Iceland unveils 2025 budget proposal with major changes to housing savings and new taxes

The 2025 budget proposal was presented today, featuring nearly 400 pages of information. Key updates include changes to personal housing savings rules, which will restrict the use of private savings for housing loans exclusively to first-time home purchases. Additionally, a new mileage tax will be implemented for gasoline and diesel vehicles, while lower taxes will be applied to fuel, alcohol, and tobacco compared to previous expectations.

A significant allocation of 18.4 billion ISK is earmarked for the construction of a new national hospital, the largest individual construction project outlined in the budget. Plans also include the replacement of the existing Litla-Hraun prison with a new facility costing 14.4 billion ISK, and initial steps toward building a National Assembly, which will cost 15 billion ISK. Housing support is set to increase by 4 billion ISK, raising the total from 40 billion to 44 billion ISK.

Notably, the budget proposal anticipates a potential reduction in loan burdens, whereby a 30 million ISK loan could decrease by 50,000 ISK monthly, though this is contingent upon a decrease in inflation. Proposed changes also include a 2.5% tax on fuel, alcohol, and tobacco, reduced from an expected 5.2%, to support the Central Bank’s inflation targets.

A new disability pension system will be introduced in September 2025, with a 46% increase in the general tax-free allowance, amounting to 138,000 ISK annually. Child benefits will gradually rise to 900,000 ISK by 2026, starting from 600,000 ISK. Overall, the budget reflects a mix of support measures and adjustments aiming to navigate economic challenges ahead.