Iceland PM vows to keep deficit-free budget target
Tuesday 8th September 2026 on 13:01 in
Iceland
Prime Minister Kristrún Frostadóttir says Iceland will not abandon its target of presenting a balanced budget next year, despite opposition to some of the fees and revenue measures in the proposal, mbl.is reported. She said continued deficits and annual interest payments of 150 billion krónur, equivalent to about 10% of state expenditure, benefited no one.
Frostadóttir said the government had no choice but to take the step under current conditions and could not justify running the state on overdraft. She was speaking at a meeting of the government’s female leaders on Tuesday morning, where priorities for the coming parliamentary session were presented.
She said the previous government had expected to achieve a balanced budget in 2028, but the current government was aiming to meet the target as early as next year. This would be achieved by restraining state spending and increasing revenue through fees. State expenditure was expected to fall below 30% of gross domestic product for the first time in several years.
“We are ensuring something that is extremely important: that revenue covers expenditure,” Frostadóttir said.
She acknowledged that the task would be difficult, saying that bringing state finances under control had not been achieved for years because it was not easy. The most important task, she said, was to ensure that the state was no longer run at a deficit.
“When inflation is 5.6% and interest rates are 8%, it does not work to run the state on overdraft,” Frostadóttir said. “These are not circumstances in which we can allow ourselves to do that, and that is why this is the most responsible thing the state can do in these circumstances.”
She said the government was not surprised by the reaction to the budget proposal and was prepared to answer questions about it. “If it were easy to do this, it would have been done long ago. But we will not back down from this set target,” she said.
Frostadóttir added that the budget proposal sent a clear message to state institutions, subordinate agencies and ministries that they had to remain within their budget allocations and not abandon the target.