In Focus: Bjarni Benediktsson

bjarni benediktsson

A snap press conference On Monday, October 10, Finance Minister Bjarni Benediktsson called a snap press conference. The call came on the heels of an opinion authored by the Parliamentary Ombudsman that concluded that the Minister of Finance’s role in the ongoing privatisation process of the Íslandsbanki bank – which had been nationalised following the 2008 […]

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New Finance Minister Þórdís Kolbrún Moves Forward with Íslandsbanki Sale

Minister of Tourism, Industry, and Innovation Þórdís Kolbrún Reykfjörð Gylfadóttir

Minister of Finance Þórdís Kolbrún Reykfjörð Gylfadóttir has recently expressed support for the continued sale of state-owned Íslandsbanki shares. RÚV reports.

Formerly Minister of Foreign Affairs, Þórdís recently switched places with Bjarni Benediktsson in the wake of his resignation from office.

Þórdís stated to RÚV that although it would be a good move for the state to divest itself of ownership in Íslandsbanki, it may be necessary to change some regulations and guidelines in light of the recent controversy.

Preparatory work underway

It has now been some nine days since Þórdís assumed her new position as Minister of Finance. She discussed the recent government changes and her priorities in the coming weeks and months on the current events talk show Silfurinn last night.

On Silfurinn, she stated that her ministry is currently working to prepare for finalising the Íslandsbanki sale and that nothing has changed regarding the goal of state divestiture in Íslandsbanki.

Þórdís stated that the state-owned shares in Íslandsbanki account for several billion ISK and that the sale is of great importance to the treasury. While not divulging details, she stated that a good price had been obtained for the sale and that the recent opinion of the Parliamentary Ombudsman would be taken into account.

“I am of the opinion that it is simply right to divest the state of its ownership in Íslandsbanki. I know there are voices out there that are concerned that it is done properly and that all the rules are followed,” she said. “Some rules need to be changed or the methodology of selling needs to change as well. It should be a completely public auction, as broad and general as possible, so the public can easily participate.”

Þórdís further stated that she hopes the work will begin as soon as possible.

 

 

Bjarni and Þórdís Swap in Ministerial Reshuffle

bjarni benediktsson

Changes to the government were announced on Saturday, October 14. Former Finance Minister Bjarni Benediktsson is now Foreign Minister and former Foreign Minister Þórdís Kolbrún Gylfadóttir is now Finance Minister.

The ministerial swap was announced at Edda, the new Centre for Icelandic Studies, and the ministers formally took on their new roles at Bessastaðir, the presidential residence.

Read more: Bjarni Benediktsson Sits for Last Parliamentary Session as Finance Minister

The ministerial swap is considered especially significant given the current political and economic situation, including upcoming wage negotiations, high inflation, and the still-unfolding aftermath of the controversial Íslandsbanki share auction.

Bjarni resigned from office on October 10 when the Parliamentary Ombudsman issued an official statement criticizing his handling of the March 2022 sale, in which a group of “qualified investors” were given priority to purchase Íslandsbanki shares. Among these qualified investors was Benedikt Sveinsson, the father of the now-former Finance Minister.

According to the weekend announcement, another minister is needed to reach an agreement on the sale of Íslandsbanki. Bjarni claims to have found majority support in parliament to continue selling the state’s stake in Íslandsbanki, though he has acknowledged that opinions like those presented by the Parliamentary Ombudsman have made it difficult for him to lead this effort.

Trading places

Finance Minister Kolbrún Reykfjörð Gylfadóttir stressed the importance of finalising the sale of Íslandsbanki in her first statement to the press. She expressed her excitement for the tasks ahead in her new position, stating that “the tasks I take upon myself are always on my mind.”

According to the new Finance Minister, the fight against inflation and better utilization of public funds are among the most pressing tasks ahead. She also stated that she is ready to take on a leadership position within the Independence Party, Iceland’s centre-right party and a member of the current governing coalition, when the time comes.

Bjarni stated to RÚV that he was excited to take over duties at the Ministry of Foreign Affairs. “The best thing about the future is that it comes one day at a time,” he stated, adding that he was focused on “not worrying too much” over the past few days.

A revolving door

Ólafur Þ. Harðarson, a professor of political science, stated to RÚV that the news did not come as a surprise.

