Let's lower the municipal income tax for the lowest earners

Many Reykjavík residents live in poverty, and although it is a fact that many have far too little to live on because the state pays them shamefully little, e.g., in the form of pensions, it does not mean that we cannot still do something to accommodate those with the lowest incomes. It should also be mentioned that many have little to live on because they are on financial assistance for subsistence from the city or on the lowest wages paid by the city for full-time work. One would, of course, want to see that matters were such that those who can afford it contribute to society and that such a fund would be used to equalize where there is a shortfall to create a good society for all. It is incongruous that we are collecting municipal income tax, a tax from those whose incomes barely suffice for subsistence.

For example, a person who only receives a basic disability pension from the Social Insurance Administration (Tryggingastofnun) has about 212 thousand ISK after tax, with a large portion going to the city, while capital owners pay zero ISK of their capital income to the city. Certainly, the person with just over 200 thousand ISK after tax will most likely receive housing benefits and similar assistance, which helps a little, but how are city residents supposed to get by on such a low amount? It is also difficult to imagine how individuals on financial assistance with about 184 thousand ISK after tax can support themselves.

This proposal is intended to lighten the burden on those with the lowest incomes; this also includes retirees with low incomes, those in low-wage jobs, and Reykjavík City is probably the largest low-wage employer in the country, and I therefore find it very appropriate that everything possible is done to increase the disposable income of those who have the least to live on. This proposal is intended to reach all city residents who are made to live on amounts that barely suffice for subsistence.

I believe that if we set ourselves this goal, we can work towards it. If there is a will to lighten the burden on low-income individuals, we can make the lives of these city residents a little easier and set an example for other municipalities that the tax system here is truly used for equalization. The city treasury reported a surplus of about 4.7 billion ISK last year, and it is certainly possible to start by using that capital for welfare issues, which this proposal is about. To strive to ensure the financial security of all city residents and aim for as few as possible to have less than 300,000 ISK in disposable income. Therefore, it is proposed that the new Department of Finance and Risk Management be tasked with elaborating on the content of the proposal and implementing it. As I have often suggested here in the city council, the city could strive to establish a fairer tax system by consulting with other municipalities with the aim of enacting laws that municipal income tax also be levied on capital income.

We already acknowledge the difficult financial situation of various groups in society, where the city, for example, provides discounts to low-income old-age and disability pensioners on property taxes, and students, single parents, and those on disability benefits can receive discounts on their children's preschool fees, and there are all sorts of such discounts available, but let's go a step further and increase the disposable income of those who do not have enough to live on.

Considering that social services are one of the tasks of municipalities, where the goal is to ensure financial and social security and promote the welfare of residents based on mutual aid, this proposal aligns well with those goals. For example, the laws on municipal social services state that the objective of the laws is to improve the living conditions of those who are disadvantaged and to take measures to prevent social problems. We know that financial difficulties can open up many social problems; when every month is impossible and you know it, it is difficult to live on the amount you have available. Here, the city can step in and allocate funds in a way that increasingly ensures the financial and social security of its residents.

Unfortunately, the proposal was rejected, but here is my statement on that decision:

The laws on municipal social services state that the objective is to ensure financial and social security and promote the welfare of residents based on mutual aid. This shall be done, among other things, by improving the living conditions of those who are disadvantaged and by taking measures to prevent social problems. Many city residents live in poverty, and such a situation is truly taxing. The representative of the Socialist Party (Sósíalistaflokkur Íslands) believes that the city has a moral obligation to do everything in its power to ensure that no one lives in poverty. Although the majority of the city council has decided not to make any changes to the municipal income tax during this term, it is certainly possible to explore this path as specific financial support for the most disadvantaged. No one should have to live in poverty, and the city can do various things to lighten the burden on those living in difficult financial circumstances.

Here is the proposal:

Proposal for the reimbursement of municipal income tax to the lowest earners

It is proposed that Reykjavík City reimburse municipal income tax to the lowest-income city residents on a monthly basis. The aim is that those with a monthly income of 300,000 ISK or less before tax receive a full reimbursement of their municipal income tax. The reimbursement shall be reduced with increased income with the aim of ensuring that as few as possible have a disposable income lower than 300,000 ISK per month. It is assumed that the reimbursement of municipal income tax will cease when that limit is reached. However, it is important to mention here that the monthly income of many does not reach 300,000 ISK, and in such cases, full reimbursement of municipal income tax is aimed for. This includes individuals on financial assistance for subsistence, retirees with low incomes, elderly citizens and disabled individuals with little to no pension fund rights, and pensioners with reduced payments from social security due to previous residence abroad. These are all examples of city residents who pay tax to Reykjavík City and live in straitened circumstances, and this proposal is put forward to improve the financial situation of those with the lowest incomes. It is proposed that the Department of Finance and Risk Management be tasked with elaborating on the content of the proposal and implementing it. It is also proposed that the reimbursement criteria evolve in line with the amounts of the lowest wages and incomes.

Statement of Reasons:

Many city residents live in difficult financial situations where monthly incomes are insufficient for basic necessities, and individuals have often had to deny themselves things considered basic needs. Recently, the government presented an action package due to wage agreements, which includes, among other things, a 9,000 ISK tax reduction for low-income individuals. Municipalities can also lighten the tax burden on low-income individuals by reimbursing the lowest earners for the municipal income tax they have paid into the city treasury. The municipal income tax rate is 14.52% in Reykjavík City and can therefore significantly reduce the amounts of the lowest wages. It should be mentioned that the basic amount of financial assistance for a Reykjavík resident, 18 years or older, who runs their own household, can amount to a maximum of 201,268 ISK per month before tax. Those who only receive the minimum subsistence guarantee for disability and rehabilitation pensions receive 247,183 ISK per month before tax. There are also individuals, both those on disability pensions and elderly citizens, who are in a situation where they do not have pension fund rights and therefore have to live on an amount that is insufficient for subsistence.

The city provides various discounts to the lowest earners, where single parents, disabled individuals, and students can receive discounts on their children's preschool fees, and low-income old-age and disability pensioners can receive discounts on property taxes, to name a few examples. Here, the city can take bigger steps towards alleviating the burden on those who have little to live on. According to law, tax must be paid on income, and therefore it is proposed that municipal income tax be collected but then reimbursed to the lowest earners in this manner. To improve the living conditions of those city residents who have the least to live on, it is proposed that this reimbursement system be implemented to ensure additional disposable income for the disadvantaged in the city. While city residents are in a situation where they have to get by on monthly incomes that are insufficient for basic necessities, it is proposed that the tax burden on city residents with the lowest incomes be eliminated in this way. Subsequently, the city can seek ways to tax capital owners who pay no municipal income tax on their capital income to the city and thus strive to create a fairer tax system.

Social services are one of the tasks of municipalities, where the goal is to ensure financial and social security and promote the welfare of residents based on mutual aid. This shall be done, among other things, by improving the living conditions of those who are disadvantaged and by taking measures to prevent social problems. By reimbursing the lowest earners in the city for their municipal income tax, it can be ensured that the disposable income of these individuals increases, and thereby the burden on those city residents who live with constant financial worries can be alleviated. With this, the municipality of Reykjavík City can be a leader in bringing about changes to the municipal tax system with the aim of lightening the burden on those with the lowest incomes.

Sanna Magdalena Mörtudóttir