budget proposal 2016 medium-term fiscal plan 2016-2019 · 2020. 4. 7. · budget proposal 2016...
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BUDGET PROPOSAL 2016 MEDIUM-TERM FISCAL PLAN 2016-2019
September 18th 2015
Bud
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Revenue side:
Capital income tax paid by Treasury itself
Proceeds from sales of asset above book value
Reappraisal of financial assets
Temporary effects on tax revenue in relation to the household debt relief program and third-pillar savings withdrawals in 2015-2019
Part of the bank tax in 2014-2017 (levies on estates of fallen banks)
Part of the special FAT in 2014-2015 (levies on estates of fallen banks)
Special dividend to the Treasury due to the reduced equity in the CBI in 2014
Irregular dividends
IRREGULAR ITEMS ON THE REVENUE SIDE
2
» In some of the graphs and tables in the following presentation the figures have been adjusted for certain irregular, one-off and transitory items to bring to light the underlying evolution in the fiscal finances.
Bud
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Expenditure side:
Capital income tax paid by Treasury itself
Tax write-offs
Liabilities of public employee‘s pension funds
Defaulted loans with state guarantees
Write-offs of outstanding claims
Depreciation of equity in funds and companys
Equity contributions to the Housing Financing Fund (HFF)
Expenses due to temporary debt relief for households in 2014-2017
IRREGULAR ITEMS ON THE EXPENDITURE SIDE
3
» In some of the graphs and tables in the following presentation the figures have been adjusted for certain irregular, one-off and transitory items to bring to light the underlying evolution in the fiscal finances.
BUD
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FISCAL OBJECTIVES AND PROSPECTS
1.
Bud
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SPRING FISCAL PLAN 2016-2019 - MAIN TARGETS
5
Targets
Total balance Surplus should grow steadily over the period reaching at least 1% of GDP in 2018.
Revenue Primary revenue* growth should not to exceed the growth of GDP until 2019.
Expenditure Primary expenditure* should grow more slowly than GDP and somewhat slower than primary revenue and decrease by 1% of GDP until 2019.
Debt Gross debt should decrease by 10% in nominal terms and by 15% as a percentage of GDP between the years 2015 and 2019.
Capital expenditure
Maintain the current level of capital expenditure at 1.2% of GDP until 2019.
* excluding irregular and temporary items .
Bud
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681,0
696,3
15,3
Expenditure
Revenue
Surplus
TREASURY OVERALL BALANCE 2016
6
bn. kr.
Bud
get P
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22,0
23,0
24,0
25,0
26,0
27,0
28,0
29,0
30,0
31,0
32,0
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
8,0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Revenue, expend. % of GDP
Balance % of GDP
Primary balance (L-axis) Primary revenue (R-axis) Primary expend. (R-axis)
TREASURY PRIMARY BALANCE 2005-2019*
7
* excluding irregular items Adjusted for the transfer of the services for disabled people from the state to local governments.
Bud
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24,0
25,0
26,0
27,0
28,0
29,0
30,0
31,0
32,0
33,0
34,0
-10,0
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
8,0
10,0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Revenue, expend. % of GDP
Balance % of GDP
Total balance (l.axis) Total revenue (r.axis) Total expenditure (r.axis)
TREASURY OVERALL BALANCE 2005-2019*
8
* excluding irregular items Adjusted for the transfer of the services for disabled people from the state to local governments.
BUD
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ECONOMIC PROSPECTS
2.
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MAIN ECONOMIC ASSUMPTIONS FOR THE BUDGET
10
* Economic forecast from Statistic Iceland, June 2015
2014 2015 2016 2017 2018 2019
Private consumption 3,7 4,2 4,1 3,0 2,5 2,5
Public consumption 1,8 1,8 1,5 1,7 1,5 2,2
Fixed capital 13,7 18,1 14,6 2,9 -0,4 5,2
Business sector 15,1 20,8 16,0 1,5 -3,0 4,2
Residential construction 14,9 20,3 19,3 12,2 9,4 8,7
Government services 7,5 2,5 1,5 -1,0 0,5 5,0
Domestic final expenditure 5,3 6,2 5,4 2,7 1,7 3,0
Exports 3,1 5,3 3,3 3,5 4,2 2,7
Imports 9,9 10,2 8,1 3,5 2,5 3,8
GDP 1,9 3,8 3,0 2,7 2,6 2,5
Inflation 2,0 2,0 4,5 4,1 3,2 2,6
Wages 5,6 7,5 8,0 6,0 5,0 5,0
Bud
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016
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PROSPECTS FOR THE REAL ECONOMY
11
-15
-10
-5
0
5
10
15
20
25
-6
-4
-2
0
2
4
6
8
10
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
%
Private consumption (l-axis) Public consumption (l-axis)
GDP (l-axis) Gross fixed capital formation (r-axis)
%
Forecast
Source: Statistic Iceland
Bud
get P
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016
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CONTINUOUS ECONOMIC GROWTH
12
-10
-8
-6
-4
-2
0
2
4
6
8
10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
%
Forecast
Source: Statistic Iceland
Bud
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sal 2
016
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A MORE DIVERSIFIED EXPORT SECTOR
13
Marine products 22%
Agricultural products 1%
Aluminium and Ferrosilicon
21%
Other manufactured goods and products
9%
Tourism 29%
Other services 17%
Source: Statistic Iceland
Bud
get P
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sal 2
016
fjarlog.is
SURGE IN TOURISM
14
Source: Icelandic Tourist Board
0
20.000
40.000
60.000
80.000
100.000
120.000
140.000
160.000
180.000
200.000
2007 2008 2009 2010 2011 2012 2013 2014 2015
Monthly number of visitors
Bud
get P
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sal 2
016
fjarlog.is
REAL WAGES HAVE BEEN RISING STEADILY
15
80
90
100
110
120
130
140
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Index: 2007=100
Forecast
Source: Statistic Iceland
Bud
get P
ropo
sal 2
016
fjarlog.is
INFLATION HAS BEEN LOW BUT IS RISING
16
Source: Statistic Iceland
0
2
4
6
8
10
12
14
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Inflation Inflation target
%
Forecast
Bud
get P
ropo
sal 2
016
fjarlog.is
GROSS FIXED CAPITAL FORMATION
17
Source: Statistic Iceland
0
5
10
15
20
25
30
35
40
1980 1985 1990 1995 2000 2005 2010 2015 2019
% of GDP
Gross Fixed Capital Formation GFCF average 1980–2014
Business Sector Investment BSI average 1980-2014
Forecast
Bud
get P
ropo
sal 2
016
fjarlog.is
PRIVATE CONSUMPTION
18
Source: Statistic Iceland
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
%
Forecast
Bud
get P
ropo
sal 2
016
fjarlog.is
BUSINESS SECTOR INVESTMENT
19
-60
-50
-40
-30
-20
-10
0
10
20
30
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
%
Forecast
Source: Statistic Iceland
Bud
get P
ropo
sal 2
016
fjarlog.is
UNEMPLOYMENT
20
Source: Statistic Iceland
0
1
2
3
4
5
6
7
8
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
%
Forecast
Bud
get P
ropo
sal 2
016
fjarlog.is
UNEMPLOYMENT BY EDUCATION
21
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Secondary education Primary education University education
Source: Statistic Iceland
%
Bud
get P
ropo
sal 2
016
fjarlog.is
UNEMPLOYMENT BY DURATION
22
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
2003 2005 2007 2009 2011 2013
<3 months 3 to 5 months 6 to 11 months Year or longer
Source: Statistic Iceland
%
Bud
get P
ropo
sal 2
016
fjarlog.is
PRODUCTIVITY AND TOTAL HOURS WORKED, BY SECTOR 2009-2014
23
-10 -8 -6 -4 -2 0 2 4 6 8 10
Misc. specialised services
Tourism
Public sector, etc.
