Employers criticise 5.2% increase in state fees

The board of the Association of Employers has strongly criticised plans to raise fixed-amount state charges by 5.2 per cent, saying the policy will fuel inflation and inflation expectations, mbl.is reported.

The association said the increase ran counter to the objectives of next year’s budget proposal. It said the government should instead have used the Central Bank’s 2.5 per cent inflation target as its benchmark.

“The bank is trying to reach that target, among other things through high interest rates, while the government is using 5.2 per cent inflation as the basis for raising charges. This sends completely the wrong message, including to the labour market, where the assumptions behind collective agreements could be disrupted by inflation,” the board said in a statement approved at a meeting on Thursday.

The association said the budget proposal was disappointing despite containing some positive elements. It welcomed the government’s plans to end the state treasury deficit and said efforts to improve efficiency and reduce the number of positions were particularly positive. Balanced public finances were among the most important conditions for lower inflation and interest rates, it said.

However, the association criticised the government for not going further in controlling spending and instead seeking tens of billions of Icelandic krónur through new charges, including a higher kilometre charge and increased taxation of businesses.

The association said it had long supported simplifying the value-added tax system and reducing exemptions, but stressed that the tax rate should be lowered at the same time. It called for a comprehensive review of the system instead of what it described as piecemeal measures in the proposal.

The association also pointed out that the planned one per cent reduction in state positions represented only about one sixth of the annual staff turnover that research indicates is typical in public services. It could also be lower than the number of state employees retiring because of age during the year.

“There should therefore have been room to set a much more ambitious target for reducing positions without resorting to extensive redundancies. The number of state positions has increased by 3,400 since 2019. The increase is proportionally twice as large as population growth. Stronger action is needed to reverse this unsustainable trend,” the statement said.