Alþingi, the parliment of Iceland in Reykjavík. Source: Wikimedia Commons, sikeri, CC BY 2.0
The Ministry of Finance reminds the cabinet in Althingi that the stability rule means that budget spending cannot be increased by more than 400 million during the parliamentary session.
One of the regular editorial columns of Viðskiptablaðis, Týr, saw that an interesting message was received from Daði Már Kristófersson’s Ministry of Finance to Althingi this morning. In simple terms, the message from Daði to the budget committee was: Kids, the money is really gone. It can’t be wasted any more.
As everyone knows, the budget bill is currently being considered by the Althingi. The initial bill includes a tax increase for the general public and businesses of ISK 30 billion, in addition to continued spending increases. Despite this, there is only ISK 400 million in room for further spending increases in the Althingi process, if the stability principle is not to be violated.
This is what is at stake if the budget work is to be completed. If the increase in expenditure exceeds this, it will be necessary to make cuts or generate new revenue by raising taxes even further.
The Minister of Finance’s letter states:
“Although only the Minister is legally bound by the rule, Althingi must, in its work, ensure that the fundamental objectives of public finances as stipulated in the Althingi Act on Public Finance are respected. It is a major responsibility if the stability principle is not respected, and this can also have economic consequences.”
Great Interest In Blowing Up The Budget
Týr says that members of the government in Althingi are extremely keen to blow up the budget framework and that the Minister of Finance should see where things are headed and not look away.
Týr also reminds us that it has only been a few weeks since Prime Minister Kristrún Frostadóttir announced at a party leadership meeting of the Social Democratic Party that a major economic package would be introduced when the budget bill was taken up for a second debate. At the meeting, Kristrún said:
“This will be a large package with new economic measures that really make a difference and various measures in housing issues that include a measure that works against overspending, more targeted housing support, more housing development…”
It will cost something.
From this, it can be concluded that there is very little chance that the budget bill will pass the parliament without further spending increases. If the stability principle is not to be violated, further tax increases will have to be resorted to in order to finance them.
None of this will reduce inflationary pressure—quite the opposite. In its current form, the budget includes 7.4 per cent real growth in government spending and a 70 billion ISK deficit in the balance of payments. The restraint is already zero.
Source: Viðskiptablaðið (in Icelandic)