Government Unveils ISK 17 Billion Cost-Saving Strategy Skip to content
Minister of Finance Bjarni Benediktsson
Photo: Golli. Minister of Finance Bjarni Benediktsson.

Government Unveils ISK 17 Billion Cost-Saving Strategy

State-run institutions are poised to streamline operations through staff reductions and various optimizations, aiming to save approximately ISK 17 billion ($129 million / €119 million) next year, according to the latest fiscal strategies disclosed by the Minister of Finance in a press briefing last week. The Chair of the Centre Party maintains that labelling these actions “saving measures” is inaccurate, for they would be more accurately described as “fee increases,” Vísir reports.

Treasury outperforms forecasts

At a press conference last Friday, Bjarni Benediktsson, Minister of Finance and Economic Affairs, revealed that the state treasury is projected to post a primary surplus roughly ISK 100 billion ($760 million / €703 million) higher than initially estimated when the 2023 budget was ratified last year.

Consequently, the treasury is expected to show a positive balance of ISK 50 billion ($380 million / €351 million), rather than slipping into a deficit. This performance also underscores a significant improvement in the state treasury’s debt position compared to the pandemic period’s forecasts, Vísir reports.

Health sector and public services gain traction

Bjarni also maintained that Iceland had rebounded from the pandemic faster than most nations; economic activity was thriving and the unemployment rate had hit a five-year low. Even as the treasury rides high on its current fiscal performance, the Minister stressed the government’s intent to further solidify its financial standing, while reinforcing robust public services.

A focus point of this endeavour will be the health sector. A dedicated fund of ISK 25 billion ($190 million / €176 million) will be earmarked for the new hospital this year and the next. Bjarni also highlighted imminent contributions to health insurance, nursery homes, law enforcement, higher education, innovation initiatives, the energy exchange, and housing projects, alongside a revamped child benefit system.

Strategic reorganisation to save ISK 5 billion on labour

As part of the ISK 17 billion ($129 million / €119 million) fiscal discipline package for the next year, the Minister indicated that labour costs across state institutions will be reduced by an estimated ISK 5 billion ($38 million / €35 million). Bjarni met with directors of state-run institutions last week to explore the effective implementation of these measures.

In addition, operating costs like travel will be pared down, with greater emphasis on value-driven public procurement. Bjarni also stated that he foresaw great potential in simplifying the government’s institutional framework, digitising operations for optimal fund utilisation, reducing housing costs through shared workspaces, and leveraging joint ventures and competitive tendering.

Revenue-boosting measures: taxes and fees

Matching the scale of the cost-saving efforts, the government also plans to raise additional revenues through several channels. One such measure will be increased user fees for electric and plug-in hybrid vehicles. Fees for tourism services, including cruise ships, are also set to rise, along with a tax hike on fish farming companies commencing in 2024. Additionally, a temporary 1% increase in corporate income tax has been announced for the next year.

“In the corporate sector, the quest to do more with less is perpetual. The same principle should naturally apply to the public sector,” Bjarni remarked. “Even though our financial health is better than we had ever anticipated, there’s no room for complacency. Through digital innovations and efficient operations, I’m confident we’ll successfully implement these planned measures while continually enhancing services to our citizens.”

In the ensuing weeks, ministries and state institutions will commence work on actualizing these measures to achieve the set objectives outlined in the government’s performance plan. More details are expected to be revealed when the budget proposal for the next year is officially presented on September 12.

Not “savings proposals” but “fee increases”

In a post-press conference interview with Stöð 2, Sigmundur Davíð Gunnlaugsson, the Chair of the Centre Party, expressed scepticism towards the measures of the government, which had recently announced a spending hike of ISK 193 billion ($1.45 billion / €1.36 billion).

“What captured my attention, again, is the disingenuous labelling of what they’re calling a ‘savings proposal,’ when in reality, it’s a ‘fee increase.’ This choice of words could be indicative of the government’s mindset; if they aren’t taking all the money from the citizens, then they’re making concessions with it,” Sigmundur noted.

In his assessment, the government’s fiscal strategy would not effectively mitigate the inflation issue. Moreover, he accused the administration of taking counterproductive steps in the wake of the pandemic by ramping up spending, instead of focusing on savings. According to Sigmundur, the current government had surpassed all previous administrations in terms of the rapidity and scale of its spending increases.

When queried about what he considered to be the government’s most pressing duty in the face of rising inflation, Sigmundur articulated his views as follows: “It was openly acknowledged, even by the ministers themselves, that curtailing value creation and production within the country, largely due to the impacts of Covid, while simultaneously printing more money, would inevitably fuel inflation. Therefore, the logical next step, once circumstances permit, is to apply fiscal restraint, focus on savings, and work on reducing debts,” he stated.

“Contrary to this, the government chose the inverse path,” he continued. “After the pandemic subsided, instead of curbing their expenditure and focusing on generating value, they shattered all existing records for hikes in government spending. No previous administration has been as extravagant or has escalated its spending as precipitously.”

“They then hastily convene a meeting, raising expectations for some significant announcement. But no, all we get are discussions about open workspaces and statements implying that combating inflation isn’t the government’s responsibility.”

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