Reykjavík Grapevine - 11.10.2013, Page 14

14
The Reykjavík Grapevine
Issue 1 — 2011
Economy | Cuts!
A line, drawn
The 2014 budget bill proposes increasing
spending by 23%, granting the Ministry
of Foreign Affairs an additional 660 mil-
lion ISK, the Prime Minister’s Office 1.5
billion ISK, and the Ministry of Welfare 17
billion ISK. The police force will get an ad-
ditional 500 million ISK, and the national
church will have their funds increased by
100 million ISK, partly through higher pa-
rochial fees.
Those whose wages fall under the mid-
dle income tax bracket (225,000 to 700,000
ISK per month) will have their taxes low-
ered from 25.8% of earnings to 25%. This
means that those who are earning 400,000
ISK per month will be taxed 1,140 ISK
less each month. Those earning less than
225,000 ISK or more than 700,000 ISK will
not get any further tax breaks.
This is the first step in the coalition’s
tax reform plans, which will see the pro-
gressive national tax rates imposed by the
previous government replaced with a f lat
tax rate by the end of their four-year term.
VAT on select products, such as dis-
posable nappies, will also be lowered from
the 25.5% rate to 7%, which will lead to
14–15% lower prices for new parents. Al-
though maternal and paternal leave will
not be further extended, the benefits will
increase up to a maximum of 390,000 ISK
per month.
A line, met

To pay for these increases, the bill propos-
es further taxing of large financial institu-
tions, including the winding-up boards of
the three collapsed banks, estimating that
this will generate 11 billion ISK. This will
give smaller financial companies space
to grow, and shift the tax burden onto the
large companies. Up to fifty government
institutions will also be combined into oth-
er institutions, but these measures will not
be enough to cover the proposed increased
government spending in 2014.
To cover the remaining 12 billion ISK,
the government will employ austerity mea-
sures across the board. Amongst the cuts
are those being made to the university sys-
tem, which will now charge an additional
25% in registration fees; the health sector,
whose budget will be cut by 1.1 billion
ISK, and upper secondary schools, which
will have 3.9% less funds, equal to 1.4 bil-
lion ISK. Tax on alcohol, tobacco and fuel
will also increase, but the budget does not
specify by how much.
The Icelandic Film Fund is, propor-
tionally speaking, one of the biggest losers,
having 33% of its budget cut, from 1.1 bil-
lion to 735 million ISK. The Icelandic Film
Makers Association estimates that the cuts
to the industry will result in tax losses of
600 million ISK for the government, based
on a 2011 study by Dr. Ágúst Einarsson
(see page 25 for more information on the
Icelandic Film Fund).
No additional funds are allocated to
the National Hospital, and the 600 million
ISK that the previous government had al-
located in the 2013 budget to renew equip-
ment has been recalled. What has sparked
the greatest debate has been the budget’s
plan to charge patients 1,200 ISK per over-
night hospital stay, which would generate
200 million ISK annually. Numerous or-
ganisations, including the Organisation of
Disabled in Iceland, have condemned this
proposition.
The Financial Service Authority (FME)
stands to have its budget reduced by 13%,
or 236 million ISK, despite the fact that the
Parliamentary Special Investigative Com-
mittee partly blamed the banking collapse
on poor regulation by under-resourced
supervisory institutions. The Office of the
Special Prosecutor, responsible for inves-
tigating financial crimes, also faces cuts
amounting to 45%, or 700 million ISK, as
it will have concluded its investigations by
2014.

A line, broken
The Teacher’s Union (KÍ), the Federation
of State and Municipal Employees (BSRB),
Union of Public Servants (SFR), Icelandic
Confederation of Labour (ASÍ), and other
unions have voiced several objections to
the budget, with ASÍ president Gylfi Arn-
björnsson disappointed that healthcare
matters get glossed over to lower taxes for
the better off.
During Sigmundur Daví!’s speech at the
inauguration of the autumn parliamen-
tary session on October 2, he said people
were overreacting, as the proposed bill was
only a draft. Bjarni Benediktsson followed
by highlighting the importance of having
a strong bill that stopped the State’s grow-
ing debt by balancing the budget, and
providing families and businesses with an
economic plan that they can depend on.
During these speeches, three hun-
dred people protested outside parliament,
chanting anti-government slogans, claim-
ing it was unethical in cutting services to
the poor and sick while lowering the fish-
eries fees and wealth tax for the rich and
privileged. The protesters then burned a
copy of the 2014 budget bill.
The budget will have to go through
three rounds of debates before being
passed, and by all accounts, it appears the
opposition and unions will be fighting its
present incarnation with tooth and nail.
The coalition doesn’t seem opposed to
making changes, especially to the hospital
admission fees, perhaps marking the be-
ginnings of a government willing to coop-
erate with its opposition.
In the coalition’s first few days of government, Min-
ister of Finance Bjarni Benediktsson and Prime
Minister Sigmundur Daví! Gunnlaugsson pro-
claimed that the deficit that they’ve inherited—25
billion ISK—is much greater than they had been led
to believe it was before the elections. Given their
campaign promises to lower taxes, remove capital
controls and write off household debt, many have
been curious to see what the coalition’s first pro-
posed budget plan would look like. On October 1,
Bjarni unveiled said budget, which plans for a 500
million ISK surplus—the first budget in six years
that does not assume a growing national deficit. So
just how are they going to do it?
14Issue 16 — 2013
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Nobody Likes A
Balanced Budget
Featuring heavy cuts to healthcare,
the arts and creative industries
— By Tómas Gabríel Benjamin
BJARNI BENEDIKTSSON
Minister of Finance and chair of the
Independence Party
“We introduce specific austerity
measures […] and we create the f lex-
ibility to lower the personal income tax
percentage, lower public insurance fees,
and nevertheless balancing the budget.
This doesn’t happen by itself, but it is
realistic and necessary.”
Bjarni on the success of the 2014 budget.
(RÚV radio interview, October 1)
BJÖRN ZOËGA
Outgoing executive director of the
National Hospital
“If the budget is not changed, it will be
very difficult to run the hospital in a
safe way. I will not be a part of driving
the hospital off the cliff.”
Björn on the delicate financial situation
of the National Hospital. Björn resigned
from his position a week before the budget
was released.
(Kastljós, September 27)
VIGDÍS HAUKSDÓTTIR
MP for The Progressive Party and Chair
of the budget committee
“‘Immediately’ is perhaps a f lexible
term when you are dealing with a big
issue like the National Hospital.”
Vigdís explains her party’s campaign
promise to give the National Hospital
11–13 billion ISK “immediately” to
improve its service, suggesting that those
funds would find their way to the hospital
sometime in the four-year term.
(Kastljós, October 3)
BALTASAR KORMÁKUR
Filmmaker
“It is almost impossible to build any
future for the Icelandic films when they
keep cutting us down at the knees.”
Baltasar on the heavy cuts to the Icelan-
dic Film Fund.
(Hollywood Reporter, October 4)
Reactions To
The Budget
The Burning Budget - by Tómas Gabríel Benjamin
On October 1, the government unveiled its 2014 budget plan,
which aims to balance the budget for the first time in six years.