Iceland FinMin: treasury surplus next year and lighter budgetary tightening

Despite a raft of proposed new tax rises for next year, Iceland’s finance minister says his budget proposal is a lot milder than the one imposed on 1st January this year and that the state budget deficit will likely turn to a surplus in 2012.

Steingrimur J. Sigfusson, Minister of Finance, says that last year’s harsh budget succeeded in turning round the country’s ISK 100 billion operating deficit (EUR 635 million) and put it on course to run a surplus next year. Massive efforts had to be made to stop the country going bankrupt because of heavy interest payments on debt — but the harsh actions early on have been worthwhile, the minister believes.

Sigfusson told RUV radio this morning that his budget proposal aims to treat the welfare system lightly and that the pay and conditions for the lowest earners will continue to be protected as much as possible.

In 2009 the state ran a deficit of ISK 100 billion and next year it is thought the surplus will amount to ISK 40 billion — that means the state’s finances will have eased by ISK 140 billion (EUR 889.1 million) — a very considerable sum for a small nation like Iceland. Had this not been done, the country would have defaulted and become ‘bankrupt’ within three to five years. The struggle has been to ensure that that did not happen; and the struggle has paid off, according to the minister.

The budget for 2012 calls for, among other things, 5.1 percent increases to broadcasting fees, tobacco and alcohol duty, vehicle tax and fuel duty.