Professional associations say budget shifts costs onto workers

Professional associations say Iceland’s 2027 budget proposal shows the government is not standing with wage earners in the fight against inflation and high interest rates, mbl.is reported.

Instead, they say the government is contributing to further price increases while weakening support systems for households. The associations warn that the policy could trigger serious conflict in Iceland’s labour market.

The government is proposing to raise state fees by more than 5 per cent, while the kilometre charge would increase by nearly 16 per cent. The changes would come as the Central Bank of Iceland’s inflation target stands at 2.5 per cent.

“It is difficult to draw any other conclusion than that the government has given up on contributing to the task of bringing inflation down and creating the conditions for lower interest rates,” the associations said in a statement.

They said wage earners had been called upon to take responsibility in recent years. During collective bargaining, the labour movement had emphasised stability and moderate wage increases with the aim of reducing inflation and interest rates, they said.

“It is hypocritical to expect wage earners to show such responsibility while the government raises its own fees far above the inflation target,” the statement said.

The associations also criticised plans to prevent the personal tax credit from developing in line with tax changes agreed as part of the 2019 Living Standards Agreement.

They said child benefits were being allowed to decline in real value and that the interest relief system was being weakened, even as households had struggled for years with extremely high interest rates and rising living costs.

The government also plans to reduce VAT reimbursements for work on residential property from 35 per cent to 20 per cent. The associations said this would make residential maintenance more expensive for households and could increase unemployment in an industry already under pressure.

“It is impossible to talk about responsibility and stability in the labour market while the government sends the bill to working people,” the statement said.

The professional associations urged the government to reconsider its plans before the budget is approved. Otherwise, they said, the government would be responsible for putting the consensus that has existed in Iceland’s labour market at risk.