Iceland’s EU contribution could reach 90 billion kroner annually

Iceland’s annual contribution to the European Union could be significantly higher than previously estimated, mbl.is reports, with the so-called EU tax potentially reaching 90 billion Icelandic króna if the country joins the bloc.

The cost of EU membership has become a prominent issue in Iceland’s election campaign in recent days. The Áfram Ísland movement has said annual payments could amount to around 50 billion króna, a figure criticised by opponents in Já til að sjá, who compared it with the 350 million pounds cited on the Brexit campaign bus.

Calculations by the Taxpayers’ Association, which underpin the 50 billion estimate, appear broadly sound as an assessment of Iceland’s potential gross payments to the EU. However, they do not establish what Iceland would ultimately have to pay. The final amount would be negotiated in a membership agreement and would depend on the EU’s revenue system and any transitional provisions.

The figure could therefore be lower or higher.

A commonly cited estimate of 2 billion to 7 billion króna refers to something different. The figure first appeared in a majority report from the Constitutional and Supervisory Committee, based on a memorandum from the Ministry for Foreign Affairs.

That estimate does not calculate Iceland’s gross contribution. It starts with an estimated net contribution of 10 billion to 15 billion króna, based on Finland’s experience in the last century. Around 8 billion króna that Iceland currently pays for European Economic Area cooperation is then deducted, leaving an estimated real increase in spending of 2 billion to 7 billion króna.

This explains both the low estimate and its unusually wide range. An uncertainty of 5 billion króna may be acceptable when assessing an amount of 15 billion to 20 billion, but it is extremely large when the result is only 2 billion to 7 billion. The range is more a guess than a confidence interval, indicating the limited precision of the estimate.

Both approaches also have a weakness because they do not fully account for what Iceland already receives through European cooperation. If current EEA costs are deducted from future payments, any income or grants that would disappear would also have to be included. Otherwise, the real increase in spending would be systematically underestimated. This issue particularly weakens the ministry’s net figures, rather than the Taxpayers’ Association’s basic estimate of the gross contribution.

The Taxpayers’ Association begins its calculation from the EU’s revenue sources. Iceland’s contribution based on gross national income is estimated at 27 billion to 35 billion króna. Its share of the value-added tax base is estimated at 5 billion to 6 billion, the plastic charge at 1 billion to 2 billion, and participation in rebates for other net contributors at around 2.5 billion.

In addition, 7 billion to 8 billion króna in customs revenue would go to the EU, bringing the estimated gross payments to between 43 billion and 53 billion króna.