Retail and wholesale trade
Fisheries
Manufacturing
Construction
IT and telecom
Financial services
% Total hours worked Productivity
Source: Central Bank
Bud
get P
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sal 2
016
fjarlog.is
UNIT LABOUR COST
24
Source: Central Bank
80
100
120
140
160
180
200
220
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Iceland Germany OECD Euro area USA
1999=100
Bud
get P
ropo
sal 2
016
fjarlog.is
REAL EXCHANGE RATE
25
Source: Central Bank
0
20
40
60
80
100
120
140
2000 q1 2002 q1 2004 q1 2006 q1 2008 q1 2010 q1 2012 q1 2014 q1
CPI Wages
Bud
get P
ropo
sal 2
016
fjarlog.is
BALANCE OF TRADE IN GOODS AND SERVICES
26
Source: Statistic Iceland
-80.000
-60.000
-40.000
-20.000
0
20.000
40.000
60.000
80.000
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
b.kr.
Bud
get P
ropo
sal 2
016
fjarlog.is
TERMS OF TRADE
27
Source: Central Bank
80
82
84
86
88
90
92
94
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Index, 2005 = 100
Forecast
Bud
get P
ropo
sal 2
016
fjarlog.is
DEBT
28
0
50
100
150
200
250
300
350
400
450
500
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% of GDP
Corporate Household Public sector
Source: Central Bank
Bud
get P
ropo
sal 2
016
fjarlog.is
HOUSEHOLD DEBT
29
0
10
20
30
40
50
60
70
0
20
40
60
80
100
120
140
2007 2008 2009 2010 2011 2012 2013 2014
Housing capital %
Debt % of GDP
Household debt, % of GDP (l-axis) Housing capital (r-axis)
Source: Central Bank
Bud
get P
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sal 2
016
fjarlog.is
HOUSEHOLD DEBT
30
0
20
40
60
80
100
120
140
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
%
Indexed Exchange rate-linked Overdraft Non-indexed Asset financing agreements
Source: Central Bank
BUD
GET
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16
FISCAL BALANCE
3.
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» The Treasury returned a surplus in the fiscal year 2014 for the first time in 7 years.
» The surplus was 46,4 bn. kr. (2,3% of GDP) in the Treasury accounts or 8,4 bn. kr. greater than in the MoF prior estimate in the budget for 2015.
• Expenditures turned out to be around 5 bn. lower than in the prior outcome projection
• Mostly due to a reduction in pension liabilities by 5,2 bn.
• Revenues were 3,4 bn. higher than projected • Thereof: tax revenues 6,8 bn. higher and asset
sales 1 bn. higher while other current revenues were 4,5 bn. lower than projected
FISCAL OUTCOME 2014
32
Bud
get P
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sal 2
016
fjarlog.is
» In the budget for 2015, a slight overall surplus was projeced but a reassessment after the first half of the year indicates a better outcome.
• Heading for 21 bn. kr. surplus instead of 3,5 bn. in the budget.
• The improvement is largely due to favorable one-off revenue, mainly dividends from financial institutions, but also stems from lower interest expenditure.
» Revenue increase by 26,4 bn. to 680,1 bn.
• Thereof is a 14,2 bn. increase in tax revenue and a 12,2 bn. increase in other current revenue
» Primary expenditure increases by 8,9 bn. to 659 bn.
» Interest balance improves by ISK 5 bn. due to lower intererst
costs
ESTIMATED FISCAL OUTCOME 2015
33
Bud
get P
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sal 2
016
fjarlog.is
» Current fiscal outlook assumes restrained expenditure growth that will generate a growing surplus in the last three years of the fiscal plan
• The outlook allows for some real growth both on the revenue side and the expenditure side until 2019, albeit somewhat slower than GDP growth.
• The plan aimes for continued expenditure restraint so that growth in primary expenditure will be moderate in real terms, or 1,3% annually on average which will accumulate to around 5% over the forecasting period. Thus, the target for primary expenditure, excluding irregular items, implies a reduction of 1,2% of VLF.
• Target for the revenue side entails that the GDP ratio of primary revenue, excluding irregular items, will not rise over the period. Actually, it is projected to decrease by 0,5%.
• In addition, interest expenditure are expected to fall by 1,3% of GDP over the period. This is based on proposed measures in the balance sheet as well as debt reduction by means of income stemming from the liberalization of capital controls.
FISCAL OUTLOOK 2016-2019
34
Bud
get P
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sal 2
016
fjarlog.is
TOTAL BALANCE 2010-2019* INCLUDING AND EXCLUDING IRREGULAR ITEMS
35
-123
-89
-36
-1
43
21 15
42 34 48
-64 -44
-15
4
32 21
37 48
63 77
-150
-100
-50
0
50
100
2010 2011 2012 2013 2014 2015proj.
2016 2017 2018 2019
bn. kr.
Total balance incl. irregular items Total balance excl. irregular items
*Balance in 2010 adjusted for the transfer of the services for disabled people from the state to local governments.
Bud
get P
ropo
sal 2
016
fjarlog.is
-4 3 2 6
-40 -39 -46
-54 -58 -60 -59 -58 -52 -50 -46
-80
-60
-40
-20
0
20
40
60
80
100
-80
-60
-40
-20
0
20
40
60
80
100
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
bn. kr. bn. kr.
Interest revenue Interest expenditure Interest balance
INTEREST BALANCE 2005-2019
36
Bud
get P
ropo
sal 2
016
fjarlog.is
PRIMARY BALANCE 2010-2019* INCLUDING AND EXCLUDING IRREGULAR ITEMS
37
-85
-43
18
57
104
80 73 94
84 93
-25
2
39
62
92 80
95 100 114
122
-100
-50
0
50
100
150
2010 2011 2012 2013 2014 2015proj.
2016 2017 2018 2019
bn. kr.
Primary balance incl. irregular items Primary balance excl. irregular items
*Balance in 2010 adjusted for the transfer of the services for disabled people from the state to local governments.
Bud
get P
ropo
sal 2
016
fjarlog.is
20
22
24
26
28
30
32
34
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
% of GDP
Primary revenue Primary expenditure
PRIMARY REVENUE AND EXPENDITURE 2005-2019*
38
* Excluding irregular items
BUD
GET
PRO
POSA
L 20
16
REVENUE SIDE
4.
