as a result.
What fantastical Excel spread sheet .. no back of table napkin.. did you come to this conclusion from Steingrimur?
So, it’ll be a total of 46% tax on earnings over £38,000 per year.
Better more detail article on this subject in English :
http://www.icelandreview.com/icelandreview/daily_news/?cat_id=28304&ew_0_a_id=352202
SOME OF MY ICELANDIC NEIGHBORS STARTED TO PUT THEIR FURNITURE TO SELL ON THE STREET AT THE “GARAGE SALE” AMERICAN STYLE.
“WE ARE GOING AWAY, NOW IT IS TIME TO LOOK FOR GREENER FIELDS SOMEWHERE ELSE. WITH THIS RISE IN TAXES IN FOOD AND GASOIL, WE WONT BE ABLE TO FEED OUR CHILDREN”
WELL, THOSE PEOPLE ARE SOME OF THOSE WHO WILL GET THE BENEFIT OF PAYING 2000 ISK LESS EACH MONTH IN TAX DISCOUNT. BUT THEY WILL HAVE TO PAY AN AVERAGE OF 30.000 ISK MORE FOR THE FOOD, THE GASOLINE, AND ANYTHING ELSE THEY BUY. SO AT THE END THIS IS JUST MAKING THINGS WORSE FOR EVERYONE.
“THEY WANT US TO FEED JUST ON POTATOES” SAID AN OLD WOMAN THAT WAS PASING BY IN HER WAY TO THE LOCAL MARKET WHERE SHE EXPECTS TO SELL SOME GLOVES SHE HAS BEEN KNITTING LATELY. FOOD IN ICELAND IS ALREADY VERY EXPENSIVE. AND I AM TALKING ABOUT BASIC PRODUCTS LIKE MILK, POTATOES, MEAT, FISH, EGGS… PRODUCERS OF THOSE BASIC FOODS PRODUCTS WILL HAVE TO RAISE THE PRICES AS THEY WILL HAVE TO PAY MORE FOR TRANSPORTATION AND PRODUCTION. PRODUCTION OF VEGETABLES IS ALREADY NOT WORTHY, BECAUSE THE PRICES THEY HAVE TO PAY FOR ELECTRICITY. WE ARE GOING TO SEE ICELANDERS ABANDONING THE COUNTRY “IN MASS”
I THINK THIS NEW TAX SYSTEM IS NOT HELPING ICELANDERS AT ALL. TODAY WE GOT THE NEWS THAT THE BUDGET WILL BE REDUCED A 45% FOR PRIMARY AND SECONDARY SCHOOLS, UNIVERSITIES AREN´T DOING ANY BETTER. REDUCING SPENDING IN PUBLIC SERVICES, SPECIALLY THOSE WHO ARE IN NEED ( OLD PEOPLE, DISABLED, LONG-TERM SICK PEOPLE, ETC..) IS ANOTHER OF THE GOOD IDEAS OF THIS GOVERNMENT.
LAST NIGHT A WOMAN ON A WHEELCHAIR CLAIMED ON TV THAT SHE HAS BEEN TRYING TO GET ASSISTANCE, NO ONE LISTEN TO HER. SHE HAS BEEN HOME FOR A YEAR OR SO, WITHOUT ANYONE HELPING HER BUT HER VERY OLD MOTHER THAT CANNOT EVEN TAKE CARE OF HERSELF.
THIS IS THE WELFARE SYSTEM OF ICELAND. CONGRATULATIONS!!
I FORGOT THIS: I ALSO RECEIVED AND EMAIL THIS MORNING FROM THE SSA, THE ASSOCIATION OF ALCOHOLICS. MANY ICELANDERS THAT SUFFER FROM THIS HORRIBLE DISEASE OF ALCOHOLISM WILL BE LET ALONE WITHOUT ANY HELP. ALCOHOLISM IS A REAL PROBLEM IN ICELANDIC SOCIETY, A PROBLEM MANY FAMILIES HAVE TO DEAL WITH. IT ALSO MEANS THAT THE SITUATION OF MANY FAMILIES IN THE COUNTRY IS GOING TO GET WORSE AS THEY WILL HAVE TO VIRTUALLY DEAL JUST ON THEIR OWN WITH SICK PERSONS. DISABLED PEOPLE, ETC…
@Fisy
First – the use of word “idiots” make me sceptical to your arguments, second the percent of taxes does not tell much – if you want to tell how much an Icelander is taxed on income, then we need to get the samples calculated.
ISK 650.000 a month is mentioned. As this is a relative normal income here, I did some calculations on comparable income here:
Income month/year NKR 30.000/360.000) converted (ISK 660.000/7.920.000) (Euro 3.600/43.200). I have use 1NKR as 22ISK
Yearly taxes:
- State – ca NKR 33.000 (ca 11,8% of calculated from net income – 280′)
- Community – ca NKR 36.000 (ca 12,8% of calculated from net income – 280′)
Pension (not traditional taxes, as these are ment to be paid out later (just like a private pension)
- Pension/welfare insurance – ca NKR 28.000 (ca 7,8% of calculated total income – 360′)
Out of total income the taxes/pension insurance will be
- Taxes NKR 69.000 (19,2%)
- Pension/insurance NKR 28.000 – 7,8%
In sum this will be (I give it with a teaspoon)
- Total income NKR 360.000 – ISK 7.920.000
- Taxes/pensions NKR 97.000 – ISK 2.134.000
- Money paid out to the employer – 263.000 – ISK 5.786.000 (montley ISK 480.200).
The taxes can be read in Icelandic (or english) here
http://www.nordisketax.net/main.asp?url=files/nor/isl/i07.asp&c=nor&l=isl&m=02
“ALCOHOLISM IS A REAL PROBLEM IN ICELANDIC SOCIETY,”
Very good point.
