Treasury Budget proposal in Iceland 2014

The Treasury Budget proposal for 2014 provides balanced Treasury operations for the first time since 2007. Stopping debt accumulation and achieving balanced public sector finances are the foundations of resilience.

The key objective of the budget proposal is to ensure improved living conditions for the people of Iceland. Real disposable income will rise by 0.3% in 2014 as a result of lower taxes. In addition, pensioners will benefit from increased social security system expenditures.

Over the next three years, the payroll tax will decline by 0.34 percentage points, providing firms with relief in the amount of ISK 3.8 bn by the time the changes have been implemented in full. In the long run, the payroll tax reduction will be of benefit to wage earners and will stimulate investment in the Icelandic economy.

The main element of fiscal policy is to reduce government debt, thereby reducing interest expense. The outlook is for a fiscal deficit of ISK 31.1 bn this year. This is substantially in excess of the estimate for 2013, which assumed a deficit of ISK 3.7 bn.

In the absence of targeted action, the fiscal deficit would have totalled some ISK 27 bn in 2014. Government expenditure will be reduced as a share of GDP through broad-based streamlining measures, decisions to abandon various recent projects undertaken by the previous government, and measures to cut interest expense.

Operating performance will also be improved through revenue-generating measures – in particular, the bank tax, which will be increased and will be imposed for the first time on financial undertakings in winding-up proceedings. Payments made by firms in winding-up proceedings will total an estimated ISK 11.3 bn in 2014, and total payments will amount to ISK 14.2 bn. This provides some scope for changes in focus, in line with the new government's policy.

Increased support for pensioners and safeguarding of children's benefits and interest cost rebates

• The budget proposal provides for ISK 5 bn in increased disbursements to recipients of old age and disability pensions and to social assistance programmes, due to various changes in these pensioners' entitlements. 
• Social security system disbursements will increase by an additional ISK 3.4 bn next year because of an increased number of benefit recipients and indexation of benefits. Spending in this category will therefore rise by a total of ISK 8.4 bn. 
• The increase in interest cost rebates for low-income homebuyers, which was due to expire at the end of the year, will be extended. 
• The recent increase in children's benefits is protected, in line with the government's policy of supporting families with children. Children's benefits rose by 24% in the 2013 Treasury Budget. Total expenditures for children's benefits are estimated at ISK 10.2 bn in 2014, as opposed to just under ISK 7.5 bn in 2012.

First steps away from increased taxation on individuals and companies 

• The tax rate in the middle income tax bracket will be reduced by 0.8%, bringing it closer to the lowest bracket.
• The combined percentage of employers' payroll tax and Wage Guarantee Fund contributions will decline by 0.1 percentage points. It will be cut by an additional 0.1% in 2015 and another 0.14% in 2016. 
• The tax-free threshold for financial income tax on individuals' interest income will be raised by 25%, from ISK 100,000 to ISK 125,000. 
• Value-added tax on disposable paper diapers will be reduced from the general rate of 25.5% to the lowest rate, 7.0%.

Further measures to assist households 

• The ceiling for maternity/paternity payments leave will be raised to ISK 370,000, but plans to lengthen maternity/paternity leave will be abandoned. 
• The “Allir Vinna” programme providing for reimbursement of value-added tax on labour related to construction and renovation of residential, vacation, and municipality-owned housing, which was due to expire at year-end 2013, will be extended. 
• The tax-free threshold for children's income will be raised from ISK 104,745 to ISK 180,000.
• Stamp fees on loan documents will be cancelled.

Contributions to various investment projects 

• Norðfjarðargöng tunnel 
• Bakki investment in infrastructure and road construction 
• Vaðlaheiðargöng tunnel 
• Prison construction at Hólmsheiði
• General transport construction projects

Source: Ministry of Finance

Iceland24, October 2013

Operational cost per student in primary schools in Iceland

Statistics Iceland has calculated the average operational cost per student in all primary schools that are run by local governments, according to paragraph 2 Article 56, Act No 66/1995 on Primary Schools and paragraph 6, Directive No. 320, March 26, 2007 on the accreditation of primary schools and the minimum contribution from local governments to such schools.

This calculation is done according to paragraph 2 in Article 6 of the aforementioned directive that states:

„The calculation made by Statistics Iceland according to paragraph 1 shall be available in September each year.  The calculation shall be based on the Annual Reports of local governments for the previous year, according to price changes until the day the calculations are done.  Calculation of price changes shall be done according to general rise in the wages of employees of primary schools and changes in the consumer price index allowing for the weight of each component in the operational cost of the primary schools.”

The average operational cost per student in primary schools in 2012 turned out to be 1,411,812 krona (8.625€ or 11.672 US dolars) and the increase in the weighted average price level from 2012 until September 2013 was estimated at around 3.9%.

The findings of the calculation are, therefore, that the estimated operational cost per student in primary schools that are run by local government is 1,466,718 krona (8.960€ or 12.126 US dolars)  in September 2013.

Source: Statistics Iceland
Iceland24, October 2013

Iceland’s government promises EU referendum

The newly-elected government of Iceland has promised to hold a referendum on EU membership. Talks began nearly three years ago but have now been called off.

Fish and fish products make up 70 percent of the country’s exports and fishing rights are the most contentious issue in negotiations. The prime minister says no date has been set yet for the referendum.

But a report will be presented to parliament on the status of accession talks and the current situation in the EU as this has changed since Iceland originally applied. Benediktsson’s party won 26.5 percent of the vote, giving it 19 seats in the 63-seat parliament.

The country’s banking system collapsed but export strength means Iceland has made a good recovery since then. Opinion polls suggest the majority of the population are now against joining, fearing their fishing rights may be eroded.

Iceland24
May 2013