Iceland’s government has offered slogans instead of economic relief

Nearly two years after Iceland’s election, the government has delivered little progress on the economy despite campaign promises, columnist Árni Helgason writes in a piece published by mbl.is.

Helgason recalls a famous sketch from Fóstbræður in which a salesman confidently explains “spliff, donk and gengja.” The scene came to mind after the election, he writes, when the key phrases were “sledgehammer,” “plan” and “nailing down” interest rates. Like Jón Gnarr in the sketch, voters did not fully understand what was being promised but played along, he says.

The slogans now appear increasingly empty, Helgason argues. He describes the government’s economic policy as a mix of hoping for the best and raising taxes and fees for households and businesses, even as economic conditions worsen. He says the government sometimes appears to treat press conferences and proposals for savings as if announcing them were enough to put them into effect.

Interest rates have remained high, and the Central Bank has raised its policy rate three times this year. In explaining an increase in August, the bank said public-sector price increases were the main driver of domestic inflation. The government later proposed a budget that included a 5.2% increase in public charges, but retreated after municipalities and businesses announced plans for more modest increases.

The government’s effort to balance the budget, Helgason writes, relied on higher taxes and fees, while its spending restraint mainly involved postponing or shifting funding for projects and programmes between years.

In the spring, the government announced a three-part package intended to curb inflation: a temporary cut in value-added tax on fuel, the appointment of a watchdog to ensure oil companies did not keep the savings, and more charging stations. The tax cut lasted four months. Fuel prices then rose again, adding to inflation, which is now close to 6% and has remained above 5% throughout the year.

News of layoffs and rising unemployment reflects a downturn spreading across parts of the economy, Helgason writes. He says the government appears unmoved, relying on slogans and claiming to have a steady hand on the wheel, though he questions whether anyone recognises that confident driving.