Tourist Traps in Iceland… And How To Avoid Them

Akureyri sign post.

What infamous tourist traps in Iceland should you avoid during your time in the country? What activities might take advantage of a visitor’s naivety, and how can you ensure the best value of money throughout your trip? Read on to learn more about the tourist traps you should avoid on an Iceland vacation! 

The Icelandic tourism industry is adept at permeating the myth that operators – no less, Iceland itself – can do no wrong when it comes to providing their visitors with a faultless and memorable vacation experience. 

Don’t hold this against them – whereas once it might have been the catching of fish, it is the snaring of tourists that now drives the engine of Iceland’s economy. Given the wealth of fantastic natural sights, and the fascinating cultural hubs this island boasts, one can hardly blame the Icelandic people for capitalising on what the Norse Gods have bestowed them.

túristi tourist ferðamaður tourism
Photo: Golli. Tourists at Fjallsárlón glacier lagoon

A word of warning – while this article is, of course, intended to attract visitors to Iceland, it may poke fun at the innocence some cannot help but demonstrate while exploring the land of ice and fire… as raiding marketeers have deemed it.

Do not take offence, for you, surely, are not the type of person to be so willfully drawn in by what amounts to be snake-oil salesmen dressed in horned helmets. 

Keeping an open mind in Iceland


There is no need to read this article suspiciously. Most of the time, no lies are told about the absolute majesty on offer here. But sometimes – and, rarely – foreign guests might realise they have been oversold on aspects of the
essential Icelandic experience.

There is no need to sit in the Blue Lagoon feeling you’ve been had! It might be a wonderful spot, but if it’s not for you… you should not go. 

The Blue Lagoon Iceland
Photo: Golli. Blue Lagoon

As stated, tourism is what drives Iceland’s economy – much like a Scandinavian version of Disneyland, if one might be so bold as to suggest it – and it is not unwise to realise that it does the Icelanders, or anyone who call the country home, extremely well to ensure guests are provided, or sold, the best experiences possible. 

If you were to believe such promises without once questioning the validity of your purchase – bless your naivety. 

Again… don’t get us wrong. Iceland is an incredible place to visit, filled with wonder of nature and cultural highlights that can be found nowhere else on the planet. This is so true that validating the fact is completely asinine. But, we would be doing an enormous disservice to guide you into purchasing packages that do not suit you, or that you may regret upon experiencing them. 

Having been around since 1963 – long, long before the tourism boom of the 2000s – you best believe that Iceland Review has your (and Iceland’s) best interests at heart. So, now that we’ve qualified our respect for the country we call home – and you, of course – let’s take a look at a few realities that you should avoid during your time here. 

Don’t shop at 10/11 convenience stores 

Nettó Hagkaup Bónus Iceland Fjarðarkaup
Photo: Golli. Bónus supermarket

For anyone with the luxury of choice, 10/11 sells nothing of importance; let’s get that out of the way from the beginning. Understandably, your instincts might be different upon spotting the luminous green and white of their logo, but do not be fooled… 

Should you desire a packet of biscuits, toilet paper, potato chips, candy, shampoos, chocolate bars – there are always, always, places that will sell you the exact same product for much cheaper. Sure, it might very well be easier to stop at 10/11… after all, it’s right there… but you would be doing yourself a disservice.

Prices at 10/11 are elevated beyond belief, as though it were designed specifically for the purpose of deceiving foreign visitors. 

Shoppers in Iceland
Photo: Golli. Shoppers in downtown Reykjavík

Aside from the typical convenience store items on sale, 10/11 also sells a range of hot products, including pastries, hot dogs, and pizza. Now, we understand better than anyone that, sometimes, hunger defies financial awareness, but know that these warm treats are not generally of the best quality. 

(The one exception could be Sbarro pizza, which is only sold at 10/11 in Iceland, and in truth, is rather delicious if you’re inclined towards guilty culinary pleasures.)

Actually, Sbarro pizza might be the only reason to stop by 10/11, and only if you’re in need of a quick snack. Otherwise, you can find cheaper alternatives in other shops. The best options are called Bonus and Kronan; both supermarkets are the logical choice for those sticking to a vacation budget.  

Save your drinking for Happy Hour 

Cocktails in the making at Tipsy, Reykjavík.
Photo: Golli. Cocktails in the making at Tipsy, Reykjavík.

