According to a report filed by the Icelandic Confederation of Labour (ASÍ), the tax code changes that came into effect at the beginning of January will benefit high-income groups six times more than the lower and middle classes.
Specifically, ASÍ calculated that while wealthy individuals will see their disposable income increase by about 77,700 ISK a year (approximately 741 USD), lower-income groups will see a yearly increase by 11,800 ISK (or 112 USD).
When it comes to income taxes, Iceland envisages only three brackets to regulate and calculate the tariffs. The lowest bracket includes non-taxable individuals. This year, their income limits has been raised by 1,9%.
Thus, the second bracket now includes individuals who earn more than 145,900 ISK a month (1,392 USD) and up to 893,713 ISK (8,524 USD).
The highest-income bracket, instead, has increased by 9,1%, so that only individuals who receive more than 893,713 ISK will pay 46,24% taxes on their salary.
The more you earn, the more you earn
Ultimately, this means that individuals will experience tax breaks that are directly proportional to their income. In a nutshell, the more you earn, the higher your tax break will be. Let’s take Jón and Dísa as an example.
Jón works in the service industry and, being as lucky as he is, he manages to earn 3,300 USD a month with his barista position. His tax break this year will not exceed 998 ISK a month (10 USD). By the end of the year, if his rent allows him, Jón will have 11,800 ISK more than last year in his pockets.
In comparison, Dísa, who works for the government and earns almost 1 million ISK a month, will see a 0,9% increase in her disposable income, earning an extra 6,500 ISK a month (62 USD).
We can already see the joy in Jón’s eyes looking at his new paycheck, but this is no time to be merry. The extra 10 USD aren’t even enough for a cheap meal downtown, so better save up for another month to splurge and celebrate.