Let's lower the municipal income tax for the lowest-income 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, that 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 receive financial assistance for subsistence from the city or are on the lowest wages the city pays for full-time work. One would, of course, want to see things arranged so that those who can afford it contribute to society and that fund would be used to balance out what is missing to create a good society for all. It is contradictory that we are collecting municipal income tax, a tax from those whose incomes barely suffice for subsistence.

For example, a person who only receives basic disability pension from Tryggingastofnun (Social Insurance Administration) has about 212 thousand krónur after tax, with a large portion going to the city, while capital owners pay zero krónur of their capital income to the city. Certainly, the person with over 200 thousand after tax most likely receives housing benefits and something similar that eases things a bit, 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 krónur after tax can support themselves.

This proposal is intended to lighten the burden on those with the lowest incomes; this also applies to low-income retirees, those in low-wage jobs, and Reykjavík City is now 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 this goal for ourselves, 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 had a surplus of about 4.7 billion last year, and it is certainly possible to start by utilizing that capital for welfare matters, 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 krónur in disposable income. Therefore, it is proposed that the new Department of Finance and Risk Management (sviði fjármála- og áhættustýringar) be tasked with elaborating the content of the proposal and implementing it. As I have often proposed 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 to also levy municipal income tax on capital income.

We already acknowledge the difficult financial situation of various groups in society, where the city, for example, grants discounts on property taxes to low-income old-age and disability pensioners, 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 the door to 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.

The proposal was unfortunately rejected, but here is my statement regarding 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, among other things, be done 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 certainly taxing. The representative of the Socialist Party 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 consider this approach as specific financial support for the most vulnerable. 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 reimbursement of municipal income tax to the lowest-income earners

It is proposed that Reykjavík City reimburse municipal income tax to the lowest-income city residents on a monthly basis. It shall be based on those who have monthly incomes of 300,000 krónur or less before tax receiving a full reimbursement of the municipal income tax. The reimbursement shall be reduced with increased income with the aim of ensuring that as few as possible have disposable incomes lower than 300,000 krónur per month. It is assumed that the reimbursement of municipal income tax will cease when that limit is reached. However, it is worth mentioning that the monthly incomes of many do not reach 300,000 krónur, and in those cases, full reimbursement of municipal income tax is assumed. These include individuals on financial assistance for subsistence, low-income retirees, senior citizens, and disabled individuals with little to no pension fund rights, and pensioners with reduced payments from social security due to previous residence abroad. All these are examples of city residents who pay tax to Reykjavík City and live in difficult 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 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 do not cover basic necessities, and individuals have often had to forgo things considered basic needs. Recently, the government presented an action package due to wage agreements, which includes, among other things, a 9 thousand krónur tax reduction for low-income individuals. Municipalities can also lighten the tax burden on low-income individuals by reimbursing the lowest-income earners the municipal income tax they have paid to 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 can 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 krónur per month before tax. Those who only receive minimum subsistence insurance for disability and rehabilitation pensions receive 247,183 krónur per month before tax. There are also individuals, both those on disability pension and senior citizens, who are in a situation where they do not have pension fund rights and therefore have to live on an amount that does not suffice for subsistence.

The city grants various discounts to the lowest-income 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-income 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 and ensure additional disposable income for the most disadvantaged in the city. While city residents are in a situation where they have to get by on monthly incomes that do not cover basic necessities, it is proposed that the tax burden on city residents with the lowest incomes be abolished 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, among other things, be done by improving the living conditions of those who are disadvantaged and by taking measures to prevent social problems. By reimbursing the lowest-income earners in the city the municipal income tax, it can be ensured that the disposable income of those individuals increases, and thereby the burden on 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