
The heyday of capitalists
Stefan Olafsson writes.
There is a lot of talk about the fact that public wages have risen sharply in recent months. The Employers' Association (SA) regularly makes this point. The Central Bank does the same.
But in all this fuss about the wages of ordinary workers having risen too much, the development of capital income or property income is generally not taken into account. This is the income that wealthy people receive from yielding assets in stocks, bonds, real estate, savings and private companies.
In general, the richest people in society receive the majority of their income in the form of capital income. The top ten percent, for example, received about 70% of all capital income in recent years. The top one percent receive the majority of their income as capital income. As you can see, a large portion of capital income goes to the richest people in society.
Let's look at how that income has grown in comparison to the general public's wage income during the period from 2020 to 2024. The data comes from Statistics Iceland.

As the figure shows, property income/capital income has increased by 172% during this period, while wage income has increased by 50.8%. Property income has increased more than three times the increase in wage income. For comparison, the combined inflation rate during the period (35.6%) and the increase in household disposable income (52.3%) are shown.
This reflects a great prosperity for wealthy people. The companies have performed well, as have investments in securities. The well-off investors who have in recent years bought a lot of new apartments in the housing market (sometimes entire blocks) to rent out to tourists or others have made huge profits from the housing crisis that is eating away at the purchasing power of ordinary workers and tenants. And those who have been able to put a lot of money into savings accounts have made good money from the Central Bank's high-interest rate environment. Their interest income has grown fastest from individual components of financial income.
Share of capital income in inflation
Perhaps the Central Bank should look at this group that has the highest income in society and maintains high consumption and investments that drive up demand-pull inflation. It is not the low-wage earners or the indebted young people who are the main causes of inflation. However, the Bank's high-interest rate policy hurts the lowest-income and most indebted people the most – while sparing the higher-income and wealthier. It is a wasteful and unjust economic policy that, moreover, does not produce sufficient results in the fight against inflation.
In the United States, the top ten percent of the population is responsible for about half of private consumption in that country. The same is true in Iceland. If private consumption needs to be reduced to curb inflation, the most practical way is to reduce the consumption of those with higher incomes and wealth, for example by raising taxes on capital income and the highest wage earners.
Finally, it is also worth noting that those with high capital income enjoy significant tax benefits, due to the lower tax rate on capital income than on wage income. They do not even pay local taxes to the municipalities on this income.
In the past, it was considered that people who were able to work hard and provide housing for their families were entitled to tax benefits (for example, in the form of interest rate subsidies). That is a thing of the past. Now the greatest tax benefits go to capital owners who let their money work for them. Such an arrangement undermines the work ethic and encourages the proliferation of unprofitable people.
The financial sector's prosperity since 2020 is due to both the sharp increase in financial income and the large tax breaks they enjoy. But above all, such state charity towards the richest, which consists of a lower tax on financial income than on wage income, is both unnecessary and unjust. In fact, it is harmful because it fuels inflation.
Stefán Ólafsson is a specialist at Efling and professor emeritus at the University of Iceland.