According to Ólafur, although there has been some tension within the coalition, he believes that the government is stronger now than if Bjarni had left the government.

However, Ólafur stated that it is unusual for a minister to shoulder responsibility by resigning and moving to another ministerial position.

“Some have said that such a revolving door policy is unprecedented in the Nordics,” he stated. However, he highlighted Denmark as a recent example of such ministerial reshuffling, adding: “Such practices are not without precedent, though it is not common practice throughout the region.”

 

 

 

Opposition Leaders Question Government Mandate

Alþingi parliament of Iceland

In an interview with RÚV yesterday, the leaders of the opposition reacted to Finance Minister Bjarni Benediktsson’s decision to resign. The Chair of the Pirate Party’s Parliamentary Group held that the government’s mandate was “completely compromised” while the Chairs of the Social Democratic Alliance and the Reform Party questioned the coalition’s ability to address the most pressing issues facing Icelanders. The Chair of the People’s Party hoped that Bjarni’s resignation would set a new precedent in Icelandic politics while speculating that Bjarni might switch roles within the government.

“Completely compromised”

Following the resignation of Finance Minister Bjarni Benediktsson yesterday, RÚV solicited reactions from leaders of the opposition parties. The Party Group Chair of the Pirate Party stated that the mandate of the government was completely compromised.

“It’s important to note that the mandate of this government is completely compromised, especially since the Prime Minister and other leaders within the government have fully supported the Finance Minister’s governance up to this point,” Þórhildur Sunna Ævarsdóttir, the parliamentary group leader of the Pirate Party, told RÚV yesterday.

“They should, therefore, see every reason to seriously reconsider their position in light of the ombudsman’s conclusion. And this, of course, applies to Bjarni as well.”

An unexpected decision – but the right one

Kristrún Frostadóttir, Chair of the Social Democratic Alliance, admitted that the resignation had been unexpected: “In some ways, this is an unexpected decision, but it’s the right one. He is taking responsibility, and I agree with him to the extent that as a minister, he could no longer fulfil his duties.”

Kristrún also contemplated the future of the government: “I believe the entire government needs to address whether it can truly handle the tasks at hand that matter most to the people. I’m thinking about economic issues and major welfare matters.”

Government mandate weakened

Þorgerður Katrín Gunnarsdóttir, Chair of the Reform Party, echoed Kristrún’s sentiments.

“It’s clear that when the leader of the largest party in the government steps down from a crucial ministry like the Ministry of Finance, it weakens the government. We repeatedly see this government expend their energy on internal disputes rather than focusing on what matters most to households and businesses in the country, namely inflation and the battle against interest rates.

A precedent is set

Inga Sæland, Chair of the People’s Party, told RÚV that Bjarni’s resignation had marked a turning point in Icelandic politics, as he had taken political responsibility, hopefully setting a precedent for the future: “We’re not used to seeing a minister step down like this without being pressured out of office with significant hullabaloo.”

However, Inga speculated that Bjarni might not be leaving politics altogether. “I wouldn’t be surprised if he switches to another ministry. There are only two possibilities: he either moves to another ministry or resigns from parliament, and I’m not sure if that’s good for his party as a whole.”

Nonetheless, Inga believes that Bjarni’s resignation did not mark a turning point for the coalition government. “It will try to endure despite everything.”

Minister of Finance, Bjarni Benediktsson, Resigns from Office

bjarni benediktsson

Now-former Minister of Finance, Bjarni Benediktsson, has resigned from office following critique of his role in the March 2022 sale of Íslandsbanki shares.

Report on Íslandsbanki Sale Highlights Lack of Transparency

The Ministry of Finance issued a notice this morning of a press briefing at 10:30. Earlier this morning, the opinion of the parliamentary ombudsman had been published on the government website where it is stated that the Minister of Finance’s preparation for the privatization process of Íslandsbanki did not conform to government guidelines.

Following the 2008 banking collapse, several major banks were taken into state ownership, to later be sold off in a privatization process. The sale of shares in Íslandsbanki was criticized for a lack of transparency at the time, with special attention given to Hafsilfur ehf., a company owned by Benedikt Sveinsson, the father of the Minister of Finance. Hafsilfur was among those who purchased shares in Íslandsbanki when a 22.5 per cent stake in the bank was sold in an auction. Bjarni, now-former Minister of Finance, has stated in the past that he first learned about the company’s purchases when the ministry received a list of buyers from the State Financial Supervisory Authority after the auction had concluded.

