Government tax plans target ordinary workers, MP says

Taxes on income, companies and tourism are rising despite government promises to the contrary, Hildur Sverrisdóttir, an MP for Iceland’s Independence Party, writes in an opinion article published by mbl.is.

At a press conference presenting the government in December 2024, Þorgerður Katrín Gunnarsdóttir said that income taxes, corporate taxes, capital gains tax and value-added tax on tourism would not be increased. According to Sverrisdóttir, all the taxes on that list except capital gains tax have since risen.

Sverrisdóttir argues that taxes ultimately come out of the pockets of the public, even when they are imposed directly on individual companies or services. She says it is therefore misleading to suggest that the consequences end with the businesses targeted by the government.

She also criticises a proposed change in the government’s budget bill that would amount to an income tax increase for all working people. The personal tax credit and the income thresholds in the tax system would rise less than they otherwise would have, meaning that everyone who pays tax on wages would pay more income tax, she writes.

The bill says the tax burden has fallen most among, among others, the bottom two income deciles of people earning above the tax-free threshold. Sverrisdóttir says the ministry’s reasoning appears to focus particularly on people earning about 450,000 Icelandic krónur a month, which she describes as surprising.

People receiving child benefits would also lose out, she says, because the payments will remain unchanged and therefore lose value in relation to prices.

Households face further increases, including a substantial rise in the mileage charge paid by drivers and an extension of a preventive levy on all property owners in Iceland. The levy was introduced temporarily after seismic activity on the Reykjanes Peninsula to protect important infrastructure. Sverrisdóttir says it is now being extended apparently for the sole purpose of increasing state revenue.

She also points to increases in fixed-amount taxes and fees that are well above the Central Bank’s inflation target. At the same time, companies and municipalities are being urged to restrain price increases to curb inflation. The Finance Ministry itself expects the higher fixed-amount charges to contribute to inflation, she writes.

Sverrisdóttir concludes that the group considered “ordinary people” is becoming smaller as taxes rise, arguing that under the government’s proposals a person would need to be unemployed, without a car, without children and homeless to qualify as ordinary.