Bjarnason says poverty plan burdens ordinary Icelanders

Vilhjálmur Bjarnason argues that a plan to reduce poverty would shift child benefits away from higher-income households and burden ordinary Icelanders. The opinion article was published by Morgunblaðið.

In Halldór Laxness’s novel Independent People, Jón Hreggviðsson reaches Dutch fishermen, who feed him because, they say, Icelanders must always depend on foreign nations for food or they will die. Bjarnason says that description still applies three centuries later. He writes that ordinary Icelanders are now a minority in the country and accuses the People’s Party of seeking to eliminate poverty by targeting them.

The proposed measure would transfer child benefits from the “top income deciles” to “poor” families, in effect turning child benefits into poverty benefits, Bjarnason writes. He says this would come on top of progressive income tax, another form of income redistribution.

Drawing on his past work with people facing financial difficulties, Bjarnason says the causes varied and were rarely unemployment. In some cases, he writes, they included severe disorder; reports produced decades later also point to single mothers without education. Stress had led to various health problems. He says the new child benefits risk entrenching these conditions by making them more bearable rather than addressing them.

Bjarnason questions whether expectations of students in secondary schools and universities have been lowered to encourage avoidance of pressure, arguing that this would not reduce poverty. He asks whether something is wrong with that approach.

Over the past 30 years, he writes, wages’ purchasing power has doubled, bringing substantial revenue to the state. New sources of income have also increased state revenues, including dividends from Landsvirkjun and Landsbanki Íslands hf., as well as taxes on financial activity by companies and individuals. The burden of pension payments for older people has also fallen considerably as pension funds have grown stronger.

Bjarnason says successive governments have called for spending restraint during that period, but that spending has continued to leak through. He acknowledges a liberal approach to receiving refugees, but says the associated expenditure got out of control. In his view, this helped the Centre Party find a political niche, alongside what he calls its MPs’ “nonsense and verbiage” on other issues.

He argues that demands for restraint are meaningless and that it would be better to reduce the relevant services and activities than to restrict them so much that they become ineffective.

Bjarnason also criticises what he describes as well-meaning populists who want to do everything for everyone classified as worst off. The group considered worst off changes, he argues: once one group’s situation improves, another becomes the worst off. He therefore calls talk of the “worst off” illogical.

He says people with reasonable pension incomes from pension funds are unlikely to become a focus soon. The funds have built up over decades and, with the exception of Division B of LSR, have assets to meet their obligations.

Icelandic pension funds also hold nearly the equivalent of the country’s gross domestic product in foreign securities, Bjarnason writes, strengthening the country’s external position and, all else being equal, reducing the Central Bank’s need for foreign currency reserves. He adds that the funds provide liquidity to the banking system in its dealings with the Central Bank.