The collapse of the Icelandic banks in October 2008 initiated a period of deep recession of the national economy. From the fiscal perspective it meant that the budget surpluses changed to deficits and on top of that the government took over large amounts of the new debt.
General information and figures
The collapse of the Icelandic banks in October 2008 initiated a period of deep recession of the national economy. From the fiscal perspective it meant that the budget surpluses changed to deficits and on top of that the government took over large amounts of the new debt. As a consequence an agreement was reached with the IMF. Effectively it is an agreement on international financial assistance on conditions of progress in a set of austerity measures undertaken by the Icelandic government. In the context of these extraordinary circumstances the so called “Stability Pact” between the social partners and the government was reached in July 2009.
Public Employees
It is proposed that there will be no increase in the wages of civil servants.
Cuts in social benefits
No increases in the amounts for the main benefits and subsidy systems, such as the social security system, unemployment benefits, child benefits, etc.
The Icelandic unemployment benefit system has proven to be useful in dealing with the consequences of the economic crisis. Some adjustments have been introduced especially to keep the unemployed part of the active labour force with study-related, work-related and rehabilition-related programs. Unfortunately there have also been some negative changes, for example the right to unemployment benefits for students who wish to work between study terms has been abolished.
Pension reforms
The pension systems remain fundamentally unchanged. A provision has, however, been made for people to cash in that portion of their pension saving which is not compulsory and which was originally supposed to be used for early retirement. Although it does not represent a change in the pension system it is worth mentioning that because of a loss of assets in the economic meltdown, the private sector pension funds, in line with their regulations, have had to downscale entitlements. In the public sector pension funds, however, entitlements have a government guarantee and thus have not been downscaled.