Iceland’s national budget projected to run deficit of 59 billion ISK ahead of elections

The national budget for the upcoming year is now projected to run a deficit of 59 billion ISK, significantly higher than the previously estimated 41 billion ISK. This announcement comes ahead of the elections and reflects concerns regarding Iceland’s economic outlook for 2025.

The Ministry of Finance explained that the shortfall is largely due to a considerable decrease in expected total revenues, which have dropped by approximately 20 billion ISK in the latest assessments. It is now anticipated that the state will collect around 1,428 billion ISK, down from the earlier estimate of 1,449 billion ISK.

On the expenditure side, government spending has been reduced by about 3.1 billion ISK compared to earlier estimates. Despite accounting for new projects, any increased costs have been offset by a corresponding reduction in reserves, leading to total expenditures now forecasted at 1,486 billion ISK, slightly down from the prior estimate of 1,489 billion ISK.

Concerning revenue sources, tobacco and nicotine duties have seen significant increases, contributing an estimated 4.7 billion ISK to the state budget next year. In addition, income and profit taxes are expected to bring in an additional 1.3 billion ISK. However, revenue from value-added tax (VAT) is projected to decline sharply, with a decrease of 12.5 billion ISK compared to prior expectations.

This economic reassessment highlights the challenges the government faces as it prepares its financial strategy against the backdrop of upcoming elections.