FME Believes Íslandsbanki Broke the Law During March Sale

Skúli Magnússon, the parliamentary ombudsman has indicated that there was a lack of clarity in the preparatory documents regarding conflicts of interest. In his official opinion, the parliamentary ombudsman concluded that the Minister of Finance was not qualified to approve the sale. According to the ombudsman, it must be assumed that he had “significant and real interests in the sale.” The ombudsman also stressed that nothing has come to light that would cast doubt on the Minister’s claim of ignorance regarding Hafsilfur’s participation in the auction.

In his response to the ombudsman’s findings, Bjarni expressed his disagreement with some of the conclusions but emphasized the importance of respecting the opinion. He mentioned that the next steps would be determined in consultation with fellow Independence Party members.

Bjarni also reiterated that he had not been aware of his father’s involvement in the auction and defended his actions throughout the auction process. The sale of Íslandsbanki’s stake has had several important consequences, including one of the largest-ever fines levied on an Icelandic financial institution,  and the resignation of Íslandsbanki CEO, Birna Einarsdóttir.

Agreement Reached Between Central Bank and Íslandsbanki

During his press briefing, Bjarni stated that, given the recent opinion given by the ombudsman, he found it impossible to continue working in the Ministry of Finance. He stated that he wanted to bring peace to the ministry and that he would step down as the Minister of Finance and Economic Affairs. Bjarni stated further that he wanted to demonstrate that “responsibility came with positions of power.”

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Finance Minister Proposes Charge on Clean-Energy Vehicles

driving in reykjavík

The Finance Minister has proposed a six-krona per-kilometre charge on electric and hydrogen vehicles for the upcoming year. A similar charge will be levied on hybrid vehicles. The objective is to increase the revenue of the national treasury and ensure that owners of clean energy vehicles contribute to infrastructure usage costs like other vehicle owners.

Declining tax revenues from clean-energy vehicles

Finance Minister Bjarni Benediktsson proposes a six krona per kilometre charge on electric and hydrogen vehicles for the upcoming year. The aim is to ensure that the owners of such vehicles pay the same fee for the use of roads as the owners of vehicles powered by fossil fuels. The proposal is open to public comment on the government’s consultation portal. The new toll system is expected to come into effect around the turn of the year.

As noted by RÚV, electric vehicle owners have enjoyed certain benefits from authorities in recent years in connection with energy transition plans. However, the proliferation of such vehicles on the roads has led to decreased tax revenues from vehicles and fuel use. The Finance Minister warns that without intervention, these revenues will continue to decline in the coming years. Concurrently, an imbalance has emerged in the current toll system between those utilising the transportation infrastructure.

At the same time, there is a significant need to build and maintain the country’s road network, a plan that is currently in progress. This need is anticipated to persist given the country’s growing population, burgeoning tourism, and related traffic. According to a statement from the ministry, the proposed per-kilometre charge will be applied to each vehicle and collected similarly to how service and energy companies charge for hot water and electricity supply to homes and businesses. (There have been suggestions that drivers would be responsible for tracking the distance they drive in a app, which would be verified at inspection stations.)

Two krona kilometre-charge for hybrid vehicles

Hybrid vehicles (passenger and delivery vehicles) will, as per the proposal, be charged a two-krona-per-kilometre fee next year. The deadline for submitting opinions on the proposals is set for October 16. Following this, the minister can present a bill.

According to the new draft budget of the government, there are also plans to introduce a per-kilometre charge on petrol and diesel vehicles. The existing tax system on vehicles and fuel will be reviewed. However, this will not be implemented until a year after the per-kilometre charge is applied to clean energy vehicles.

Hypothetical scenario to elucidate costs

After the Minister’s proposal was announced, RÚV performed a quick back-of-the-envelope calculation to estimate the cost of driving from Efstaleiti in Reykjavik (where the RÚV headquarters are located) to downtown Mosfellsbær; given that the drive is about 13 kilometres, the drive would cost 78 krona with the six krona per kilometre charge. Given this, residents of Mosfellsbær working in Efstaleiti would drive ca. 26 kilometres per day and pay ca. 156 krona. Over a five-day workweek, the cost amounts to ISK 780 or ISK 40,560 [$295/€280] on an annual basis.

