Government Announces Increased Child and Housing Benefits

katrin jakobsdottir prime minister iceland

In the wake of the recently-concluded contract negotiations between VR and SA, the government has announced a series of measures aimed at supporting low- and middle-income households.

At a press conference at 14:30 today, Prime Minister Katrín Jakobsdóttir, alongside Minister of Finance Bjarni Benediktsson and Minister of Infrastructure Sigurður Ingi Jóhannsson, announced the new policies, which aim to support the buying-power of households, while keeping inflation rates down.

Improved Child Benefits

The child benefit system is to be simplified, while also increasing support for the system, allowing more to qualify for child benefits.

The improved child benefits will represent a total increase of ISK 5 billion from the current system over the next two years. Additionally, the system is to be streamlined to reduce the waiting time for child benefits, which are not to exceed four months after the birth of a child.

Changes in Housing

The government also plans to increase the housing supply by incentivizing the development of new real estate throughout the nation.

Increased access to social housing will also be a priority, with some ISK 4 billion to be allotted in 2023 to the expansion of affordable housing in Iceland.

Housing benefits for tenants will also be increased.

Additional reforms include improved pensions for the elderly and disabled, increased funding for workplace training, and reforms to pension funds.

Bundled along these concessions to Iceland’s cost-of-living crisis will also be a large increase to police funding.

Read the full announcement here.

2023 Budget to Include 7.7% Hike on Alcohol

At a bar in Reykjavík Iceland, drinking beer.

In the latest draft of the 2023 budget, a 7.7% increase in alcohol tax is proposed.

Iceland already has some of the highest alcohol taxes in the world, and critics within the restaurant industry claim that the latest tax hikes will make Iceland less attractive as a tourist destination, and put unnecessary stress on an already-struggling industry.

In a report by the Icelandic Federation of Trade, it is stated that under the new tax structure, a common box of wine will increase on average by ISK 600, a bottle of liquor by some ISK 700, and a six-pack of beer some ISK 150.

Especially affected will be alcohol sales in Duty Free, which are currently taxed at the lower rate of 10%. Under the new structure, alcohol taxes will be raised to 25%, a 150% increase. In Duty Free, the same box of wine will increase by ISK 1,800, a bottle of liquor by ISK 2,300, and a six-pack of beer by ISK 240.

In an editorial on Vísir, Aðalgeir Ásvaldsson, director of the Association of Companies in the Restaurant Industry (SVEIT), states that the increased taxes will have to be built into prices, which will in turn contribute to high inflation. Aðalgeir critiqued the new budget plan, saying that high public fees and COVID restrictions have been extremely damaging to the industry which is so important to tourism. “The restaurant industry wants to contribute to society,” Aðalgeir stated. “We offer good food and drinks, create thousands of jobs and play an important role in shaping the culture of the country. We have had to endure much recently, but now enough is enough.”

Currently, 92% of the price of a bottle of liquor comes from state taxes, compared to 73% of the price of a bottle of wine, and 61% of the price of a can of beer.

As the budget draft currently stands, the tax hike on alcohol would represent an increase in ISK 1.64 billion to the treasury, and total income from alcohol tax for 2023 is projected to sit around ISK 25 billion.

The 2023 budget proposal has also come under recent critique for new taxes and fees levied on fuel, road tolls, vehicle imports, and other costs of owning a vehicle in Iceland. The increased taxes will represent a 36% increase in state revenues from transportation, but critics say that the increased prices will hurt the lowest-income Icelanders, with no accompanying expansion of public transportation. Despite the tax increases, however, the budget is still expected to yield a deficit of some ISK 89 billion, an improvement over the previous year’s ISK 169 billion deficit.