Taxes put state budget into surplus

Taxes have helped put the state budget into surplus, with the government forecasting a surplus of 4.7 billion krónur next year, mbl.is reports. However, the financing balance remains negative by nearly 70 billion krónur, meaning the state will still need to finance a corresponding deficit.

Finance Minister Daði Már Kristófersson presented next year’s budget proposal with considerable ceremony on Monday. The leaders of the three coalition parties attended and presented him with a certificate marking the proposal’s zero deficit, echoing an event involving then-US President Bill Clinton in 1999.

Kristófersson said the negative financing balance included substantial state relending activity. He also said financing costs had been higher than expected.

“I can say with a clear conscience that this is the next task. We need to address it in stages. As you may remember, one of my predecessors was extremely proud of achieving a positive primary balance. We now have a positive operating result. In the longer term, the financing balance also needs to be brought into equilibrium. One step at a time,” he said.

New revenue measures, including additional taxes and charges, amount to 27.6 billion krónur after general price adjustments to fixed-amount charges are excluded.

Asked whether the balanced budget was largely the result of higher taxation, Kristófersson said the government had taken a mixed approach.

“I have been very open about the fact that we have taken a mixed approach. It has not been a secret. If you look at the approaches taken by other governments, you will see that they have always followed a mixed path. This is a huge ship, and turning it around requires considerable discipline,” he said.

He said he was proud of the compromise, which the government viewed as two-thirds of the adjustment coming through spending measures and one-third through revenue measures.

Measures to slow spending growth amount to 44.2 billion krónur. Targeted spending measures account for 36.2 billion, including lower allocations for the new Landspítali, European Union framework programmes, grants for the energy transition and housing-related initial contributions.

However, a substantial part of the total does not represent actual cuts or permanent efficiency improvements. The amount also includes lower new spending authorisations in 2027 because unused authorisations from previous years can be used or spending can be moved to later years.

The proposal states that some measures involve permanently lower spending or slower spending growth, while others are “primarily a changed timing of financing”.

The income tax burden will also increase without the tax rates themselves being raised. The increase will result from lowering the productivity benchmark used to adjust tax brackets and tax-free thresholds, generating an estimated three billion krónur in additional revenue for the state.