Municipal revenues secured

The Socialist Party's message in the parliamentary elections on September 25, 2021:Fourth offerpresented to voters around Pentecost:

SOCIALIST TAX POLICY PART IV:MUNICIPAL REVENUES SECURED

The weakening of municipal revenue sources during the neoliberal years, with the abolition of business operating fees and local income tax on capital income, has curtailed the independence of municipalities and driven them to sell assets to compensate for the loss of revenue.

Land sales are one example of this. Tax reductions for the wealthy forced municipalities to auction off plots instead of allocating them. 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. With this, the cost of tax reductions for companies and capital owners is shifted 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 gross 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: Operating fee reinstated (note tax exemption)

Socialists propose that a business operating fee be reintroduced, 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 the daycare of their children, and the care of 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 operating fee be tiered so that the smallest companies pay little, while the very largest pay a lot. Tax exemptions from operating fees 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 operating fee so that municipalities do not engage in tax competition for the largest companies and attract them by abolishing or significantly reducing the operating fee. 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 enterprises, and some large corporations, shall pay a so-called national municipal tax instead of an operating fee, and their tax will be distributed to the municipalities in proportion to population and scope of operations.

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

When capital income was tax-separated from other income, the local income tax on it was abolished. The consequence is that many of the highest-income people in the country 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 local 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 local 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 huge drain on residents, burdens that were placed on the public perhaps primarily so that levies on capital and business owners could be reduced.

Although socialists primarily want to secure the revenue base of municipalities so that they can provide residents with good, free services and thereby improve the lives of all, but especially the living standards of lower-income individuals, a local income tax on capital income and an operating fee on companies will open up possibilities to generally lower the local income tax or tier it so that people with lower average incomes and below pay lower taxes.

IV. Municipal revenues secured: Socialists' offer

The socialists' fourth offer to voters for the autumn elections regarding the restoration of the municipal revenue system involves reintroducing a tiered operating fee on companies, so that the smallest companies pay proportionally the least and the largest the most, reinstating a national municipal tax for large corporations that goes to municipalities, and levying a local income tax on capital income while generally lowering the local income tax.

Strong and independent revenue sources for municipalities are a prerequisite for normal decentralization of power in society, for municipalities to have the financial capacity to formulate policies on matters under their jurisdiction and to seek ways to best serve their 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 built on the principle that those who are most able to contribute pay to society, and those who are most in need of assistance receive good services and support.

And then we come to the fifth and most important goal of the tax policy of the economy of care; 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 entire public, especially people with medium and lower incomes, must be thoroughly reversed.

Here you can read Part V of the offer:Tax reductions for the publicApproved at a joint meeting of the executive and policy committees of the Socialist Party of Iceland on the Saturday before Pentecost, May 22, 2021