Economic Council warns of 1.5 billion kroner annual shortfall

Kringvarp Føroya reported that the Faroe Islands’ Economic Council has warned that political measures are needed to preserve welfare services. The council presented a thematic report on fiscal sustainability on Thursday.

Fiscal sustainability concerns whether future public revenues will be sufficient to cover future public spending, said Johnny í Grótinum, chair of the Economic Council.

“The sustainability indicator is minus 4 per cent of gross domestic product. That means that, on average, 1.5 billion kroner will be missing every year for the next several decades. So the message is that something must be done,” he said.

The Economic Council and the National Bank have developed a model that can be used to calculate different scenarios. Based on the model, the council is recommending that politicians raise the retirement age, adopt a fiscal framework, link pension deductions with deferred pensions, make investments that reduce operating costs, introduce measures to encourage young people to choose the Faroe Islands, and reduce spending through reforms.

Í Grótinum said higher taxes were another possible option if no adjustments were made.

“The consequence will be that taxes must rise, because we cannot borrow that much. That is the final option. The tax burden in the Faroe Islands is already high, so there is not much scope to increase it,” he said.