The wonderful – if not sometimes unfortunate thing – about drinking is that it lends itself to more drinking. 

Oh, what a surprise this is

Outside of Happy Hour, this can cost you a pretty penny in Iceland – and by that, we mean an absolute fortune – which, no doubt, is surprising upon looking at your bank balance the next day. 

Icelanders are very aware of this – after all, they like sipping on alcohol as much as the next heathen. The local way of getting around it is to drink plenty before even heading to the bars and clubs, but this does not tend to be the best way forward for visiting guests. After all, you have a snowmobiling tour booked for tomorrow… 

People partying in Reykjavík Iceland
Photo: Golli. Reykjavík nightlife

Hence the many Happy Hours on offer throughout the city. The vast majority of bars offer happy hour, which you can track through the Appy Hour app developed by local newspaper, The Reykjavík Grapevine. You can download it on Google Play and the Apple Store

If you’re not mobile savvy, it is wise to inquire as to whether you’re purchasing during Happy Hour or not, or at least, try to schedule your drinking within the timeframe. 

Don’t get us wrong; drinking too much will still cost you during your happy hour, but it may lessen the dent in your wallet. Ultimately, it comes down to how much fun you’re having, and how much money you’re willing to sacrifice for it. 

Skip taking an Airport taxi

Taxis at the airport
Photo: Golli. Taxis at Keflavík International Airport

Upon landing in Iceland, visitors will normally take a shuttle bus from Keflavík International Airport to their accommodation in the city. 

These handy shuttle services are operated by respected companies like Grey Line and Reykjavík Excursions, the latter of which runs the FlyBus. It is possible to book tickets for the shuttles in advance, at the airport itself, and sometimes during your flight. 

However, be aware that taxi cabs also hang around outside the terminal.

Somewhat akin to scavenging ravens, these privateers prey upon unsuspecting tourists who might have thought Keflavík was closer to the hotels, hostels, and AirBnB’s prevalent across Reykjavík. Of course, one shouldn’t blame the drivers, who themselves are only making the most of a ready-made opportunity – just don’t let yourself be that opportunity. Save yourself your trauma! 

While accepting their service is well within your rights, the cost of this forty-minute ride is sure to hammer your wallet, which is completely unnecessary straight after arriving in the country. You may as well invite yourself to your own mugging. So, do yourself a favour and prepare other, more financially savvy travel plans. 

Avoid buying pretend Icelandic Sweaters

icewear in vík

The famed woollen sweaters – Lopapeysas – worn by rural Icelanders have become iconic urban fashion wear over recent years. Never one to miss a trend, tourists are often eager to snag one during a trip. 

If you were to form a mental picture of your typical Icelandic fisherman or farmer, they would be wearing an Icelandic sweater everytime. 

Now, this article – or, this writer, at least – would never go as far as to say Icelandic sweaters are cool, but popular they are. That much cannot be denied. 

Some more forgiving people might say that it’s understandable why this clothing item has become synonymous with Iceland’s culture. The Lopapeysa is hand-knitted from new wool sourced from local sheep, then fashioned with cool patterned designs. 

Golli. Hjörleifur Stefánsson, farmer in Kvíaholt, and his sheep

While it might not be as trendy, as say, crocs, it is synonymous with an Icelanders’ perception of how people should dress in the 21st Century. Typically, you’ll find plenty of tour guides wearing them while taking visitors on exciting outdoor excursions across the country.   

Many shops across Reykjavík sell these iconic sweaters, but always make sure to buy them from reputable sellers. With the influx of souvenir stores across Iceland’s towns, some places might sell cheaper knock-offs that fail to fully capture just why the lopapeysa is so perfectly suited for winter wanderers. 

So, always check the label, and even go as far to inquire with staff should you suspect the quality is inauthentic. If you’re looking for places where you can leave doubt at the door, stop by such shops as the Nordic Store and the Handknitting Association of Iceland

Understand what defines a Volcano Tour… 

Meradalir eruption, August 2022
Photo: Golli. Meradalir eruption, August 2022

Iceland is an incredibly volcanic country.  It is sat atop an enormous magma plume that rests between the North American and Eurasian tectonic plates. 

By now, this fact is so well known that it almost defies belief someone would have the gall to patronise their readers so much. And yet… 

Lava fields spill out across a landscape carved with rocky fissures. A landscape dotted with ancient tunnels once filled with flowing magma. Wherever you look, the results of a prior eruption are apparent. 

