Price increases through indirect taxes approved by the Althingi parliament in summer 2009, including on products high in sugar, will raise the capital of indexed mortgages in Iceland by 0.7 percent, approximately ISK 8.5 billion (USD 68 million, EUR 43 million) overall.
Central Reykjavík. Photo by Páll Stefánsson.
For a family making a down payment of ISK 100,000 (USD 804, EUR 506) to an indexed mortgage every month, this means a heavier debt load by ISK 700 (USD 5.6, EUR 3.5) per month and ISK 8,400 (USD 67.6, EUR 42.5) per year, Fréttabladid reports.
The increase of public tariffs on alcohol, tobacco and fuel, which was approved in May, is supposed to deliver ISK 4 billion (USD 32 million, EUR 20 million) in revenue to the state treasury per year.
By increasing the excise tax on sugar and various sugary products, which took effect on September 1, the government plans to further increase the treasury’s annual revenue by ISK 2.7 billion (USD 22 million, EUR 14 million).
According to the calculations of economist Jón Bjarki Bentsson at Íslandsbanki, these tax increases will impact the index by 0.7 percent.
“It will hit the households with indexed mortgages twofold,” stated Jóhannes Gunnarsson, chairman of the Consumers’ Association of Iceland, adding that it would soften the blow if the government increases direct taxes, such as the income tax and social security tax, instead of indirect taxes, such as the value added tax and excise tax.
The government is planning to increase tax collection by ISK 28 to 30 billion (USD 225 to 241 million, EUR 142 to 152 million) next year, in addition to making cutbacks in state operations by ISK 33 to 35 billion (USD 256 to 281 million, EUR 167 to 177 million).
By 2013, ISK 179 billion (USD 1.4 billion, EUR 1 billion) must be saved so that down payments and interest on foreign loans, including the Icesave loans, can be covered.
Gudbjartur Hannesson, chairman of the parliament’s Budget Committee, said that all types of tax increases are being considered, arguing that direct taxes also influence the price development and the index although it doesn’t happen as quickly as when indirect taxes are increased.
Click here to read more about tax increases planned by the government.