Bud
get P
ropo
sal 2
016
fjarlog.is
Macroeconomic assumptions » Macroeconomic projections from Statistics Iceland in early
June for 2016-2019 » Reassessment of developments in tax bases in 2015 in light
of changes in main premises and economic prospects
Tax system reform » Impact of earlier measures which become effective in 2016 » New measures effective in 2016–2017
» Personal income tax » Import duties » Excise on motor vehicles » Taxation of alcohol
Other specific assumptions and measures
REVENUE ASSUMPTIONS 2016–2019
40
Bud
get P
ropo
sal 2
016
fjarlog.is
653,7
680,1
+5,0
+4,8
+17,7 –1,1
640
645
650
655
660
665
670
675
680
685
Budget2015
Generalrevision:
taxes on labour
Generalrevision:
other taxes
Dividend,interestreceipts
Other,net
Revisedestimate
2015
b.kr.
REVISED REVENUE ESTIMATE FOR 2015 (A)
41
Bud
get P
ropo
sal 2
016
fjarlog.is
REVISED REVENUE ESTIMATE FOR 2015 (B)
42
Budget Revised Change
B.kr. accrual cash accrual cash accrual cash
Tax revenue incl. SSCs 600,1 578,3 614,3 597,3 14,2 19,1
Taxes on income and profits 222,2 211,4 238,0 231,8 15,8 20,4
Social security contributions (SSCs) 78,7 77,1 79,2 77,0 0,4 -0,1
Taxes on labour 6,8 6,8 7,1 7,0 0,2 0,2
Property taxes 7,0 7,0 7,2 7,5 0,2 0,5
Taxes on goods and services 248,8 239,5 248,0 239,3 -0,8 -0,2
Other taxes 36,6 36,6 34,8 34,8 -1,8 -1,8
Other revenue 50,6 49,0 62,8 62,8 12,2 13,8
Asses sales 0,8 0,8 0,8 0,8 0,0 0,0
Grants 2,1 2,1 2,2 2,2 0,0 0,0
Total revenue 653,7 630,2 680,1 663,1 26,4 32,9
Bud
get P
ropo
sal 2
016
fjarlog.is
Economic outlook for fairly strong growth ahead Tax policy aims for lower tax burden for households and
reliance on more efficient indirect taxes Tax revenues (excl. irregular items) decline slightly in
medium-term, from 26,5% in 2015 to 26,2% in 2019 Tax reforms since 2013 result in 25 bn. kr. reduction (excl.
bank tax) in tax revenue in 2016 » Households benefit most from reduced tax burden
Total revenues (excl. irregular items) shrink from 28,7% in 2015 to 28,0% in 2019
Total revenues shrink from 31,4% in 2015 to 28,2% in 2019 as large temporary items are lost
REVENUE ESTIMATE 2016–2019: MAIN RESULTS
43
Bud
get P
ropo
sal 2
016
fjarlog.is
REVENUE ESTIMATE 2015–2019: OVERVIEW (A)
44
Accrual basis, billion kr.1 2015 2016 2017 2018 2019
Total revenue 680.1 696.3 731.0 748.8 787.4
Tax revenue 614.3 646.5 681.9 696.4 735.1
Primary revenue 662.6 679.7 714.3 730.5 770.0
Interest receipts 17.5 16.6 16.6 18.2 17.4
% of GDP
Total revenue 31.4 29.9 29.3 28.3 28.2
Tax revenue 28.4 27.7 27.4 26.3 26.4
Primary revenue 30.6 29.2 28.7 27.6 27.6
Interest receipts 0.8 0.7 0.7 0.7 0.6
1. Irregular items are not excluded.
Bud
get P
ropo
sal 2
016
fjarlog.is
REVENUE ESTIMATE 2015–2019: OVERVIEW (B)
45
Excl. irregular items (broadly defined)1
Accrual basis, billion kr.1 2015 2016 2017 2018 2019
Total revenue 622.6 671.3 705.5 744.4 781.7
Tax revenue 574.2 622.3 657.2 692.9 730.2
Primary revenue 605.1 654.7 688.8 726.2 764.3
% of GDP
Total revenue 28.7 28.8 28.3 28.1 28.0
Tax revenue 26.5 26.7 26.4 26.2 26.2
Primary revenue 27.9 28.1 27.6 27.5 27.4
1. Irregular items are: capital income tax paid by Treasury itself, all proceeds from asset sales and revaluation of financial assets (narrow definition) and also the following items: temporary side effects on tax revenues from the Household Debt Reduction Programme 2015–2019; part of bank tax 2014–2017; part of special FAT 2014–2015; special dividend from reduction of CB capital 2014; part of Landsbanki dividend 2013–2015; temporary side effects from third-pillar pension savings withdrawals in 2015.
Bud
get P
ropo
sal 2
016
fjarlog.is
26,0
26,5
27,0
27,5
28,0
28,5
29,0
29,5
30,0
30,5
2013 2014 2015 2016 2017 2018 2019
% of GDP
Total Excl. irregular (narrowly defined) Excl. irregular (broadly defined)
TREASURY TAX REVENUE 2013–2019
46
Bud
get P
ropo
sal 2
016
fjarlog.is
23
24
25
26
27
28
29
30
31
32
33
34
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
% of GDP
Total revenue Primary revenue Tax revenue
TREASURY REVENUE 2001–2019*
47
* Excluding irregular items.
Bud
get P
ropo
sal 2
016
fjarlog.is
23
24
25
26
27
28
29
30
31
32
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
% of GDP
Tax revenue excl. irregular items (broadly defined) Tax revenue
TREASURY TAX REVENUE 2001–2019
48
Bud
get P
ropo
sal 2
016
fjarlog.is
27
28
29
30
31
32
33
34
35
2008 2010 2012 2014 2016 2018
% of GDP
Total Excl. narrowly defined irregular items Excl. broadly defined irregular items
TREASURY TOTAL REVENUE 2008–2019
49
Bud
get P
ropo
sal 2
016
fjarlog.is
665,1
696,3
+51.6 –7.1
–7.4
–3.3 –2.5
650
660
670
680
690
700
710
720
Autumn2014
Generalrevision
Taxreform
2015
Taxreform
2016
Interestreceipts,
dividends
Other,net
Budgetproposal
b.kr.
REVENUE ESTIMATE OF BUDGET PROPOSAL 2016: CHANGE FROM AUTUMN 2014
50
Bud
get P
ropo
sal 2
016
fjarlog.is
680,1
696,3
+25.0
+27.9 +3.0 –10.9
–6.3
–22.6
670
680
690
700
710
720
730
740
Revisedestimate
2015
Generalrevision:taxes on
labour
Generalrevision:
othertaxes
Other,net
Taxreform
2016
Banktax
Interestreceipts
dividends
Budgetproposal
2016
b.kr.
BUDGET PROPOSAL REVENUE ESTIMATE: NOMINAL CHANGE BETWEEN 2015 AND 2016
51
Bud
get P
ropo
sal 2
016
fjarlog.is
0 20 40 60 80 100 120 140 160 180
VAT
PIT
SSCs
Other indirect taxes
CIT
Capital income tax
Bank tax
Interest receipts
Dividends
Other revenue
Fishing Levy
Payroll taxes
Property taxes
Per capita PIT
Other taxes
Asset sales
Billion kr.
