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The Disputed Benefits Of A Higher Food-Tax

The Disputed Benefits Of A Higher Food-Tax

ASÍ economist says lower-income families will be worse off

Published October 17, 2014

Alþingi kept debating the budget proposal on Thursday. So far, what has raised most concerns, is the suggested higher VAT on sustenance, which is to be raised from the current 7% to 12%. Helgi Hjörvar, social-democrat Coalition MP, claimed that raising the tax-food by 5%, as planned, incidentally came down to the same amount as the real estate-loans reduction promised by the government, which would thus be reabsorbed by the tax changes. Prime minister Sigmundur Davíð Gunnlaugsson replied that the current proposals also include heavy taxation of finance companies, adding up to “billions” of krónur. The Minister did not state exact figures to support his argument. He also claimed that “the government is not raising taxes”.

Interviewed by RÚV, Henný Hinz, chief economist of the Icelandic Confederation of Labor (ASÍ), stated that the countermeasures proposed are not sufficient, and their outcome not predictable enough, to outweigh the burden of a higher food-tax on lower-income families. Finance minister Bjarni Bendiktsson replied that, on the contrary, they were sufficient enough, and households of every income level will be better off once the changes have been implemented.

249, 209 or 206 krónur per meal?

Meanwhile, economist Gylfi Magnússon and software designer Vilhjálmur Þorsteinsson have asserted that these claims rest on the assumption of average meals costing, not 248 krónur, as previously reported, but 209 or 206 krónur, respectively, or €1.35. Most commentators agree that any of these figures would be unrealistic.

Finance minister Bjarni Benediktsson seems to acknowledge as much: he replied that the figures, derived from the Ministry’s PowerPoint presentation of the budget proposal, were not imperative for the coming changes, but were merely given as an example of possible positive outcomes. He also said that the prices of meals are irrelevant. The Minister said the debate should progress to a higher level and concentrate on the benefits to families that will enjoy more spending power.



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