Wednesday 3 October 2012

Wages in Iceland According to the Tax Man

A Facebook friend of mine posted data on there about the gross wage income of tax payers for the last years. The data got me thinking and I came up with the two graphs below.

Explanations are in order. First, the data is gross pre-tax income in the form of wages, including wage-benefits (car sponsorships etc.) and pension payments. The gross income amount is divided by the number of those persons that posted that income to the tax man. Furthermore, the years are the years of which the income took place. The data comes from this Facebook friend of mine, Elias Petursson, and he has it from the Directorate of Internal Revenue (a very cumbersome name for the tax collector).

So in 2007, the average tax-record-maker made nearly 4.8 million ISK in pre-tax income (2011 prices). That is equivalent to 58 thousand USD (again, in USD 2011 prices).

But then came the crash. In 2008, the average gross pre-tax income had fallen down to 4.5 million ISK. The figure went on downwards, bottoming out in 2010 at 3.75 million ISK. A mighty fall of 21% in pre-tax gross income in only three years! Only last year did the pre-tax gross income increase, but it is still 18% lower than it was in 2007. And this excludes all the effects of the tax hikes!

But there is more. The collapse of the currency by 50% - you needed 64 ISK to buy 1 USD in 2007, in 2011 you needed 116 of them after having bounced back from the 124 ISK/USD low in 2009 - decreased the purchasing power of the average Icelander abroad significantly. The 58 thousands USD gross pre-tax income in 2007 turned out to have become only 33.5 thousands in 2011.

The pre-tax income of the average Icelander has decreased significantly since 2007, both in ISK and USD alike. Red is the USD figure in thousands, on right axis. Blue is ISK in millions on left scale. Both figures are detrended with the respective price index and all figures are in 2011 prices.

Now, the axis on the graph above don't add very much detail. If we however make an index out of the figures, we come up with this.

The pre-tax gross income of the average Icelander has decreased by 18.3% since 2007. Measured in USD however, the fall is 42.7% since 2007. Notice the slow upward move since 2009 though. Again: USD in red, ISK in blue (fixed prices)

So the populace of the IMF Wunderkind has had to settle for a contraction in USD-based gross pre-tax income of more than 42%. Well, we can always look at the bright sides: since the USD income bottomed out in 2009, the growth is 12.3%. Maybe there is something behind the GDP growth figures after all.

Yet, I must wonder what happens once we take the tax burden into the account.

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