Inflation Dips Below 10%, Finance Minister Cautiously Optimistic

Bjarni Benediktsson icelandic politics

Despite the consumer price index increasing by 0.59% month-on-month, the annual inflation rate has decreased to 9.8% (down from 10.2% in February). The Finance Minister is hopeful that inflation has peaked. An economist with Landsbanki bank has stated that inflationary pressures remain high.

Inflation dips below 10%

Yesterday, the Central Bank published new figures on inflation on its website. According to the data, the annual inflation rate currently sits at 9.8%, down from 10.2% in February. This decline in inflation – which is commonly measured as the 12-month change in the consumer price index (CPI) – comes despite the CPI rising by 0.59% month-on-month in March. The increase in the CPI is to be explained by a 0.7% increase in food and beverage prices, a 4.3% increase in clothing and footwear, and a 0.8% increase in housing costs.

In an interview with RÚV, Una Jónsdóttir, Chief Economist with the Landsbanki bank, stated that the price reduction of furniture, household appliances, and similar products – which fell by 1.7%. – was the main reason why the annual inflation rate was subsiding.

“If, basically, the price of all volatile items used to calculate inflation are removed from the equation, then inflation actually increased month-on-month. So although it’s certainly positive to see inflation abate a little, it, nonetheless, remains very high. And the underlying pressures are still considerable.”

Una observed that it was hard to say whether this marked the beginning of a decline in inflation: “The new figures certainly support that, but how confident we are in it remains to be seen. The fact that we see underlying inflation increasing is not necessarily a positive sign.”

There are, however, several indications that inflationary pressures are slowly easing. Housing prices, for example, no longer create as much inflationary pressure, given that real-estate prices outside the capital area have fallen. The price of clothes and shoes, however, is now 2% higher than it was before these items went on sale. As noted by RÚV, there are many factors responsible for the current price increases: demand pressure, external price increases, and wage increases. The exchange rate has also not strengthened as expected.

Una concluded by saying that it was unlikely that the Central Bank’s latest rate hike had begun to have an effect: “We saw the inflation pressure decrease on the bond market. When the expectation is, going forward, that inflation will decline, it often serves as a kind of self-fulfilling prophecy.”

Finance Minister cautiously optimistic

Following a cabinet meeting yesterday, Finance Minister Bjarni Benediktsson was asked about the slight decline in the annual inflation rate.

“I think it’s best to hold back with the big statements,” Bjarni told Vísir. “But, on its own, this is a positive development, and hopefully, it’s an indication that inflation has peaked. We have seen large interest rate increases from the Central Bank, and the government finances this year are supporting lower inflation – we see it in a very large change in the performance of the treasury.”

Bjarni noted that the government would continue to take measures that would contribute to lowering the costs of goods and services – which was no small task: “When people have lost control of inflation expectations going into the future, to rebuild the belief that we can tackle this task and be successful – that’s what we’re focused on doing.”

The government’s new fiscal policy for the years 2023-2027 is to be presented today. Bjarni observed that the new policy would differ in its emphasis from the last. The new policy would take into account changes in external conditions.

“There are certain priorities from the government that need to take precedence, and by that, I mean inflation, in particular. So I think that the new fiscal policy will be an important contribution to this situation, and I am happy that, all in all, we can have a lot of faith in the future; it can be bright going forward in Iceland.”

National Pact Required to Fight Ongoing Inflation

The Governor of the Central Bank has stated that a national pact may be needed in order to overcome persistent inflation, RÚV reports. Whether or not the country is able to leave indexed loans behind, depends, to some extent, on the nation itself. The Finance Minister agrees with these ideas.

Depends on the nation to some extent

As noted by RÚV, the Governor of the Central Bank, Ásgeir Jónsson, was quoted in an article in Markaðurinn, on June 17, 2020, as saying that “an increase in the issuance of non-indexed loans would be a major turning point and would mean that indexation would die out.” He believes that it depends, to some extent, on the nation itself whether or not indexed loans would become a thing of the past:

“I had envisioned that we could have a nominal interest loan system, which I believe has many advantages over indexed loans. Based on both lower macroeconomic and a more active monetary policy. But it’s quite obvious that if we don’t succeed in keeping inflation down, it’s difficult to adopt such a system,” Ásgeir told RÚV yesterday.