BUDGET PROPOSAL REVENUE ESTIMATE 2016: BREAKDOWN RANKED BY SIZE
52
Bud
get P
ropo
sal 2
016
fjarlog.is
Treasury Account Budget
Revised budget
Budget proposal
Billion kr. 2014 2015 2015 2016
Total revenue 688.9 653.7 680.1 696.3
Tax revenue 601.8 600.1 614.3 646.5
Direct taxes 364.3 351.3 366.3 381.9
Indirect taxes 237.5 248.8 248.0 264.7
Interest receipts 18.6 18.2 17.5 16.6
Primary revenue 670.3 635.5 662.6 679.7
Irregular items 78.2 38.6 57.5 25.0
thereof tax items 50.9 37.8 40.1 24.2
Total revenue excl. irregular 610.7 615.1 622.6 671.3
Tax revenue excl. irregular 550.9 562.4 574.2 622.3
REVENUE DEVELOPMENTS 2014–2016 (A)
53
Bud
get P
ropo
sal 2
016
fjarlog.is
Treasury Account Budget
Revised budget
Budget proposal
% of GDP 2014 2015 2015 2016
Total revenue 34.6 30.7 31.4 29.9
Tax revenue 30.2 28.2 28.4 27.7
Direct taxes 18.3 16.5 16.9 16.4
Indirect taxes 11.9 11.7 11.4 11.4
Interest receipts 0.9 0.9 0.8 0.7
Primary revenue 33.6 29.8 30.6 29.2
Irregular items 3.9 1.8 2.7 1.1
thereof tax items 2.6 1.8 1.9 1.0
Total revenue excl. irregular 30.6 28.9 28.7 28.8
Tax revenue excl. irregular 27.6 26.4 26.5 26.7
REVENUE DEVELOPMENTS 2014–2016 (B)
54
Bud
get P
ropo
sal 2
016
fjarlog.is
Reform of personal income tax (PIT) (two phases) » Number of rates reduced from three to two » Reduced tax burden for all income groups, most for middle groups
Import duties in certain categories repealed » All clothing and shoes in first phase » All other, except food items, in second phase
Tax relief for rental cars repealed in two phases
Taxation of alcohol (revenue neutral in short-term) » Reduced VAT rate; excise raised to offset lost VAT revenue » Simplification for restaurants and improved compliance
Effective tax rate on income from lease of residential housing reduced from 14% to 10%
NEW TAX REFORM PROPOSALS 2016–2017
55
Bud
get P
ropo
sal 2
016
fjarlog.is
TAX REFORMS IMPLEMENTED IN 2016
56
-6 -5 -4 -3 -2 -1 0 1 2
PIT
Import duties
Excise on rental cars
Electricity tax
SSCs
Radio Fee
VAT (tourism)
Excises
Billion kr.
Bud
get P
ropo
sal 2
016
fjarlog.is
NEW TAX REFORM PROPOSALS 2016–2017: REVENUE IMPACT IN 2016–2019
57
Accrual basis, b.kr. 2016 2017 2018 2019
PIT -5.5 -11.0 -11.0 -11.0
Import duties -2.5 -5.7 -5.9 -6.1
Excises on rental cars 0.6 2.5 2.5 2.5
Capital income tax on lease income . -0.4 -0.4 -0.4
VAT (taxis) . 0.1 0.1 0.1
Taxation of alcohol . . . .
Total -7.4 -14.5 -14.7 -14.9
Bud
get P
ropo
sal 2
016
fjarlog.is
TAX REFORM SINCE 2013: REVENUE IMPACT IN 2016–2019
58
Billion kr. 2015 2016 2017 2018 2019
Tax reform since autumn 2013
Tax reform in Parliament 2013/2014 ............... 21,4 12,5 11,8 -11,5 -10,8thereof bank tax .......................................... 32,1 25,7 26,0 3,1 3,3
Tax reform in Parliament 2014/2015 .............. -4,8 -4,7 -4,3 -4,6 -5,0Tax reform in budget proposal for 2016 .......... . -7,4 -14,5 -14,7 -14,9Tax reform, total ................................ 16,7 0,4 -7,0 -30,8 -30,7
thereof bank tax ............................. 32,1 25,7 26,0 3,1 3,3thereof other than bank tax ............... -15,4 -25,3 -33,0 -33,9 -34,0
Earlier measuresTemporary provisions expire .......................... -8,4 -10,8 -10,8 -10,8 -10,6Tax reform and earlier measures ............. 8,3 -10,5 -17,7 -41,5 -41,3
thereof other than bank tax ............... -23,8 -36,2 -43,7 -44,6 -44,6
The total revenue impact in each year
Bud
get P
ropo
sal 2
016
fjarlog.is
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Local government Central gov.,first bracket
Special surchargein 1993-2005
Central gov.,second bracket
Central gov.,third bracket
THE PIT RATE STRUCTURE 1988–2015
59
Bud
get P
ropo
sal 2
016
fjarlog.is
PIT REFORM IN 2016 AND 2017
60
2015 2016 2017
Central and local government PIT rates
Central government
Bracket 1 ................................................................ 22.86% 22.68% 22.50%
Bracket 2 (additional) ........................................ 2.44% 1.22% 9.30%
Bracket 3 (additional) ........................................ 6.50% 7.90% -
Total............................................................... 31.80% 31.80% 31.80%
Local government (average rate)........................................ 14.44% 14.44% 14.44%
PIT rate total
Bracket 1 ................................................................ 37.30% 37.12% 36.94%
Bracket 2................................................................ 39.74% 38.34% 46.24%
Bracket 3................................................................ 46.24% 46.24% -
Bracket threshold per month (thous. kr.)
Lower............................................................. 309.1 309.1 -
Upper................................................................ 836.4 770.0 700.0
No change is assumed in the average tax rate for local government PIT which is 14.44% in 2015. Bracket thresholds, currently linked to the wage index, will continue to be indexed in the same way.
Bud
get P
ropo
sal 2
016
fjarlog.is
PIT REFORM: EFFECT ON DISPOSABLE INCOME 2017
61
0
2.000
4.000
6.000
8.000
10.000
12.000
14.000
100 200 300 400 500 600 700 800 900 1000
kr./month
income thous.kr./month
Bud
get P
ropo
sal 2
016
fjarlog.is
PIT BURDEN BEFORE AND AFTER THE REFORM
62
0%
5%
10%
15%
20%
25%
30%
35%
40%
0 100 200 300 400 500 600 700 800 900 1.000 1.100
Tax burden
Income thous.kr./month PIT 2015 PIT 2017
Bud
get P
ropo
sal 2
016
fjarlog.is
MARGINAL PIT RATES BEFORE AND AFTER THE REFORM
63
30%
32%
34%
36%
38%
40%
42%
44%
46%
48%
100 200 300 400 500 600 700 800 900 1000
%
income thous.kr./month PIT 2015 PIT 2017
Bud
get P
ropo
sal 2
016
fjarlog.is
100.000
120.000
140.000
160.000
180.000
200.000
220.000
240.000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Central government Local government
kr./month
TAX EXEMPTION THRESHOLD PER MONTH 2007–2017*
*At fixed 2015 prices. It is assumed that a 4% pension contribution is deducted before tax is calculated.
