Inflation sustains poor government operations, Hertz chief says

Inflation can make poor government operations appear healthier, Sigurður Berndsen, chief executive of Hertz in Iceland, told mbl.is.

As prices and wages rise, the state collects more tax revenue in nominal terms. Berndsen said this can create the illusion that public finances are improving and reduce pressure on the government to cut costs, set priorities and improve efficiency.

Although public spending also rises with inflation, he said government operations should be assessed using real figures, productivity and results.

In a Facebook post, Berndsen criticised the government for responding to operating problems by imposing additional charges on the public, saying this adds to inflation instead of addressing the root causes. He said the result is a cycle in which households and businesses bear the cost of rising inflation-linked debt and persistently high interest rates, with negative effects on investment and job creation.

“They need higher prices to generate more tax revenue in krónur, while new charges add to inflationary pressure and households and businesses are left with the consequences,” Berndsen wrote.