Government seeks ‘least bad’ tax increases to close budget gap

Grímur Grímsson, a Reform Party MP and member of Iceland’s parliamentary budget committee, says the government is seeking the “least bad” tax increases to help close a hole in the public finances, mbl.is reported. He said no one in the party was pleased to raise taxes.

Grímsson discussed the issue on mbl.is’s Spursmál programme with Stefán Vagn Stefánsson, parliamentary chairman of the Progressive Party, who served on the budget committee until last week. They debated the government’s plans to raise revenue under the proposed 2027 budget.

Six billion krónur from financial companies

Grímsson was asked specifically about a planned increase in taxes on financial companies, which is expected to provide the Treasury with an additional six billion Icelandic krónur.

The programme noted that the Reform Party describes itself as liberal, market-oriented and connected to business, and questioned whether increased charges on banks were consistent with that position. It also raised the possibility that the costs could ultimately be passed on to customers through higher prices.

Grímsson said charges on Icelandic banks did not come only from the Treasury. They also included measures imposed by the Central Bank and high capital requirements.

“Taxes are nevertheless such that the inefficiency caused by a tax can affect the parties involved in different ways,” Grímsson said.

It was therefore uncertain how much of the increased tax banks would pass on to customers. “It remains to be seen how this tax will work: whether it will be passed entirely into prices or whether the banks can absorb some of it,” he said.

‘Taxes are inherently bad’

Asked whether higher taxes on banks were consistent with the Reform Party’s policy, Grímsson said the party was genuinely liberal.

“We do not merely say that we are a liberal party; we are a liberal party, and it is certainly not the case that I or anyone else in this party takes any pleasure in raising taxes,” he said.

He said the problem was that the government needed to close a gap in the public finances. That would be done through a combination of restraint and increased revenue.

“The taxes being chosen are perhaps the ones that can be called the least bad,” Grímsson said. “But that means taxes are inherently bad to impose because they raise the price of goods.”

‘I welcome profits’

The programme also discussed a planned substantial tax increase on bathing lagoons and whether the government was specifically targeting profitable companies and industries with higher taxes.

Grímsson rejected the idea that he viewed corporate profits as a problem.

“I have nothing against profits. I welcome companies’ profits. That is what companies exist for,” he said.

He said it was normal for companies to operate at a profit, as no one went into business with the aim of losing money. When the Treasury nevertheless needed to raise more revenue, the task was to find the least harmful options.