110% of high-income earners

In discussions about the government's debt relief, a variety of issues have been raised. The opposition has either argued that too little or too much has been done, and that the bills should have come sooner or not at all. It has also been argued that the bills primarily benefit the higher earners and are therefore unfair. According to official data, however, it is possible to determine what effect the limited measures of the previous government had on individual income groups.

In total, around 45 billion krónur of indexed housing debts were written down due to the previous government's measures. The majority of this funding was due to the flagship, the 110% route, which, as is well-known, involved banks acknowledging that loans that could not be serviced were lost. The measures of the previous government benefited only about 10% of households with indexed housing debts. About 1% of households received about half of the write-down, or over 20 billion krónur. This 1% of households, or 775 households, received a write-down of over 15 million krónur, and the average write-down was about 26 million krónur. The average income of these households per month in 2009 was about 750 thousand, but about ten of these households had an average income of over two million krónur per month. To complete the social justice of the Nordic welfare government, about 95% of these 775 households received special interest benefits from the state due to housing debts amounting to nearly 300 million krónur.

Holders of the great truth about social justice in Parliament have often talked about the income effects of the government's debt relief bills. The distribution of the write-down across income groups in the previous government's measures was certainly to the advantage of the higher earners compared to the current government's housing loan correction proposal. In the 110% route, 30% of the total amount went to households with over 10 million krónur income, but 25% in the Correction, which, however, covers many more households.

The last government offered a small concession to the nation with special interest benefits amounting to a total of over 10 billion krónur over two years. The impact of this measure on income groups is largely similar to the estimated impact of the Correction on income groups. However, it is noteworthy that households with incomes under 4 million krónur received about 21% of the special interest benefits, but it is estimated that the same income group will receive about 24% of the Correction.

The government's bills give about 100 thousand households the opportunity to reduce their housing debts or save for purchasing housing. The debt reduction can be up to 20% if the solutions are fully utilised. The Correction is fair and has positive economic effects. Company debts have been adjusted to what their repayment capacity indicates, and foreign currency loans have been recalculated due to Supreme Court rulings. Then, capital owners have been in a strong position because debtors bear the inflation risk due to indexation. They are left with indexed loans while the tidal wave swept over. It is neither just nor fair.

The government prioritises the people by correcting the underlying issues with positive incentives and gives everyone the opportunity to look forward. High-income households with tens of millions of krónur in write-downs, of course, do not receive correction according to the government’s route. But the Nordic welfare government felt there was a reason to give these households special interest benefits in addition to the write-down.

Ásmundur Einar Daðason, Elsa Lára Arnardóttir and Þorsteinn Sæmundsson

PS: Are you on Facebook? Why not become a fan of Framsókn.