Bud
get P
ropo
sal 2
016
fjarlog.is
14,42% 14,44% 14,44%
14,44%
14,42% 14,44%
14,44% 14,44% 14,42% 14,44%
14,44% 14,44%
14,42% 14,44% 14,44% 14,44% 14,42% 14,44% 14,44% 14,44%
1,69% 1,65% 1,47% 1,29%
5,38% 5,19% 5,01% 4,83%
13,55% 13,12% 12,51% 11,90%
17,05% 16,60% 15,76% 14,93%
20,45% 20,05% 19,77% 19,72%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2013
2015
2016
2017
2013
2015
2016
2017
2013
2015
2016
2017
2013
2015
2016
2017
2013
2015
2016
2017
Tax burden per month
Local gov. PIT Central gov. PIT
Monthly income: 250.000 300.000 500.000 700.000 1.000.000
PERSONAL INCOME TAX BURDEN AND SHARE OF CENTRAL AND LOCAL GOVERNMENT 2013–2017
65
Bud
get P
ropo
sal 2
016
fjarlog.is
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Central Local
PIT TO CENTRAL AND LOCAL GOVERNMENT 1988–2014
66
Bud
get P
ropo
sal 2
016
fjarlog.is
10,9 (3%)
126,8 (39%)
10,9 (3%) 6,2 (2%)
173,2 (53%)
Tax credit towards payment oflocal government PIT
Central government PIT, net
Child benefits
Interest rebates
Local government PIT
THE PIT SYSTEM IN 2016: NET IMPACT BY LEVEL OF GOVERNMENT (B.KR.)
67
Bud
get P
ropo
sal 2
016
fjarlog.is
0,0
0,2
0,4
0,6
0,8
1,0
1,2
1,4
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
2014 2015 2016 2017
% of tax revenue m.kr.
Food Clothes and shoes Other items % of tax revenue
IMPORT DUTIES: REVENUE COMPOSITION BY TYPE OF GOODS 2014–2017
68
Bud
get P
ropo
sal 2
016
fjarlog.is
IMPORT DUTIES: SHARE OF TOTAL REVENUE 1990–2019
69
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
%
Bud
get P
ropo
sal 2
016
fjarlog.is
1 January 2016:Clothes and shoes Most common rate is 15%
1 January 2017: All goods except food Rates in the range 7.5% – 15%
IMPORT DUTIES REPEALED FROM CERTAIN GOODS
70
Clothes – examples: - Pants - Jackets - Shirts - Sportswear - Sports shoes - Lingerie
Other goods – examples: - School bags - Household appliances, white and brown - Fishing and hunting gear - Cleaning and cosmetics - Kitchenware - Baby prams and strollers - Goods for pets (not food) - Car spare parts
Bud
get P
ropo
sal 2
016
fjarlog.is
EXCISE ON MOTOR VEHICLES: RELIEF FOR RENTAL CARS (A)
71
Car rental companies have since 2000 benefited from a reduced excise duty on rental cars – with a cap per car since 2011
The relief will be reduced in 2016 and fully repealed in 2017
The revenue yield is estimated 0.6 billion in 2016 and 2.5 billion in 2017 (side effect on VAT included)
The original argument for this relief is no longer relevant; the market for car rentals has changed dramatically
In 2011 the excise was reformed into a CO2-based tax
The cap amount was reduced in 2015 with a „promise“ to further reduce it
Bud
get P
ropo
sal 2
016
fjarlog.is
0%
5%
10%
15%
20%
25%
30%
35%
40%
Taxes on incomeand profit
SSCs VAT Other on goodsand services
Other taxes
share of total tax revenue
2007 2013 2016
72
* Irregular items are excluded.
COMPOSITION OF TAX REVENUE IN 2007, 2013 AND 2016*
Bud
get P
ropo
sal 2
016
fjarlog.is
6,0
6,5
7,0
7,5
8,0
8,5
9,0
9,5
10,0
10,5
11,0
11,5
12,0
26
27
28
29
30
31
32
33
34
35
36
37
38
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
% of GDP % of tax revenue
% of tax revenue (left-hand axis) % of GDP (right-hand axis)
REVENUE FROM VAT 1998–2016
73
Bud
get P
ropo
sal 2
016
fjarlog.is
37,6% 40,7% 38,0% 34,8% 34,3% 33,8% 35,9% 37,0% 37,8% 38,3%
10,1% 10,6% 12,6% 16,0% 15,8% 14,9% 15,0% 13,4% 14,1% 14,5%
2,9% 1,8% 1,4% 2,3% 2,5% 3,2% 3,1% 2,9% 1,2% 1,2%
49,0% 46,3% 46,4% 45,4% 46,0% 46,2% 43,8% 39,5% 40,4% 40,9%
0,4% 0,5% 1,6% 1,4% 1,5% 1,9% 2,2% 7,3% 6,5% 5,1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Taxes on income and profit Taxes on labour/payroll Taxes on goods and servicesProperty taxes Other taxes
TAX REVENUE COMPOSITION 2007–2016
74
BUD
GET
PRO
POSA
L 20
16
EXPENDITURE SIDE
5.
Bud
get P
ropo
sal 2
016
fjarlog.is
BUDGET FRAMEWORK 2016-2019
76
ISK bn.Estimate
2016Estimate
2017Estimate
2018Estimate
2019
Total expenditures 681,0 689,2 714,7 739,6
Irregular itemsPension liabilities 12,4 13,9 14,4 14,9Capital gains tax 5,0 4,6 5,0 4,9Tax write-offs 13,0 13,8 14,1 15,0Unemployment 13,3 13,9 14,3 14,8Municipal Equalisation Fund 19,4 20,4 21,0 22,0State guarantees 0,0 0,0 0,0 0,0Write-offs of outstanding claims 0,1 0,1 0,1 0,1Contributions to HFF 1,3 0,0 0,0 0,0Amortization of indexed mortgages 15,5 0,0 0,0 0,0Interest expenditures 74,4 68,4 68,7 62,9
Total irregular items 154,4 135,1 137,6 134,7
Expenditure frame 526,6 554,1 577,2 604,9
Bud
get P
ropo
sal 2
016
fjarlog.is
BUDGET FRAMES FOR MINISTRIES 2016*
77
ISK bn.Budget2015
Proposal2016
ch. ISK bn.
ch.%
Budget framesThe Presidency, Althingi and Supreme Court............... 4,3 4,4 0,1 2,7Office of the Prime Minister.......................................... 3,1 3,3 0,2 6,4Ministry of Education, Science and Culture.................. 72,9 75,1 2,2 3,0Ministry for Foreign Affairs**...................................... 11,5 12,7 1,2 10,3Ministry of Industries and Innovation.......................... 30,6 31,4 0,8 2,8Ministry of the Interior**............................................. 58,1 59,5 1,3 2,3Ministry of Welfare....................................................... 253,6 262,4 8,8 3,5Ministry of Finance and Economic Affairs................... 41,4 41,3 -0,1 -0,1Ministry for the Environment and Natural Resources.. 10,1 10,1 0,1 0,8Total, excl. irregular items........................................ 485,6 500,2 14,6 3,0
Interest expenditures...................................................... 82,5 74,4 -8,1 -9,8Other irregular items...................................................... 82,0 77,4 -4,6 -5,7Total irregular items.................................................. 164,5 151,8 -12,7 -7,7
Total, incl. irregular items......................................... 650,1 652,0 1,9 0,3
*excluding wage- and price changes in the 2016 budget proposal ** in the budget proposal a ISK 0.8 bn. are transferred from Ministry of Interior to the Ministry of Foreign Affairs in line with transfer of defense-related tasks between ministries.
