Caption:
Eyðgunn Samuelsen, the chairwoman of the Parliamentary Finance Committee. Photo: Bjarni Árting Rubeksen
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“Outdated” tax brackets hit low-to-middle earners hardest
“Outdated” tax brackets hit low-to-middle earners hardest
Income tax brackets have not been adjusted to keep pace with inflation for almost a decade
Inflation erodes the purchasing power of taxpayers and forces them into higher tax brackets. System is in dire need of an upgrade, says Fróði Magnussen, the chairman of the Economic Council. Photo: Finnur Justinussen
05.10.2023 - 08:24
An outdated tax bracket system is causing an increasingly tightening squeeze on low-to-middle income earners.
So says Fróði Magnussen, the chairman of the Economic Council.
The progressive tax system is designed to tax high-income earners at a higher rate than low-income earners.
But, he explains, since these brackets have not been adjusted to keep pace with inflation for eight years, when employees get a pay-rise, they may move up to a higher tax bracket.
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“These days, low-income earners spend most of their income on essential consumer goods such as bread, milk, butter, etc.,” he says.
“This means they pay 25 percent in VAT for everything they buy, while higher earners may have some money left for other purposes. In other words, with the current system, low-income earners pay relatively higher taxes.
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The government says it is looking at how to make income tax brackets inflation-proof. But first it was deemed necessary to introduce a general salary increase for certain profession, according to Eyðgunn Samuelsen, who chairs the Parliamentary Finance Committee.
“There has long been a wish to reduce the income gap between certain professions that have traditionally been considered relatively low-income professions,” she explains.
Nurses were not included in this salary increase, and that was one of the key reasons for the current healthcare strike.
“We have discussed the issue of updating the tax brackets. It’s too early for me to go into detail about how this would be financed, but we would of course make sure that any such change would be fully financed,” she says.
“Nothing has been finalised, but adjusting the tax brackets is part of our overall tax relief plan.”
Read the Faroese version of this article here.
English version by prosa.fo.
More Faroese News in English.
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