Ásgeir stated that it was possible to change the terms of non-indexed loans to accommodate borrowers when instalments rise. He believes that a new national pact may be needed to overcome persistent inflation. When asked what such a consensus would entail and who would participate, Ásgeir responded thusly:

“A National pact is, naturally, based on parties within the labour market, as was the case when the first national pact was struck around 1990, regarding realistic targets for purchasing power, and so on. Such a pact is also predicated on a certain level of trust between the parties – and government involvement.”

Minister of Finance agrees

The Minister of Finance, Bjarni Benediktsson, told RÚV yesterday that he agreed with the Governor of the Central Bank regarding this national pact against inflation, stating that such efforts had long been discussed within parliament.

After the economic crisis in 2008, economic stability was tackled by the government. A consultation forum was established with the aim of increasing prosperity, where it became clear that various reforms were necessary; the Central Bank had been afforded better management tools, public finances were cleaned up, and actions were taken to strengthen the framework for economic stability.

“There is no question that the stakes are high, regarding, for example, the next round of wage negotiations and our plan to improve the state finances over the coming years. It is of great importance, first of all, for households; second, for the economy as a whole, and this matters, also, in regard to the state treasury and the local authorities, too. It’s simply really important to keep inflation down; interest rates will follow suit and capital costs will decrease,” Bjarni Benediktsson told RÚV.

Bjarni added that inflation expectations were out of control and that the market had “lost faith that inflation could be contained.” The Central Bank’s primary role was to bring inflation down to 2.5%, however, Bjarni noted, it could not tackle the issue alone. The labour market played a big role, given, especially, that there was currently no wage agreement with government employees and that it would not be long before contracts on the public market would expire again. Bjarni also noted that the excessive salaries of CEOs would need to be addressed.

“I completely agree [that CEO salaries need to be curbed]. In terms of taxation, we have a special tax bracket for such income and there is no doubt that we do not want to see wage increases in the upper brackets given the circumstances. Such increases are absolutely the worst solution in a situation where we are trying to create harmony and convince everyone to pitch in.”

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.

Trust in Government Plummets Following Controversial Bank Sale

If an election were held today, the current governing coalition would lose 12 of their 38 seats, losing their current majority. The three governing parties: the Left-Green Movement, the Independence Party, and the Progressive Party, would win 26 seats in Alþingi – 32 are needed for a majority government. The data comes from a recent poll Prósent conducted for news outlet Fréttablaðið.

All three governing parties lose following

Seven months since Iceland’s last parliamentary election and five months to the day since the cabinet was appointed, all three governing parties have lost significant following, according to the poll’s results. The Independence Party has experienced the biggest drop as compared to last autumn’s election results: from 24.4% to 17.9%. The Progressive Party now measures 12.4% support, as compared to 17.3% in the last election. Prime Minister Katrín Jakobsdóttir’s party the Left-Green Movement has dropped from 12.9% support in the election to 9.6% in the poll.

Among the opposition, both the Pirate Party and the Social-Democratic Alliance have gained significant following when the poll is compared to the election results, and the Reform Party has also seen a slight increase in support, putting them on par with the Left-Green Movement. The People’s Party and Centre Party have both lost following since last autumn. The Socialist Party, which did not win any seats in the last election, would win three if elections were held today.

70% have little trust in Finance Minister

A recent poll from Maskína shows that trust in government ministers has fallen significantly since last year. The number of respondents that stated they trust Finance Minister Bjarni Benediktsson a lot has fallen by half since last autumn, from 37% to 18%. More than seven out of ten respondents stated they have little or very little trust in Bjarni.

Several controversies have emerged since the government took power last autumn, the biggest of which has been last month’s sale of a 22.5% stake in Íslandsbanki. The government’s handling of the sale has been harshly criticised by opposition MPs and has led to multiple public protests. A racist comment uttered by Progressive Party Chairman Sigurður Ingi Jóhannsson has likely impacted his party’s following.