Business leader calls tax increases largest since Jóhanna government

Bjarni Benediktsson, director of the Confederation of Icelandic Enterprise, says the tax increases announced in the government’s 2027 budget are the largest since the so-called Jóhanna government, which was in power in the years following Iceland’s 2008 financial crash, mbl.is reports.

“We are facing a situation characterised, among other things, by limited growth in value creation and the latest measurements showing a decline in productivity,” Bjarni told mbl.is. “From the perspective of business, the most important thing is for this to start changing.”

Instead, he said, the government had introduced tax increases worth tens of billions that would fall particularly heavily on industries that create value.

“It is like giving patients the wrong medicine. We are very concerned about where this course is heading,” he said.

Bjarni also criticised the assumptions underlying the government’s financial planning. He said the first effects of linking benefit systems to the wage index were now becoming visible, with state spending on benefits rising in line with wages this year even though the wage index had moved out of step with value creation in the country.

As a result, he said, benefit systems were becoming increasingly costly and benefits were rising far more than wages. He called for the trend to be reversed by creating conditions for value-creating industries to grow and develop.

Bjarni said Iceland had experienced very limited economic growth since 2023 while productivity growth had been negative. Wages, particularly in the public sector, had continued to rise, increasing the risk of a hard landing.

Regarding efficiency measures worth tens of billions announced in the budget, Bjarni said the government had been in power for two years and made major promises and plans, but lacked credibility.

He said it was especially concerning that the government had decided benefit systems would continue to grow automatically, while there were no signs that it understood public-sector wages had risen too much. He said the two largest areas of state spending were not being taken seriously.

Bjarni also warned of a growing income-tax burden. He said the government was using weak productivity growth to stop increasing the thresholds between income-tax brackets, which would increase the tax burden on middle-income earners.