Iceland’s Minister of Finance presents budget proposal focused on inflation combat

Iceland’s Minister of Finance, Sigurður Ingi Jóhannsson, presented next year’s budget proposal under the banner “This is all coming together.” The government’s primary focus is to combat inflation, while the opposition claims the administration is shirking its responsibilities.

During his budget presentation for 2025, Jóhannsson emphasized that the Icelandic economy is returning to balance after a period of rapid growth and inflation. There are no proposed tax increases or cuts in this plan. The motto of the proposal suggests that the state’s financial situation is improving through careful oversight, which aims to lower interest rates without harming employment levels.

Despite a forecasted improvement, the budget still anticipates a deficit of nearly 41 billion Icelandic krónur for the upcoming year, compared to a projected deficit of over 57 billion this year. Total revenues are estimated at 1.448 trillion krónur against expenditures of 1.489 trillion. Additionally, a positive primary balance—excluding interest payments—of over 36 billion is expected, indicating a slight recovery from the previous year.

Jóhannsson believes that rigorous financial management and prioritized spending, rather than cuts, will create conditions for lower inflation and interest rates. He acknowledged that the burden of high interest rates on young people in the housing market remains a major challenge.

However, opposition leaders criticized the proposal, suggesting that it lacks accountability and fails to address the harsh realities faced by Icelandic households and businesses. They warned that the budget could hinder the Central Bank’s battle against inflation, prolonging high interest rates. Some accused the government of presenting a politically motivated budget rather than a genuine financial plan aimed at resolving current economic challenges.