Bud
get P
ropo
sal 2
016
fjarlog.is
EXPENDITURE CHANGES FROM 2015 BUDGET
78
650,1
681,0 -1,6 12,4
-0,8
29,0
-8,1
620,0
630,0
640,0
650,0
660,0
670,0
680,0
690,0
700,0
Budget2015
Net ch. inexp. obl.
New andincreased
expenditures
Restraintmeasures
Wage-, price-and exchange
rate ch.
Interestexpenditure
Budgetproposal
2016
ISK bn.
Bud
get P
ropo
sal 2
016
fjarlog.is
NEW AND INCREASED EXPENDITURES
79
ISK bn.
Housing affairs – social housing and increased support to tenants
2.6
Increased contribution to Iceland Research Fund and Technology Development Fund
2.0
Increased contribution to various health care items 1.6
Building of recuperation residence and first phase in designing new treatment center for the National hospital
0.9
Increased contribution to education, such as project on strengthening literacy among children
0.5
Establishment of a new regional prosecutors office 0.5
Other 4.3
Total 12,4 *changes from 2015 budget
Bud
get P
ropo
sal 2
016
fjarlog.is
NET CHANGES IN EXPENDITURE OBLIGATIONS IN BUDGET PROPOSAL 2016
80
ISK bn.
Health insurance - excess expenditure in 2015, real growth and contractual expenditures.
2.7
Old age and disability insurance and welfare support payments – real growth 1.8
Government employee‘s pension fund liabilities 1.5
Expenditures financed with earmarked revenues 1.1
Contingency fund - increase due to nominal increase in turnover 1.0
Eliminated temporary contributions -8.2
Household debt relief program - revaluation of capital requirement in relation to settlement with financial institutions
-2.9
HFF - lowering of precautionary contribution -2.0
Interest cost rebate – lower expenditure due to lower debt and increased household income
-1.5
Other -3.6
Total -1.6 *changes from 2015 budget
Bud
get P
ropo
sal 2
016
fjarlog.is
» Wage assumptions: 1. Reassessment of the wage assumptions in the 2015 budget, which come
in full effect on the Treasury’s wage cost on annual basis in 2016. • Based on collective agreements and the offer that the Treasury’s
negotiation committee have offered in the ongoing negotiations. • Weighted average wage increase for 2016 is 8.6%.
2. Wage increases in 2016.
• Based on collective agreements and the offer that the Treasury’s negotiation committee have offered in the ongoing negotiations.
• The wage assumption for 2016 is 5.5% wage increase which is the same increase as the increase in salary scales in the private sector in 2016. It is assumed that the increase will take effect on June 1st next year.
• Weighted average wage increase for 2016 is 3.6% but when including an unallocated wage pot it is estimated that the increase will be 4.1% in 2016.
» Cumulative effects on the Treasury's wage bill is 13.1% in 2016 but 15.1% permanently when taking into account the impact of wage increases in 2016 on annual basis.
WAGE AND PRICE ASSUMPTIONS
81
Bud
get P
ropo
sal 2
016
fjarlog.is
» Wage assumptions: • In the budget proposal it has not been taken into account the outcome of
the arbitration panel last August since the figures for the budget proposal were finalized in June.
• It is expected that the wage assumptions in the proposal will be revaluated before finalizing the budget in December.
» Unemployment benefits and social security benefits: • It is expected that the benefits will be raised by 9.4% from January 1st
2016.
• The raise takes into account the Statistics Iceland forecast of the wage index less wage drift, i.e. average salary scales both this year and next.
WAGE AND PRICE ASSUMPTIONS
82
Bud
get P
ropo
sal 2
016
fjarlog.is
» General price assumption: • The general price assumption in the proposal is 3.79%.
• Taking into account the forecast of 4.5% increase in inflation between
2015 and 2016 but on the other hand adjusted for overestimation of the inflation in current year. The forecast for inflation between 2014 and 2015 is now 2% but the premises in the 2015 budget were 2.7%.
» Exchange rate assumptions:
• Based on average exchange rate in June 2015.
• Similar rates as for the first six months of 2015.
• The exchange rate of the US dollar and the British pound has risen but the exchange rate for euro has decreased.
WAGE AND PRICE ASSUMPTIONS
83
Bud
get P
ropo
sal 2
016
fjarlog.is
» Projected wage and price changes in the proposal are higher than ever in nominal terms or ISK 29 bn.
» Thereof ISK 8.6 bn. are effects on annual basis by wage agreements that were made in 2014 and in the beginning of 2015 along with projection of wage increases for those unions that have not been negotiated with.
» In the budget proposal it as assumed that average wage increases of public employees will be similar to those of the private market and not taking into account the effects of the decision of the arbitration panel last August since the figures for the proposal had been finalized.
» In addition, wage and price changes for 2016 are estimated to be ISK 20.4 bn.
WAGE AND PRICE CHANGES IN 2015 AND 2016
84
Bud
get P
ropo
sal 2
016
fjarlog.is
EXPENDITURES BY ECONOMIC FUNCTION*
85
4
6
9
12
19
19
27
28
30
36
63
74
147
160
0 20 40 60 80 100 120 140 160 180 200
Fuel and energy
Mining, manufacturing and construction
Housing and community amenities
Other industries
Recreation, culture, and religion
Agriculture, forestry, fishing, and hunting
Public order and safety
Transportation and communication
Expenditures not classified by major group
General public services
Education
Interest expenditure
Social security and welfare services
Health services
ISK bn.
25.2%
23.2% 11.7%
9.9%
*Irregular items other than interest expenditure are excluded Economic function according to COFOG (Classification of the Functions of Government)
Bud
get P
ropo
sal 2
016
fjarlog.is
» Primary expenditure is estimated ISK 606.6 bn. in 2015 and increases by ISK 39 bn. from the 2015 budget in nominal prices (1.7% of GDP)
» Total expenditure is expected to be ISK 681 bn. and increases by ISK 30.9 bn. from 2015 budget (1.3% of GDP)
» » Excluding projected wage and price changes in 2016, the
primary expenditure will increase by ISK 10 bn. (0.4% of GDP) and the total expenditures will increase by ISK 1.9 bn. (0.1% of GDP)
MAIN EXPENDITURE CHANGES FROM 2015 BUDGET
86
Bud
get P
ropo
sal 2
016
fjarlog.is
» Primary expenditures are estimated ISK 607 bn. and increase by ISK 4 mia.kr. from the estimate for 2015 in nominal prices
» Total expenditure are expected to be ISK 681 bn. and increase by ISK 1.6 bn. from the 2015 estimate.
» Including projected wage and price changes in 2015 the primary expenditure will increase by ISK 24.4 bn. and the total expenditures will increase ISK 22 bn.