Unsurprisingly, many activities are sold as Volcano Tours, dedicated to exposing guests to the volatile geological forces that have come to define this island. 

However, given that there have been many active volcanic eruptions over recent years, some visitors might expect that all of these so-called Volcano Tours will take them to a mountain currently blasting lava into the air. 

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One could not be blamed for getting confused. Volcano Tours might cover anything from experiencing a hollowed out lava tunnel to hiking over ancient lava fields. 

Still, some Volcano Tours will take you directly to an active eruption – granted that an eruption is actually happening and it is safe to approach! 

Ultimately, volcanoes are temperamental natural forces. So, these tours tend to be opportunistic, and only available during certain episodes of increased volcanic activity. 

The moment a volcano becomes active, expect a variety of helicopter, hiking, and Super Jeep tours to become on offer. Observing a volcano is a rare occurrence, so these tours are competitive in terms of seats available. 

There is no need to buy bottled water in Iceland

Goðafoss Waterfall, Iceland
Photo: Golli. Goðafoss Waterfall in Iceland.

This tourist trap is self-explanatory! Iceland has, arguably, the cleanest water you’re ever likely to find. It originates from the island’s pristine glaciers, travelling by way of lava-fields, where it filters naturally among the volcanic rock.

By the time it’s pouring out of your kitchen tap, Icelandic water is at its purest and most refreshing! You can theoretically drink from streams and freshwater rivers in Iceland without worrying about how safe it is. 

Still, you’ll find many places across the country still attempting to sell you bottled water. Sometimes, it will be under the guise of ease of accessibility, other times because sordid claims are made that particular brands are, somehow, even cleaner than what appears naturally.

Don’t buy into it – you’re far better off purchasing a dedicated water bottle, filling it up as necessary for free. 

Be realistic about how much you’ll see on your trip 

South Coast travellers
Photo: Golli. The South is one of Iceland’s most stunning regions.

Iceland is a big country. With the sheer amount and variety of natural and cultural attractions on offer, remain realistic. There is no chance you can experience everything without staying for a couple of months, or more.

It is much better to pick which attractions you want to see, then work them within your time frame.

For example, the popular Golden Circle sightseeing route can be experienced in a single day and is comprised of three major attractions – Gullfoss Waterfall, Þingvellir National Park, and Geysir Geothermal Area. It makes for a great choice regardless of whether you have two days in the country, or two weeks. 

Looking at the aurora borealis in Iceland
Photo: Golli. Travellers observing the Northern Lights in Iceland

If you are interested in visiting the North, the Westfjords, or the East, it will require more time and pre-planning. Almost all visitors start their journey in Reykjavík, which is in the southwest of the country. Therefore, it is important to stay aware of how much is possible with the time you’ve allotted yourself. 

One way to simplify this process is by purchasing a multi-day bus or SuperJeep tour. These excursions take guests to a handful of each region’s main visitor’s sites. They also provide an itinerary listing what attractions you’ll visit each day, and how long you spend at each. 

You can browse some of the various multi-day tours on offer before cementing your own schedule. 

In Summary 

Visitors at Gullfoss waterfall
Photo: Golli. Gullfoss waterfall in the wintertime.

For the simple fact that there are not many tourist traps listed in this article, rest easy. You must realise that, by and large, experiencing an Icelandic holiday comes with very little you should worry about.

All in all, Icelanders and Icelandic companies have a visitor’s best interests at heart. It is the best way to make sure this genial Nordic island maintains its reputation as an unforgettable holiday destination.

Still, wherever you choose to visit on Earth, there are little nuances that it’s wise to stay aware of! 

So, when you’re planning your trip to Iceland, just remember to tread lightly in certain places. Be it on the ice, or when navigating purchases and the logistics of your time here. 

Minister Advocates for Fiscal Restraint in Iceland’s New Budget

Prime Minister Bjarni Benediktsson

In a budget briefing yesterday, the Finance Minister highlighted increased government earnings while advocating for fiscal restraint to counter inflation. He revealed a multifaceted approach for the upcoming year, which included streamlining state institutions for targeted savings of ISK 17 billion [$129 million / €119 million], revising road taxes to account for the surge in electric vehicles, and adjusting income tax brackets, all against a backdrop of a projected state treasury deficit and rising healthcare costs.

