Icelandic Government Presents Economic Response Package to COVID-19 Crisis

Icelandic Government COVID-19 package

The Icelandic government presented an ISK 230 billion ($1.6bn/€1.5bn) response package to the COVID-19 crisis last Saturday. The package is equivalent to just under 8% of Iceland’s GDP, and its measures are intended to mitigate the effects of the COVID-19 pandemic by safeguarding the economic livelihood of individuals and businesses, protecting the welfare system, and boosting the economy.

Prime Minister Katrín Jakobsdóttir, Finance Minister Bjarni Benediktsson, and Minister of Transport and Local Government Sigurður Ingi Jóhannsson announced the first-phase response measures to mitigate the effects of the ongoing COVID-19 pandemic at a press conference in Harpa last Saturday. As part of the measures, the government will take on up to 75% of salaries for struggling businesses, back bridging loans for companies, and defer tax payments, as well as accelerating public projects.

Government takes on up to 75% of salaries

In an effort to project jobs, part-time employees will be allowed to claim up to 75% of unemployment benefits in order to avoid job losses. This means that those who are under threat of losing their jobs can move to part-time hours as low as 25% of their previous hours and boost their earnings with Government support up to a combined level of ISK 700,000 ($4,975/€4,620) per month. The overall aim of this legislation is to encourage businesses to keep employers on their payrolls rather than lay them off. Self-employed and freelance workers are also eligible for this benefit.

Taxes postponed

Companies can delay the payment of taxes until next year and hotel taxes will be abolished until the end of 2021. Reduction in bank taxes and state guarantees on loans are aimed to encourage banks to lend to companies that require loans to continue operations.

Measures for households

During the next 15 months, individuals may withdraw a monthly sum from their voluntary pension savings to a maximum of ISK 800,000 ($5,680/€5,280). Families with children under the age of 18 will receive a one-time child benefit payment on June 1, 2020 of ISK 20,000 ($140/€130) or ISK 40,000 ($285/€265) per child, depending on their income.

Public investment

The measures also include an ISK 20 billion ($142m/€132m) investment initiative toward transport, public construction, technology infrastructure, research, and science in collaboration with municipalities.

The government will also create a marketing campaign to encourage Icelanders to travel domestically within the coming months. This campaign will include giving each Icelander 18 years and older a gift certificate valued at around ISK 5,000 ($35/€33) that can be redeemed at Icelandic hotels and tourism businesses.

A detailed English-language FAQ on the response package is available on the Icelandic Government’s website.