Municipal revenues secured

The Socialist Party of Iceland's (Sósíalistaflokkur Íslands) platform for the parliamentary (Alþingi) elections on September 25, 2021:Fourth offerto voters presented around Pentecost:

SOCIALIST TAX POLICY PART IV:MUNICIPAL REVENUES SECURED

The weakening of municipal revenue streams during the neoliberal years, with the abolition of local business taxes on companies and municipal income tax on capital gains, has curtailed municipal autonomy and driven them to sell assets to compensate for lost revenue.

Land sales are one example of this. Tax cuts for the wealthy forced municipalities to auction off land instead of allocating it. The consequence of selling public goods to the highest bidder was a permanent increase in apartment prices, which in some municipalities could amount to up to 10 million ISK per two-room apartment. This shifts the cost of tax cuts for companies and capital owners onto the general public.

Another example is the increase in property taxes. Property taxes, which were abolished around the turn of the century, were levied on net assets, but property taxes, which today constitute a larger portion of municipal revenues than in the decades before neoliberalism, are levied on total assets regardless of how much the owner owes. For the less fortunate, property taxes are therefore a tax on debt, which is an outrageously unfair tax.

IV. Municipal revenues secured: Local business tax reinstated (note tax exemption)

Socialists propose reintroducing a local business tax on companies, a turnover-based tax that goes to municipalities. Companies are independent taxpayers and should contribute to their local environment just like individuals, as companies use municipal infrastructure no less than individuals; they use streets and utilities, benefit from the education of their staff and childcare for their children, and care for parents and other relatives. Companies grow and thrive most in a well-organized society, and they should pay for that benefit.

It is proposed that the local business tax be progressive, so that the smallest companies pay little, while the very largest pay a lot. Tax exemptions from local business taxes can be used to stimulate innovation, the establishment of communities, or to encourage unemployed people to start their own businesses. The size of companies reflects their position in society; the larger they are, the more favorable their position in society, and it is natural to tax that position.

It is also proposed that the state determine the local business tax so that municipalities do not engage in tax competition for the largest companies, luring them in by abolishing or significantly reducing the local business tax. Tax competition between municipalities and states has undermined communities in our part of the world and must be stopped.

Companies operating in multiple municipalities, such as energy companies, banks, many state-owned companies, and some large corporations, should pay a so-called national municipal income tax instead of a local business tax, and their municipal income tax will be distributed to municipalities in proportion to population and scope of operations.

IV. Municipal revenues secured: Municipal income tax on capital gains

When capital gains were separated tax-wise from other income, the municipal income tax on them was abolished. The result is that many of the country's highest-income earners pay nothing or very little to their municipalities. This is a completely pointless tax break, transferring income from municipalities to the very best off, and should be abolished as soon as possible.

Before neoliberalism undermined the tax system, the municipal income tax in Reykjavík was 6.7%. Today it is 14.52%. This significant increase can partly be explained by the transfer of tasks from the state to municipalities. But the explanation is also, not least, that since 1991, municipal revenues from companies and capital have been abolished. Wage earners and the general public have been made to bear the cost of this through increased levies. The difference in municipal income tax today and in 1991 is almost 330 thousand ISK per year for minimum wage earners and 650 thousand ISK per year for average wage earners. This is a massive drain on residents, burdens placed on the public perhaps primarily so that taxes on capital and business owners could be lowered.

Although socialists primarily want to secure the revenue base of municipalities so that they can provide residents with good, free services and thereby improve everyone's lives, especially the living standards of lower-income individuals, a municipal income tax on capital gains and a local business tax on companies will open up possibilities to generally lower the municipal income tax or make it progressive so that people with lower-than-average incomes pay lower taxes.

IV. Municipal revenues secured: Socialist offer

The fourth offer of the Socialist Party (Sósíalistaflokkurinn) to voters for the autumn elections regarding the restoration of municipal revenue systems involves reintroducing a local business tax on companies, but making it progressive so that the smallest companies pay proportionally the least and the largest the most, reintroducing a national municipal income tax for large corporations that goes to municipalities, and levying a municipal income tax on capital gains while generally lowering the municipal income tax.

Strong and independent municipal revenue streams are a prerequisite for normal decentralization of power in society, for municipalities to have the financial capacity to formulate policy on matters under their purview and to find ways to best serve residents. It is then a fundamental prerequisite for a just society that business and capital owners contribute to their local environment. A just society is based on those who are most able to contribute doing so to society, and those who are most in need of assistance receiving good services and support.

And then we come to the fifth and most important goal of the tax policy of the economy of love; that the tax system be used to support people and increase equality. To achieve this, the tax increases of the neoliberal years, which were imposed on the general public, especially people with medium and lower incomes, must be thoroughly reversed.

Here you can read Part V of the offer:Tax cuts for the general publicApproved at a joint meeting of the Executive Board (Framkvæmdastjórn) and Policy Board (Málefnastjórn) of the Socialist Party of Iceland on the Saturday before Pentecost, May 22, 2021