the fiscal budget proposal for 2005
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The fiscal budget proposal for 2005
October 1st 2004
2 0
0 5 The 2005 revenue surplus is estimated at
11.2 billion krónur, 1.2 per cent of GDP
Highlights of the 2005 budget
The 2005 financial surplus estimated at 4 billion krónur
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Treasury finances
Billion krónurAccounts
2003Budget2004
Estimate2004
Budget2005
Revenue ......................................... 273.9 282.0 290.2 305.8
Expenditure ................................... 280.0 275.3 282.4 294.6
Revenue balance ......................... -6.1 6.7 7.8 11.2
Financial balance ...................... 15.3 14.0 16.9 4.0
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Revenue balance, excluding irregular items
Revenue balance ............................. -6.1 6.7 7.8 11.2
Irregular expenditure ......................... 14.4 8.7 8.7 8.8
Irregular revenue ................................ 9.9 0.1 0.1 0.1
Rev. bal. excl. irreg. items ............. -1.6 15.3 16.4 19.9
2 0
0 5 • The revenue balance increases by 3.4
billion from 2004 and by 17.4 billion from 2003
• This reflects a tighter fiscal policy
Stronger fiscal finances
2 0
0 5 • The Government’s Medium Term
Programme calls for a further tight fiscal policy in 2006-2008
• Public consumption to increase by 2 per cent a year in real terms and transfer payments by 2½ per cent a year
Tight fiscal policy in 2006-2008
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Investment declines 2005-2006 and increases 2007-2008
• Investment will be cut by 2 billion in 2005 and again by 2 billion in 2006...
• to be increased again by 2 billion in 2007 and 2 billion in 2008
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Room for tax cuts
• Increased expenditure restraint and a rising revenue surplus creates room for significant tax cuts in 2005-2007...
• ...for the benefit of households
• A logical continuation of earlier tax cuts
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Continued economic stability
• ...without endangering economic stability, according to the projections of the Ministry of Finance
• The fact that Treasury expenditure remains unchanged in 2005 and decline by 1.4 per cent in relation to GDP reflects the tightness of fiscal policy
2 0
0 5 30.41
25.75
21.75
0
5
10
15
20
25
30
35
1997 2004 2007
%
The personal income tax
2 0
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1.5
0.6
0.00
1
2
2001 2002 2007
%
The personal net wealth tax
2 0
0 5 7.0
5.0
4.0
2.0
0.00
1
2
3
4
5
6
7
8
2002 2003 2004 2005 2006
%
The personal income surtax
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0 5
Main economic assumptions 2005
2 0
0 5 • Economic growth 5%
• Rise in real disposable incomes 3¼%
• Inflation 3½%
• Unemployment 2¾%
• Current account deficit 11% of GDP
• Exchange rate index 125
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-1
0
1
2
3
4
5
6
%
Strong economic growth
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Price stability
%
0
1
2
3
4
5
6
7
8
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
2 0
0 5
90100110120130140150
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Increasing real disposable incomes
2 0
0 5
Low unemployment
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
%
OECD
Iceland
2 0
0 5
Temporary increase in the current account deficit
-16
-14
-12
-10
-8-6
-4
-2
0
2% of GDP
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0 5
Highlights of the budget
2 0
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29.129.6
31.0
32.8
31.2
29.9
25
26
27
28
29
30
31
32
33
34
2000 2001 2002 2003 2004 2005
% of GDP
Treasury expenditure declines* in relation to GDP
* Excl. irregular items
2 0
0 5 30.3
28.5 28.3
29.530.2
29.4
25
26
27
28
29
30
31
2000 2001 2002 2003 2004 2005
% of GDP
Tax revenue declines in relation to GDP
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Priority in expenditures
• Expenditure on education increases 8.8 per cent
• Special increase in development aid
• Expenditure on law enforcement and security increases by 5.4 per cent
• Increase in housing space for the disabled and in nursing homes
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Special expenditure measures
• Expenditure cut by 800 million through a 1 per cent cost-efficiency demand upon government agencies
• Investment is cut by 2 billion
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Special revenue measures
• The personal income tax rate will be cut by 1 per cent, from 25.75 to 24.75 per cent
• The personal income surtax declines from 4 per cent to 2 per cent
• Various user charges will increase in line with general prices
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Looking ahead
• A ministerial committee will conduct a review of government agencies
– The aim is to increase efficiency and improve services
• A special effort will be made to outsource government tasks
• Transfer payments will be reviewed in order to reduce the automatic rise in expenditure
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What has been achieved in recent years?
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Treasury debt has declined by half since 1995...
0
10
20
30
40
50
60
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
% of GDP
Total debt
Net debt
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...which has led to an 11 billion reduction in interest payments
1,91,7
2,12,42,3
2,5
1,6
0,0
0,5
1,0
1,5
2,0
2,5
3,0
1999 2000 2001 2002 2003 2004 2005
% VLF.
2 0
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Prepayments against pension fund commitments have amounted to 79 billion since 1999
7.917.3
34.0
45.2
78,871,2
60,7
0
10
20
30
40
50
60
70
80
1999 2000 2001 2002 2003 2004 2005
Bn.kr.
Reiknaðir vextir 5% árin 2004 og 2005
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Social security and social assistance payments
19.2 21.024.1 25.3
28.433.2
36.6 38.0
0
5
10
15
20
25
30
35
40
1998 1999 2000 2001 2002 2003 2004 2005
Bn.kr.
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Disability pensions
4.9 5.77.5 7.6
9.0
11.313.2
14.3
0
2
4
6
8
10
12
14
16
1998 1999 2000 2001 2002 2003 2004 2005
Bn.kr.
2 0
0 5
0
5
10
15
20
25
1998 1999 2000 2001 2002 2003 2004 2005
Universities Other higher education
Bn. kr.
Expenditure on research, universities and other higher education
11,9 13,414
15,719
21,2 21,5 24
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In summary
• Improved Teasury finances have led to declining debt and lower interest payments
• Sharply increased fiscal restraint to offset the impact of power project construction
• A significant Treasury surplus, partly due to expenditure restraint, will create room for tax cuts in 2005-2007
• A review of government operations will be launched
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