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 US intelligence leaks on the Manchester attack are part of a disturbing pattern

Even the United States' strongest allies cannot rely on this president or his administration to keep their secrets.

A special relationship, indeed. British intelligence services will stop sharing information with their American counterparts about the Manchester bombing after leaks persisted even after public rebukes from Amber Rudd (who called the leaks "irritating") and Michael Fallon (who branded them "disappointing").

In what must be a diplomatic first, Britain isn't even the first of the United States' allies to review its intelligence sharing protocols this week. The Israeli government have also "reviewed" their approach to intelligence sharing with Washington after Donald Trump first blabbed information about Isis to the Russian ambassador from a "close ally" of the United States and then told reporters, unprompted, that he had "never mentioned Israel" in the conversation.

Whether the Manchester leaks emanate from political officials appointed by Trump - many of whom tend to be, if you're feeling generous, cranks of the highest order - or discontent with Trump has caused a breakdown in discipline further down the chain, what's clear is that something is very rotten in the Trump administration.

Elsewhere, a transcript of Trump's call to the Philippine strongman Rodrigo Duterte in which the American president revealed that two nuclear submarines had been deployed off the coast of North Korea, has been widely leaked to the American press

It's all part of a clear and disturbing pattern, that even the United States' strongest allies in Tel Aviv and London cannot rely on this president or his administration to keep their secrets.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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