MAIN EXPENDITURE CHANGES FROM 2015 ESTIMATE
87
Bud
get P
ropo
sal 2
016
fjarlog.is
DECREASE IN TOTAL EXPENDITURE*
88
26,1
27,9
33,5
31,0 30,1 29,9
29,3 28,9
27,8 27,2
26,4 25,7
25,3
20,0
22,0
24,0
26,0
28,0
30,0
32,0
34,0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
% of GDP
* Excluding irregular items Adjusted for the transfer of services for disabled people from the state to local governments
Bud
get P
ropo
sal 2
016
fjarlog.is
TREASURY’S INTEREST EXPENDITURE 2007-2019
89
22
35
84
68 66
76 74 79 77 74
68 69 63
0,0
1,0
2,0
3,0
4,0
5,0
6,0
0
10
20
30
40
50
60
70
80
90
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
% of GDP ISK bn.
Interest expenditure, ISK bn. (l.axis) Interest expenditure, % of GDP (r.axis)
Bud
get P
ropo
sal 2
016
fjarlog.is
MODERATE GROWTH IN PRIMARY EXPENDITURE*
90
569
599 612
574 569
552 552 554 554 560 568 574
583
400
450
500
550
600
650
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
ISK bn., 2016 prices
* in 2016 prices excluding irregular items Adjusted for the transfer of the services for disabled people from the state to local governments
Bud
get P
ropo
sal 2
016
fjarlog.is
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
% of GDP
Current expenditure Current expenditure - average 1998-2007
TREASURY’S CURRENT EXPENDITURE 1998-2019*
91
* excluding irregular items
Bud
get P
ropo
sal 2
016
fjarlog.is
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
% of GDP
Transfer payments Transfer payments - average 1998-2007
TREASURY’S TRANSFER PAYMENTS 1998-2019*
92
*excluding irregular items and unemployment benefits
Bud
get P
ropo
sal 2
016
fjarlog.is
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
% of GDP
Maintenance and capial expenditure Maintenance and capial expenditure - average 1998-2007
TREASURY’S MAINTENANCE AND CAPITAL EXPENDITURE 1998-2019*
93
* excluding irregular items
BUD
GET
PRO
POSA
L 20
16
FUNDING AND DEBT MANAGEMENT
6.
Bud
get P
ropo
sal 2
016
fjarlog.is
• Estimated Treasury revenues arising from the execution of the liberalization strategy amounts to ISK 450-850 bn.
• The funds that will accrue will firstly be used to offset the
special tax on financial institutions ISK 40 bn.
• Other funds will be used to reduce public debt
• Steps will be thoroughly estimated as time progresses as decisions shall not risk economic or financial stability
STRATEGY ON CAPITAL ACCOUNT LIBERALIZATION
95
Bud
get P
ropo
sal 2
016
fjarlog.is
• The effects of the tax are clear • More uncertainty is around the stability conditions and
possible outcome of the multi product auction
• In the fiscal plan it is expected to use the first part of the possible revenues to pay down the CB bond
• No other effects are taken into account
• More clarity is expected before the budget for 2016 is
finalized
STABILITY CONDITIONS / STABILITY TAX
96
Bud
get P
ropo
sal 2
016
fjarlog.is
• Good progress have been made in debt management
• Polish loan was pre-paid in May – ISK 7.5 bn.
• Avens loan was paid up in July – ISK 28 bn.
• 50% of bond issuance in USD from 2011 was bought back this year – ISK 67 bn.
• These measures reduces debt-to-GDP ratio by ca. 5%
FUNDING AND DEBT MANAGEMENT
97
Bud
get P
ropo
sal 2
016
fjarlog.is
• Lower debt levels along with the strategy on lifting capital controls have had positive effects on ratings
• All of the major rating agencies, Moody´s, S&P and Fitch
upgraded Iceland by one notch this summer
• Successful liberalization of the capital controls will most likely result in further positive rating developments
• Improved rating Lowered funding cost
• Lowered funding cost Improved overall balance
FUNDING AND DEBT MANAGEMENT
98
Bud
get P
ropo
sal 2
016
fjarlog.is
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
90,0
100,0
-1.000
-500
0
500
1.000
1.500
2.000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
% of GDP ISK bn.
Gross debt. (l.ax.) Net financial position (l.ax.) Debt-to-GDP.(r.ax.)
GROSS DEBT AND NET FINANCIAL POSITION
99
Bud
get P
ropo
sal 2
016
fjarlog.is 100
Accumulated funding of fiscal
deficit ISK 360 bn.
Foreign reserve loans ISK 304 bn. Recapitalization of
financial institutions ISK 142 bn.
Sales proceeds of Landsbanki ISK 71 bn.
Recapitalization of Central Bank ISK 145
bn.
Other debt ISK 371 bn.
ISK 1.177 bn. ISK 216 bn.
* Total debt is estimated at ISK 1.177 bn. at year-end 2016
REDUCTION OF TOTAL DEBT*
Bud
get P
ropo
sal 2
016
fjarlog.is
• Further debt reduction is forecasted in 2016
• Sale of 30% of Treasury´s stake in Landsbanki will be sold and proceeds used to pay down related debt ( RIKH 18)
• Central Bank bond will be paid up in first half of 2016
• The first part of stability contribution / tax will be used for that
• Debt-to-GDP is estimated at 50% at year end 2016
FUNDING AND DEBT MANAGEMENT
101
Bud
get P
ropo
sal 2
016
fjarlog.is 102
Accumulated budget deficit
ISK 360 bn.
Foreign reserve loans
ISK 304 bn.
Recapitalization of financial institutions ISK 142 bn.
Other debt ISK 371 bn.
ISK 1.177 bn.
DEBT COMPOSTION AFTER MEASURES TAKEN*
* Estimated composition year-end 2016
Bud
get P
ropo
sal 2
016
fjarlog.is
• Lower interest expense improves the interest balance, interest income is more stable
• Interest balance is assumed to be negative by ISK 59 bn. or 2.7% of GDP at the end of 2015
• Forecasts assume rising interest rates, higher inflation and depreciation of the krona
• Interest balance deficit is projected at 2.1% of GDP at the end of 2017
• Further improvement is expected and in 2018 the interest balance deficit is forecasted at 1.9% of GDP and 1.6% of GDP at year-end 2019
INTEREST BALANCE
103
Bud
get P
ropo
sal 2
016
fjarlog.is
INTEREST BALANCE 2009 - 2019
104
-80,0
-60,0
-40,0
-20,0
0,0
20,0
40,0
60,0
80,0
100,0
120,0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
ISk bn.
Interest expense Interest revenues Interst balance
Bud
get P
ropo
sal 2
016
fjarlog.is
• Interest expense will be reduced in the next few years
• Interest expense in 2019 are around ISK 16 bn. lower than in 2014
• Pre-payment of debt and refinancing contribute to the
majority of the reduction in interest expense
• Diminishing domestic issuance also contributes to lower expenses
INTEREST EXPENDITURE
105
Bud
get P
ropo
sal 2
016
fjarlog.is
TREASURY’S INTEREST EXPENDITURE 2007-2019
106
22
35
84
68 66
76 74 79 77 74
68 69 63
0,0
1,0
2,0
3,0
4,0
5,0
6,0
0
10
20
30
40
50
60
70
80
90
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
% of GDP ISK bn.
