Iceland anticipates budget deficit of 41 billion krónur amid economic concerns

The proposed budget for the upcoming year anticipates a deficit of 41 billion Icelandic krónur, which is approximately 16 billion kroner higher than previous estimates made in spring. According to Finnbjörn A. Hermannsson, the president of the Icelandic Confederation of Labor (ASÍ), the actual shortfall is likely to be greater than what the budget reflects. He highlights the current economic climate, noting that the peak of the economic cycle was last year, and the government is facing significant budget deficits and high public debt.

Hermannsson criticizes the proposal, stating that it fails to address these challenges adequately. He expressed skepticism about the government’s plans to half the deficit from 49 billion kroner in 2024 to 25 billion in 2025, indicating that without action to mitigate inflation, efforts to reduce interest rates may not succeed as desired. He called the current interest rates—which are over 300% higher than neighboring countries—absurd.

While Hermannsson pointed out some positive aspects of the budget, such as increased child and interest benefits from recent wage agreements, he emphasized that these improvements are not funded by new revenue streams. He believes that broader contributions are necessary for financing these benefits, rather than resorting to asset sales.

With protests held by labor unions at the opening of Parliament today, sentiments surrounding the budget are mixed, with concerns about the government’s financial management and future economic stability prevalent among the populace.