What can Iceland teach us about a wealth tax?

The country instituted an emergency tax for three years to sort out its problems. Should we?

Iceland’s remarkable recovery can serve as a lesson to the UK.

Having recently paid back its IMF loan quicker than was predicted, Iceland's unorthodox reaction to the crisis has been hailed by economists, policy-makers and the IMF itself. In addition to letting its financial system fail, the country introduced capital controls (which have been met with some skepticism as they arguably prevent foreign direct investment and therefore stunt growth) and leveraged its fiscal policy to pay off debt whilst sustaining consumption. It is this last point the UK should pay heed to, particularly as Clegg declares his support for a wealth tax.

The general theme of Iceland’s 2010 tax reform (pdf) is one of increasing tax revenue whilst offsetting the burden for lower income individuals. For instance, while fuel taxes and VAT were increased, the revenue was partially re-channeled towards public transportation and bottom-quartile households compensated for higher food, heating, and transport costs. Furthermore, in an effort to raise income without affecting consumption, the government implemented an emergency wealth tax rate for the period of 2010-2013. As of January 2011, one year after introduction, the tax rate is 1.5 per cent of net capital for single individuals with more than ISK 75,000,000 (£390,000) or 100,000,000 (£519,000) for married couples. By taxing the top 2.2 per cent of the population, the Icelandic government was able to raise 0.3 per cent of GDP in revenue every year.

However, an IMF report on the country's reform argues that the wealth tax should be abandoned as capital controls ease. Because the tax is recurring, the only thing that is stopping the wealthy from offshoring capital is the simple fact that they’re not allowed to. Therefore, IMF economists argue that the revenue from the wealth tax should be replaced by a less mobile base (i.e. real estate and high income). This does not, however, discredit the Icelandic wealth tax as a possibility in the UK; it just means that, as suggested by German scholars, it should be a one-off levy. (For an in-depth assessment of Clegg’s wealth tax go here)

Meanwhile, the biggest lesson the UK can learn from Iceland is that its recovery was at least partially fuelled by the government's struggle against depressed consumption.

Bloomberg's Omar Valdimarsson writes:

Iceland’s growth “is driven by private consumption, investment has picked up strongly and even though, when you look at net exports, those have a negative contribution to growth, it is mainly because imports have been strong, reflecting strong consumption and an increase in income and the healthy expectations of households,” Zakharova said. “Still, exports have been increasing very strongly. Last year was a banner year for tourism. These are all really positive things.”

A handful of Icelandic banknotes are withdrawn from an ATM. Photograph: Getty Images
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The Women's March against Trump matters – but only if we keep fighting

We won’t win the battle for progressive ideas if we don’t battle in the first place.

Arron Banks, UKIP-funder, Brexit cheerleader and Gibraltar-based insurance salesman, took time out from Trump's inauguration to tweet me about my role in tomorrow's Women’s March Conservative values are in the ascendancy worldwide. Thankfully your values are finished. . . good”.

Just what about the idea of women and men marching for human rights causes such ill will? The sense it is somehow cheeky to say we will champion equality whoever is in office in America or around the world. After all, if progressives like me have lost the battle of ideas, what difference does it make whether we are marching, holding meetings or just moaning on the internet?

The only anti-democratic perspective is to argue that when someone has lost the argument they have to stop making one. When political parties lose elections they reflect, they listen, they learn but if they stand for something, they don’t disband. The same is true, now, for the broader context. We should not dismiss the necessity to learn, to listen, to reflect on the rise of Trump – or indeed reflect on the rise of the right in the UK  but reject the idea that we have to take a vow of silence if we want to win power again.

To march is not to ignore the challenges progressives face. It is to start to ask what are we prepared to do about it.

Historically, conservatives have had no such qualms about regrouping and remaining steadfast in the confidence they have something worth saying. In contrast, the left has always been good at absolving itself of the need to renew.

We spend our time seeking the perfect candidates, the perfect policy, the perfect campaign, as a precondition for action. It justifies doing nothing except sitting on the sidelines bemoaning the state of society.

We also seem to think that changing the world should be easier than reality suggests. The backlash we are now seeing against progressive policies was inevitable once we appeared to take these gains for granted and became arrogant and exclusive about the inevitability of our worldview. Our values demand the rebalancing of power, whether economic, social or cultural, and that means challenging those who currently have it. We may believe that a more equal world is one in which more will thrive, but that doesn’t mean those with entrenched privilege will give up their favoured status without a fight or that the public should express perpetual gratitude for our efforts via the ballot box either.  

Amongst the conferences, tweets and general rumblings there seem three schools of thought about what to do next. The first is Marxist  as in Groucho revisionism: to rise again we must water down our principles to accommodate where we believe the centre ground of politics to now be. Tone down our ideals in the hope that by such acquiescence we can eventually win back public support for our brand – if not our purpose. The very essence of a hollow victory.

The second is to stick to our guns and stick our heads in the sand, believing that eventually, when World War Three breaks out, the public will come grovelling back to us. To luxuriate in an unwillingness to see we are losing not just elected offices but the fight for our shared future.

But what if there really was a third way? It's not going to be easy, and it requires more than a hashtag or funny t-shirt. It’s about picking ourselves up, dusting ourselves down and starting to renew our call to arms in a way that makes sense for the modern world.

For the avoidance of doubt, if we march tomorrow and then go home satisfied we have made our point then we may as well not have marched at all. But if we march and continue to organise out of the networks we make, well, then that’s worth a Saturday in the cold. After all, we won’t win the battle of ideas, if we don’t battle.

We do have to change the way we work. We do have to have the courage not to live in our echo chambers alone. To go with respect and humility to debate and discuss the future of our communities and of our country.

And we have to come together to show there is a willingness not to ask a few brave souls to do that on their own. Not just at election times, but every day and in every corner of Britain, no matter how difficult it may feel.

Saturday is one part of that process of finding others willing not just to walk a mile with a placard, but to put in the hard yards to win the argument again for progressive values and vision. Maybe no one will show up. Maybe not many will keep going. But whilst there are folk with faith in each other, and in that alternative future, they’ll find a friend in me ready to work with them and will them on  and then Mr Banks really should be worried.