Government Approves Measures to Counteract Inflation, Overheating Economy Skip to content

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Minister of Finance Bjarni Benediktsson
Photo: Golli. Minister of Finance Bjarni Benediktsson.

Government Approves Measures to Counteract Inflation, Overheating Economy

In lieu of raising interest rates, the government will be implementing various measures intended to counteract inflation and an overheating economy as well as reducing the treasury deficit. Vísir reports that among the changes proposed by Minister of Finance Bjarni Benediktsson are a reduction to discounts on alcohol and tobacco products sold in airport Duty Free stores and the introduction of tariffs that will offset the current lack of revenue from vehicle and fuel taxation.

The scope of the proposed measures is roughly 0.7% of the GDP, or ISK 26 billion [$1.98 million; €1.88 million]. This amount should hopefully put the treasury in good stead to decrease the deficit without needing to increase interest rates. The proposals will be elaborated in full in the 2023 budget proposal.

Measures intended to increase the state’s revenue

One of the biggest changes is the introduction of tariffs that are meant to offset revenue that the government has lost from vehicle and fuel taxation. This drop in revenue is attributed in part to an increase in environmentally friendly cars. As more environmentally friendly cars become the norm, it is expected that the revenue streams that the government used to enjoy from gasoline and vehicle taxes will continue to decline. As such, a simpler and more efficient revenue collection system is being developed, which corresponds to the need for continued governmental expenditure on new construction, maintenance, and operation of Icelandic roadways.

Another major change will be a reduction in the tax discount on alcohol and tobacco products in Duty Free stores. Both are currently tax-free (in specific, limited quantities) when purchased, for instance, at the Keflavík airport upon entering or exiting the country. There will be a new diversion airport fee and the structure and scope of aquaculture-related VAT will be under review as well.

Measures intended to cut state costs

Current reductions of state-related travel expenses are to be made permanent. The leeway that exists for expenditures in the current budget will be suspended and leeway for general expenditures in policy-related areas will be almost cut in half. There will also be a reduction in contributions to political organizations.

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