The tax plans will be founded on economic models and predictions developed by the Central Bank of Iceland. A quick review of their macro growth research (eg http://cb.is/lisalib/getfile.aspx?itemid=7433) reveals complex original work that apparently hasn’t yet been subject to EXTERNAL peer review…
http://baggalutur.is/frettir.php?id=4754 pretty much does sum up Red-Green government attitude to this.
Translation:
The government plans to boost sources of tax substantially in the near future, with a host of new taxpayers joining the ranks of those who are already taxed to the maximum.
For the first time, elves and hidden people will pay income and capital gains tax, ghosts and other deceased persons will be made to pay a complex doomsday tax -– and the dwarfs, whose operations have hitherto been exempt from VAT, must now also pay up. It is not clear whether trolls will be taxed in this particular round, as tax collecting is fairly risky in their case.
Migrating birds will be made to pay a special ” sojourn and nesting tax “, and land wight spirits will have to deliver energy and resource fees on behalf of the land itself.
>Hey Steingrimur , how about scrapping the EU application ridiculous ness .
>
>That alone would save a lot more than 1% increase in income tax over the next years.
I thank you for you analysis there Øystein. By all means be skeptical but I am calling my own politicians exactly what they ideas they bring forward deserve them to be called. Idiots
— really does this tax ” ideas ” not indicate they are person of subnormal intelligence ?
>The treasury expects an extra ISK 50 billion [ USD 410 millions ] in taxes next year as a result.
Truly what fantastical Excel spread sheet .. no back of table napkin.. did you come to this conclusion from Steingrimur?
I think that Jim did say what I just said except he was being more polite this time using the term ” original work apprently not subject to EXTERNAL peer reviews ” of the models used.
I have two points that missed I think by all analyst so far.
A.. That this pension money is being invested mainly off shore ie outside Iceland and there is huge monies going out of the country every week when people is paid they money.
I am not saying that is wrong that they are diversifying they assets — this is what did save our pension values. But I hate seeing all this bleating from Icelandic Confederation of Labor (ASÍ) about how more taxes and EU is needed blah blah.
How about bringing a small %ag of that money home here and then earning interest on it ?? This would help the chronic defecit — the interest from that money sitting in local banks.
B.. That not mentioned there is the 1% of wages union member fee tax we MUST pay just for privilege of working.
Yes we are forced to be members of a union and pay them ” member ship fees “. We have no choice.
That is 1% going into coffers of union to buy those nice summer houses and pay the nice expenses of charming guy like Gylfi Arnbjörnsson.
If you want to see economic growth then unions stop this stealing from us members and LOWER the membership fee we are FORCED to pay.
I am not against unions, I am against being FORCED to be a member of union to work and pay them 1% of my wages each and every week… That is huge money.
ICELANDAIR AND ICELANDEXPRESS, MAIN FLYING COMPANIES OPERATING IN THE COUNTRY, ARE PLANNING NOW HOW TO ATTEND THE THOUSANDS OF ICELANDERS THAT ARE ABOUT TO LEAVE THE COUNTRY “IN MASS” DURING THE NEXT WEEKS AND MONTHS. AS THE DEMAND OF PEOPLE BUYING ONE WAY FLIGHT TIKETS HAS DOUBLED AND IS GOING TO TRIPLICATE, FLIGHTS TO FOREIGN DESTINATIONS HAVE MUCH A HIGHER PRICE NOW.
SMYRILINE WILL HAVE TO BROKE THEIR ONLY-MERCHANCY TRANSPORTATION FOR WINTER PERIOD , TO MAKE SPACE FOR THE THOUSANDS OF CARS AND PEOPLE THAT ARE EXPECTED TO ABANDON THE COUNTRY SOON.
THE MAIN TRANSPORTATION COMPANY “EIMSKIP”, IS RECEIVING HUNDREDS OF APPLICATIONS EVERYDAY FROM PEOPLE WHO NEED TO MOVE THEIR FURNITURE, CARS AND OTHER THINGS TO OTHER COUNTRIES. HUNDREDS OF HOUSES HAVE BEEN JUST LET, ABANDONED WITH EVERYTHING INSIDE AS FAMILIES CANNOT PAY THE LOANS, NOR PAY FOR TAKING THINGS WITH THEM. THOSE WHO ARE LUCKY HAVE THE MONEY FOR PLAYING THE FLIGHT FOR THE WHOLE FAMILY. ONE WAY TICKET, TO CANADA, NORWAY AND OTHER COUNTRIES.
PREFERRED DESTINATIONS: CANADA AND NORWAY.
IT SEEMS THAT ANOTHER GIMLI WILL NEED TO BE BUILD IN CANADA. THIS NEW TAX SYSTEM IS JUST HELPING PEOPLE TO SEE IT REALLY CLEAR.
SCAPE WHILE YOU CAN!!
Taxes and more taxes …. Never a good thing despite they may seem to help a some country’s financial recovery.
I think it would have been better to sell every State-stuff run and reduce politicians/other State-employees at a minimum number.
I call my idea ‘mass privatisation’ for Countries with financial trouble. ( you may agree or not ;) I do know it might sound as ‘hey, wanna turn Iceland into a sort of USA ?’ wrong, it’s even a more drastic change, imo, lol )
I think this is very good, and I also have some attention?
That does seem a bit high, but one also has to take into account what the government provides in terms of public education and healthcare and so on. Are the higher taxes for the purpose of providing better systems? Are tax deductions available for business and work expenses? More detail needed, before jumping to the conclusion that because it’s a rise it is bad, I think.