Too much tax and not enough cutbacks?

alþingishúsið-little1The Icelandic government should save a further ISK 50 billion next year to stick to its stabilisation pact, according to a leading business organisation.

Vilhjalmur Egilsson, the head of the Confederation of Icelandic Employers (CIE), has called upon the government to do more to stick to the terms of last year’s stabilisation pact signed between central government, local governments, trades unions and the CIE.

According to that pact, the government promised to cover a maximum of 45 percent of its budget deficit with higher taxes and the remaining 55 percent with savings and cutbacks in 2009-2011. Egilsson says tax hikes have so far been much higher profile than reduced government spending, reports.

He says that the government needs to trim a further ISK 50 billion (USD 387 million) off its budget next year to stick to its agreement – but adds that there are no indications the government intends to do so.

Egilsson bases his claim on the fact that this year and last, the government has increased taxes by ISK 72 billion and only reduced its expenditure by ISK 38 billion. The gap in the agreed 45:55 ratio is therefore ISK 50 billion.

Egilsson’s point is not necessarily that public services should be cut further, but rather that taxes should not be increased. He argues that the terms of the stability pact are clear on where any further government funds should be generated.

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