Budget Iceland 2016: highlights

The Minister presenting the budget to the press before putting …

The Minister presenting the budget to the press before putting it before Alþingi. Photo: Eggert

Icelandic Minister for Finance and Economic Affairs Bjarni Benediktsson submitted his 2016 budget to the newly convened Icelandic Parliament (‘Alþingi’) yesterday.

According to Benediktsson’s plan, in 2016 the Icelandic government is set to run a budget surplus of ISK 15.3 billion (approx. €106.6 million) – the third budget surplus in a row.

Reducing debt, prices and tax

Underpinning the budget are plans to considerably reduce national debt, lift customs duties and cut personal income tax.

National debt – valued at ISK 1.35 trillion (approx. €9.4 billion) at the end of 2015 – is expected to fall by some 19% in 2006. The aim is to reduce national debt to 40% of GDP by 2019.

At the end of this year, all customs duties on imported clothes and shoes will be removed, followed by customs on items such as domestic appliances, children’s good and car parts at the end of 2016.

The three-tier system for personal income tax will be simplified to a two-tier system. The lowest rate of tax will fall from 22.86% to 22.50% by 2017. Earners currently paying personal income tax at the second highest rate, i.e. 25.3%, will see their tax rate merge with the lowest rate of 22.50% within two years. The highest tax bracket remains unchanged.

As an example, somebody earning ISK 500,000 (approx. €3,480) per month will see their total marginal income tax bill (including local taxes) reduced by almost 3 percentage points, i.e. from 39.74% to 36.94%.

Responsible extra spending

Benediktsson also announced a total of ISK 12.4 billion (approx. €86.4 million) in extra spending. More money will be spent on housing, research and development, and the health service. Old-age, disability and unemployment benefits will rise by 9.4% and child benefits by 3%.

If current forecasts are correct, Iceland is currently enjoying the longest period of sustained growth in its history.

“It is very important to act responsibly in matters of public finance and to show restraint in increasing spending,” explains Benediktsson, “We must take advantage of the good times to prepare for tougher times. As we all know, economic fluctuations go down as well as up.”

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