Economic Council warns welfare services face funding shortfall

The Faroese Economic Council has warned that political action is needed to preserve welfare services, KVF reports. The council presented a thematic report on fiscal sustainability in Smæran on Thursday.

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

The sustainability indicator is minus 4 percent of gross domestic product. This means the public finances face an average shortfall of 1.5 billion kroner each year over the coming decades, he said.

The Economic Council and Landsbanki have developed a model that can be used to calculate different scenarios. Based on the model, the council recommends raising the pension age, adopting fiscal rules, linking deductions and deferred pensions, making investments that reduce operating costs, encouraging young people to choose the Faroe Islands, and reducing spending through reforms.

Without adjustments in these areas, taxes would have to rise, í Grótinum said. The authorities cannot rely on significantly more borrowing, making higher taxes the final option.

However, the tax burden in the Faroe Islands is already high, leaving limited scope for further increases, he said.