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Iceland Mag

Economy

Government budget surplus in 2016 amounted to 3.9% of GDP

By Staff

  • Running in the black The ministry of Finance has announced that the surplus in 2016 was larger than expected.

The treasury has published the final accounts for the 2016 government budget, revealing that as 2016 ended the government returned a healthy 3.9% budget surplus. The surplus was 294.6 billion ISK (2.93 billion USD/2.62 billion EUR). The surplus in 2015 was 20 billion ISK (200 million USD/180 million EUR).

Read more: Government finance in good shape: 1st Quarter of 2017 saw a surplus of 3.1% of GDP

It looks like this positive outcome in 2016 will continue in 2017, as the general government (the central government, local government and social security funds) returned a surplus amounting to 3.1% in the first quarter of 2017.

Exit tax on estates of bankrupt banks
According to an announcement from the Ministry of Finance the size of the surplus is largely explained by the large stability payments by the estates of the three large Icelandic banks which went bankrupt in 2008. The stability payments were a form of exit tax imposed upon the estates at the time of the lifting of the capital controls which had been in effect since the fall of 2008.

Government expenditures last year exceeded the 2016 budget approved by parliament, as parliament later made amendments to the budget to account for a large contribution to the pension funds of former government employees. The final budget surplus of 3.9% of GDP was nonetheless significantly better than the 2016 budget had anticipated. Initial projections envisioned a budget surplus of 2.6%.

Read more: The agreement with estates of collapsed banks will reduce net debt position to below 10% of GDP

The announcement from the Ministry of Finance states that it is crucial that the budget surplus be used to pay down government debt. At the end of 2016 government debt was 42.7% of GDP, having come down from a peak 86% of GDP in 2011. Government debt is expected to drop below 30% by 2021.

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