Cautious optimism tempered by financial and demographic challenges

During yesterday’s press conference on the state budget, Finance Minister Bjarni Benediktsson underscored the significance of acknowledging a marked increase in government revenue, which had surpassed earlier projections. He advocated for continued fiscal discipline to mitigate rising inflationary pressures. The goal was to prioritise investments in infrastructure and basic services like the National Hospital and housing. He also revisited plans to streamline state-run institutions, targeting savings of ISK 17 billion [$129 million / €119 million] for next year.

On transportation, Bjarni stressed that the rise in electric vehicles, facilitated by government incentives, had negatively impacted fuel tax revenues. He announced plans for a “new, simpler, fairer, and more transparent system” based on road usage. “It’s time for electric vehicles to participate in maintaining the road network,” he added.

As noted by RÚV, the draft budget reveals a projected state treasury deficit of ISK 46 billion [$344 million / €320 million], primarily due to interest expenses outpacing interest income. However, core operational revenues anticipate a surplus of ISK 28 billion [$209 million / €195 million]. Self-sustaining state entities project a modest surplus in core operations but face a deficit once interest is considered.

Healthcare spending is set to increase significantly, up by ISK 88 billion [$658 million / €612 million] since 2017 and ISK 14 billion [$105 million / €97 million] compared to last year. Factors like tourism, population growth, and an ageing population are cited as key drivers.

An 8.5% adjustment in income tax brackets by year’s end is expected to reduce the average income tax by about ISK 7,000 [$52 / €49]. Bjarni also noted the reimplementation of the overnight stay tax in 2024 – revoked in 2020 due to the pandemic – extending it to cruise ships.

Total state expenditure for the next year is estimated at ISK 1,480 billion [$11 billion / €10.3 billion]. The budget draft shows a 22.3% increase in financial costs and a 14.8% rise in hospital services. Funding for innovation has decreased the most, by 9.7%, followed by a similar reduction in foreign affairs.

Overall, the budget suggests a cautious optimism tempered by financial and demographic challenges.

Briefly on the budget: According to constitutional provisions, disbursements from the state treasury can only be made if authorised in the annual budget or a supplementary spending bill. The budget undergoes a rigorous legislative process: the Minister of Finance introduces the draft budget to Parliament during its first autumn session, typically held on the second Tuesday in September. Following this, the draft undergoes three rounds of parliamentary debates before it is usually finalized and approved in December.

Budget Constraints Force Sale of Nation’s Only Surveillance Aircraft

TF-SIF

The operation of the Coast Guard’s surveillance aircraft, TF-SIF, will be discontinued to meet budgetary constraints. The decision marks “a major step back” in the nation’s response and surveillance capacity, the Director General of the Coast Guard noted in a recent press release.

Operations proven difficult over the recent months

The operation of the Coast Guard’s surveillance aircraft, TF-SIF, will be discontinued this year in order to streamline the Coast Guard’s operational costs, a press release from the Coast Guard notes. The Ministry of Justice sent a letter to the Coast Guard earlier this week asking the Coast Guard to prepare the sale process:

“The operation of the Coast Guard has proven difficult in recent months due to enormous oil price increases; increased operations, including a larger and more powerful patrol vessel; as well as decreased participation from Frontex (The European Border and Coast Guard Agency) than expected.”

In April of last year, Georg Kr. Lárusson, Director General of the Coast Guard, informed the Ministry of Justice that the conditions for Coast Guard’s operational budget “no longer held” owing to the fact that the current budget had not followed more extensive operations and because of increases in the price of oil and other budgetary items.

As noted in the press release, funding for the Coast Guard was increased by ISK 600 million ($4.3 million / €3.9 million) in this year’s budget. This increase was expected to prove insufficient, in light of last year’s operating deficit, unless measures were taken that would “compromise the organisation’s statutory roles and response capacity.”

A major step back in the nation’s response and surveillance capacity

Georg Kr. Lárusson observed that the decision to sell TF-SIF represented “a major step back” in the nation’s response and surveillance capacity.

