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So What’s This I Keep Hearing About Rising Inequality in Iceland?

So What’s This I Keep Hearing About Rising Inequality in Iceland?

Photos by
Lóa Hjálmstýsdóttir

Published August 24, 2015

There are many reasons for rising inequality in the world, but in Iceland the main cause is simple. The current right-wing government has lowered taxes affecting the rich. To illustrate this, let us pick an example at random: the wealthy Mr. Sigmundur Davíð Gunnlaugsson. His tax payments went down from roughly 122,000 Euros last year to 54,000 Euros this year, a reduction of about 55 percent.

Don’t try to fool me, that’s not a random example, that’s the Prime Minister of Iceland.

The case of the Prime Minister is not brought up to suggest that he is using his power to enrich himself. The 68,000 Euros or so have no affect on his finances. Business paper Viðskiptablaðið estimated in 2013 that he and his wife were worth about 7.5 million Euros. Now, that is not the kind of money where you can buy an island and build a skull-shaped secret lair, but it is enough to get you in the top 0.05% of the richest people in the world.

Bah, what good is money if I can’t hold the world hostage with my giant skull laser?

No political party has ever had a majority of seats in the Icelandic parliament. Therefore coalition governments are the norm. In theory, having two or more political parties in power should cover possible blind spots and limit excesses, but sometimes politicians of different striphes share blind spots. The two parties currently in power—the Prime Minister’s Progressive Party, and the Independence Party—are both headed by men from wealthy families. Government rhetoric and policies make it clear that the two parties have little or no idea what life is like when you do not benefit handsomely from the abolition of a wealth tax.

But are they wealthy enough to understand the struggles of those making down payments on a giant skull laser?

Most of the Prime Minister’s lower tax payment can be explained by the abolition of the wealth tax, though his income tax payment also went down by roughly 35 percent. As pointed out by journalist Gunnar Gunnarsson, who broke the story for the news site Austurfrétt, this is the result of changes made to the Icelandic tax code last year. Jóhann Páll Jóhannsson analysed the new tax system in the newspaper Stundin, writing that the “changes made by the current government to the tax code have been most beneficial for the wealthiest in Icelandic society.”

Wealth does not bring happiness, as the ancient wise men say. Happiness is a warm giant skull laser.

These changes are in opposition to what the government formed by the Social Democratic Alliance and the Left-Greens did after coming into power following the 2008 financial crash. That government increased taxes on large businesses and the wealthy and decreased the tax burden on those with low-to-middle income. So things have taken a drastic swing in the opposite direction.

Like when I push my kid on a swing and don’t pay attention, it hits me right in the face.

Speaking to Stundin, Columbia University economist Jón Steinson says that before the crash “the tax code Icelanders lived with was the most right-wing of wealthy countries in OECD.” Stundin points out that in 2007, if you compared the wealthiest one percent of the population in the United States and Iceland, the former paid 30 percent of their income in taxes, while the latter paid 13 percent.

And now the Icelandic government is trying to give rich Icelanders more money again. That worked well last time.

It would perhaps be a little harsh to suggest that the richest one percent of Icelanders are idiots who should not be trusted with anyone’s money, including their own. However, the Icelandic public is none too fond of the idea that rich people should pay less in taxes, especially as basic services, like healthcare, are underfunded. According to opinion polls, the Independence Party’s support is back down to the level it was immediately after the financial crash, for which it was widely blamed. The Progressive Party has lost half of the support it had in the last election.

Have any populist parties risen up, as has happened in Europe?

The beneficiary of public discontent, at least in terms of polling, is the Pirate Party. Since spring, it has consistently polled as the most supported party in Iceland. The two left-wing parties, as well as the centrist party Bright Future, have also declined in polls. The parties in government have not reacted so far, possibly thinking that the Pirate Party will lose followers as elections draw nearer. But if it does not happen, or another opposition party draws the populist following, then they might have to pool their extra money together for a giant skull laser.


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