“When it became clear that the organisation would not receive further financial contributions, a conversation began with the Ministry of Justice concerning possible ways to get the Coast Guard’s finances back on track. There was no good option in the situation, and we are very disappointed to be forced to stop the operation of the surveillance aircraft, given that it is a specially equipped patrol, rescue, and medical transport plane and an important part of the country’s public safety chain.:

“Since 1955, the Coast Guard has operated an aircraft for surveillance and rescue operations along the coast of Iceland. The current decision is, therefore, a major setback in the nation’s response and monitoring capacity. TF-SIF is one of the most important links in the agency’s response chain, and with this difficult decision, a large gap is cut in the Coast Guard’s operations. We also consider the presence of the plane in this country to be an urgent national security issue, especially in light of the changing global political landscape” Georg was quoted as saying.

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.

Bus Scanners Rendered Unusable

A man using the klapp app in Reykjavík

Strætó has missed payments on its ticketing system, Klapp, leaving the QR code scanners unusable and in need of replacement.

Kjartan Magnússon, city representative for the Independence Party, has stated that the situation has led to excessive costs for Strætó, which it is not in a position to handle.

Serious mistakes have been made in the adoption and implementation of the new payment system, he said.

Read more: Strætó’s New Payment System Off to Shaky Start

Strætó has now had to postpone payment of its bills due to a lack of funds.

According to Kjartan, at an annual meeting of municipal associations, Sorpa, and the Capital Area Fire Department, it came to light that Strætó, Iceland’s public transportation system, is barely operational.

Where annual projections forecast an operational deficit of ISK 93 million, Strætó has actually operated at an ISK 1.1 billion loss just in the first nine months of 2022. The gap between projected and actual losses is significant, and Strætó’s equity has subsequently seen a decrease of ISK 22 million.

Kjartan is quoted in Morgunblaðið as stating: “For a whole year, passengers have received the answer that it was just a growing pain, which would soon be a thing of the past. At the meeting, however, it was stated that the scanners used in the buses would be unusable and the only solution would be to replace them all and buy new ones.”

This will represent significant further costs to an already-struggling transportation system.

Mass Arrests Put Pressure on Already-Strained Prison System

Hólmsheiði prison Iceland

Iceland’s prison system is operating at near maximum capacity. Three times as many individuals are being kept in police custody than usual, the Director General of Prison and Probation Administration has stated.

Record number of custody rulings

The police arrested 27 people following a knife attack at the Bankastræti Club in Reykjavík last Thursday. Twelve suspects have been kept in custody, with the police having yet to decide whether they will request custody over five additional suspects. Four other individuals connected to the attack remain on the lam, some of whom are believed to have fled the country.

Páll Winkel, the Director General of Prison and Probation Administration, told Mbl.is that a total of 60 people are currently being held in police custody – three times the usual number. Aside from the many arrests made in relation to the Bankastræti Club attack, there have also been numerous arrests made in connection with drug busts and violent crimes.

“It does, of course, put tremendous pressure on the system,” Páll observed, “detaining 15 prisoners in isolation. It calls for greater manpower and organisation; you need to safeguard investigative interests, that the prisoners don’t meet, while, at the same time, ensuring that their rights are being respected.”

“These are people aged 19 and up. These are Icelanders and foreigners, men and women, non-disabled and disabled persons, including one individual who’s blind.”

Most of the prisoners are being detained in the Hólmsheiði prison, although some have been transferred to Litla-Hraun. According to Páll, the design of Hólmsheiði has proven advantageous, as there are spaces equally suited to regular confinement and isolation.

Páll predicts that the situation will remain unchanged for a few more days but hopes that that will be the extent of it. “It puts tremendous strain on the system. Also because it happens to coincide with our effort to temporarily decrease the number of prisoners so as to operate within budget constraints.”

Budgetary constraints

Speaking to RÚV, Minister of Justice Jón Gunnarsson stated that the government had already taken steps to deal with the pressure on the prison system, with extensive renovations at the Litla-Hraun prison expected to be completed next year.

According to Jón Gunnarsson, there have been instances where prison sentences lapse owing to a lack of cells. “We must respond, and we are doing our best,” he stated, admitting that increasing the number of prison cells would take time and that bridging the gap could prove tricky.

“We’re not quite sure how; this additional pressure means additional operational costs, and we’ve even been in the position where we’ve been unable to fully use all of the prison cells because of budgetary constraints … we’re working on it.”

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.

2023 Budget Bill Projects Decreased Deficit

Prime Minister Bjarni Benediktsson

The Icelandic government’s budget bill for 2023 will run on a deficit of ISK 89 billion [$640 million; €632 million], a significant decrease from last year’s deficit of ISK 169 billion [$1.215 billion; €1.199 billion]. Finance Minister Bjarni Benediktsson presented the budget bill at a press conference today, saying that state finances were heading “all in the right direction.” The bill will be introduced in Alþingi tomorrow.

Despite running a deficit, the treasury’s debt ratio is decreasing, something Bjarni stated was very important. Treasury revenues are expected to surpass ISK 1,000 billion [$7.2 billion; €7.1 billion] in 2023.

Iceland’s economic outlook among the best in Europe

The Finance Minister stated that the treasury would be utilised to curb inflation, which is now 9.7% and rose to 9.9% last month, the highest inflation in more than a decade. In the international context, however, inflation in Iceland is the second lowest in Europe, and the impact of rising energy prices has been limited in Iceland, as the percentage of renewable energy is much higher. Prosperous fishing and tourism industries have also helped Iceland’s economy remain more stable than that of many of its neighbours.

Measures to help first-time homebuyers

The budget includes measures to help those entering the real estate market by making more groups eligible for discounts and support measures granted to first-time buyers. It also includes increases in disability pensions and housing benefits.

Taxes on vehicles and excise duties on the import of new cars will be increased in the coming year. The budget mentions that one of the biggest challenges for the government’s treasury will be a comprehensive restructuring of vehicle and fuel taxation. Iceland funds road and transport infrastructure largely through taxes imposed on gasoline, and that revenue will continue to decrease as electric and fuel-efficient cars outstrip vehicles that run on gasoline.

Government Approves Measures to Counteract Inflation, Overheating Economy

Minister of Finance Bjarni Benediktsson

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.

City Will Not Make Cuts Despite Deficit, Says Reykjavík Mayor

Dagur B Eggertsson Reykjavík Mayor

Reykjavík Mayor Dagur B. Eggertsson told RÚV the city will not resort to service cuts or price hikes as a result of its operational deficit. He adds that construction and urban consolidation in Reykjavík will yield profits in the coming years. Socialist Party councillor Sanna Magdalena Mörtudóttir says the city’s new budget does not address poverty or the ongoing housing crisis while other councillors say the city’s debt is too large.

The City of Reykjavík will be operated with an ISK 3.4 billion [$26.1 million, €22.6 million] deficit next year, according to the budget presented by city authorities earlier this week. This is the third year in a row the city runs on a deficit. Its debt is expected to increase by ISK 24 billion [$185 million, €160 million] and will be almost ISK 174 billion [$1.34 billion, €1.16 billion] by the end of next year. That applies to the city’s operations that are funded by taxes, or the so-called “A” section of city operations. The “B” section, which includes businesses in part or whole ownership of the city, such as Reykjavík Energy (OR), Associated Icelandic Ports (Faxaflóahafnir), Sopra bs. and Strætó bs., among others, is projected to produce a surplus of ISK 8.6 billion [$66.1 million, €57.2 million].

Long-term loans for construction projects

“We are going to grow out of this problem and our plans allow for that. We have low tariffs [compared to other municipalities], especially for those who have less, and we intend to keep it that way,” stated Dagur. He added that the city’s debt was nothing to worry about. “As a percentage of revenue, it is far south of something to be concerned about and we are in good standing compared to other municipalities.” According to Dagur, part of the city’s debt is due to long-term construction projects including the building of new neighbourhoods. “We take part of it as a loan and the development pays for it over a long period. That’s just sensible economic management and responsible financial management, as we have done here in recent years.”

Social housing and public transit overlooked

Socialist Party councillor Sanna Magdalena Mörtudóttir wants the city to increase its revenue by taxing capital income, “to ensure that we can build up the good service that people have the right to receive.” She criticised the budget’s housing plan, which she stated did not address the waiting list for social housing, which was around 850 people long. “This budget does not account for eradicating poverty, eradicating this housing crisis that people are experiencing here. And that’s something that is unacceptable.”

Both People’s Party councillor Kolbrún Baldursdóttir and Independence Party councillor Eyþór Arnalds expressed concern at the city’s rising level of debt, with Eyþór stating that the budget did not account for funding the Borgarlína rapid bus transit line, though its construction is scheduled to begin soon.