Interest expenditure, ISK bn. (l.axis) Interest expenditure, % of GDP (r.axis)
Bud
get P
ropo
sal 2
016
fjarlog.is
• Interest revenues are interests from tax revenues, loans and deposits
• Interest revenues decreases because of pre-payment of Polish loan as well as Arion banki’s payment on part of the subordinated loan Treasury granted
• Lower interest revenues are expected in relation to lower levels of deposits but is partly offset by higher policy rates
• Interest revenues are fairly stable during the forecast period
INTEREST REVENUES
107
Bud
get P
ropo
sal 2
016
fjarlog.is
» Medium Term Debt Management strategy describes the objectives of DM and guidelines followed and is reviewed and updated annually
» The main objective is to ensure that financial needs and obligations are met with lowest possible cost that is consistent with a prudent risk policy
» Efforts are made to have the maturity profile of securities issued as even as possible
» The strategy is intended to encourage further development of efficient primary and secondary markets for domestic bonds
» Principal guidelines relates to the maturity profile, benchmark series, degree of refinancing and maturity
DOMESTIC DEBT MANAGEMENT STRATEGY
108
Bud
get P
ropo
sal 2
016
fjarlog.is
REDEMPTION PROFILE – DOMESTIC DEBT
0
50.000
100.000
150.000
200.000
250.000
300.000ISK million
Govenment bonds Recapitalisation of financial institutions
Recapitalisation of the Central Bank Government guarantees
Other domestic loans
Bud
get P
ropo
sal 2
016
fjarlog.is
» Treasury borrows in foreign currencies primarily to strengthen the CB´s foreign reserves
» The strategy aims at maintaining access to international capital markets
» Enhance the name recognition of the Republic as an issuer and appeal to a diverse group of investors
» Regular issuance of securities in foreign markets is intended » Issuance of the Treasury lays the foundation for the access of
domestic banks and firms to international capital markets » The necessity for international issuance is always carefully
evaluated
FOREIGN DEBT MANAGEMENT STRATEGY
110
Bud
get P
ropo
sal 2
016
fjarlog.is
REDEMPTION PROFILE – FOREIGN DEBT
0
20.000
40.000
60.000
80.000
100.000
120.000
140.000
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
ISk million
Currency reserve loans Other foreign loans
BUD
GET
PRO
POSA
L 20
16
ICELAND IN AN INTERNATIONAL COMPARISON
7.
Bud
get P
ropo
sal 2
016
fjarlog.is
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
6,0
GDP growth %
2014 2015 proj.
Source: IMF and Statistics Iceland
ECONOMIC GROWTH IN 2014 AND FORECAST FOR 2015
113
Bud
get P
ropo
sal 2
016
fjarlog.is
ECONOMIC GROWTH 2008-2015
114
-8
-6
-4
-2
0
2
4
6
2008 2009 2010 2011 2012 2013 2014 2015
GDP growth %
France Germany Iceland Netherlands Spain UK
Source: IMF
Bud
get P
ropo
sal 2
016
fjarlog.is
0
5
10
15
20
25
30
ICE CAN NET OECD SWE FIN POL FRA EU EUR IRL ITA SPA GRE
%
UNEMPLOYMENT IN OECD COUNTRIES 3Q2015
115
Source: OECD
Bud
get P
ropo
sal 2
016
fjarlog.is
LONG TERM UNEMPLOYMENT IN 2013
116
Source: OECD, september 2015
0%
10%
20%
30%
40%
50%
60%
70%
Mex
ico
Nor
way
Cana
daSw
eden
Aus
tral
iaFi
nlan
dIc
elan
dTu
rkey
Aus
tria
Den
mar
kU
SALu
xem
burg
Russ
iaSw
itzer
land
OEC
DN
ethe
rland
sU
KPo
land
Fran
ceJa
pan
Lith
uani
aEs
toni
aG
erm
any
Czec
h re
p.Ru
men
iaBe
lgiu
m EULa
tvia
Spai
nH
unga
rySl
oven
iaPo
rtug
alIta
lyIre
land
Croa
tiaSl
ovak
rep.
Gre
ece
% of unemployed
Bud
get P
ropo
sal 2
016
fjarlog.is
-2
-1
0
1
2
3%
INFLATION IN 2015 IN OECD COUNTRIES
117
Source: OECD ,August 2015
Bud
get P
ropo
sal 2
016
fjarlog.is
GENERAL GOVERNMENT DEBT AND FINANCES OF A FEW EUROPEAN COUNTRIES IN 2014, % OF GDP
118
Source: OECD, September 2015
0
20
40
60
80
100
120
140
160
180
200
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3
Gen
eral
gov
ernm
ent d
ebt (
% o
f GD
P)
General government balance (% af GDP)
Masstricht criteria
Cyprus
Greece
Iceland
UK
Denmark
Portugal Italy
Estonia
Bud
get P
ropo
sal 2
016
fjarlog.is
REAL EFFECTIVE EXCHANGE RATE 1994 -2014: COMPARISON WITH OTHER COUNTRIES
119
Source: Eurostat, September 2015
60
80
100
120
140
160
180
EUR Denmark Finland Sweden Iceland Norway USA
Bud
get P
ropo
sal 2
016
fjarlog.is
NATIONAL SAVINGS 1980-2020
120
Source: IMF, september 2015
0
5
10
15
20
25
30
35
40
45
% of GDP
Denmark Finland Iceland Norway Sweden UK
Bud
get P
ropo
sal 2
016
fjarlog.is
PRIMARY BALANCE – EU AND ICELAND 2014
121
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
Cypr
us UK
Finl
and
Spai
nCr
oatia
Bulg
aria
Slov
enia
Fran
ceSw
eden
Pola
ndSl
ovak
rep.
Net
herla
nds
Czec
h re
p. EUIre
land
Aus
tria
Belg
ium
Latv
iaPo
rtug
alRu
men
iaG
reec
eLu
xem
burg
Esto
nia
Mal
taLi
thua
nia
Hun
gary
Italy
Den
mar
kG
erm
any
Icel
and
% of GDP
Source: Eurostat
Bud
get P
ropo
sal 2
016
fjarlog.is
GENERAL GOVERNMENT DEBT* – EU AND ICELAND 2014
122
0
20
40
60
80
100
120
140
160
180
200
Gre
ece
Italy
Port
ugal
Spai
n
Fran
ce EU UK
Icel
and
Ger
man
y
Net
herla
nds
Finl
and
Den
mar
k
Swed
en
Nor
way
Luxe
mbu
rg
Esto
nia
% of GDP
* According to the Maastricht criteria
Source: Eurostat
Bud
get P
ropo
sal 2
016
fjarlog.is
INTEREST EXPENTITURE OF THE GENERAL GOVERNMENT – EU AND ICELAND 2014
123
0
2
4
6
8
10
12
Icel
and
Irela
nd
Port
ugal
Italy
Spai
n
Gre
ece
UK
EU
Ger
man
y
Fran
ce
Net
herla
nds
Den
mar
k
Finl
and
Swed
en
Luxe
mbu
rg
Esto
nia
% of GDP
Source: Eurostat
BUD
GET
PRO
POSA
L 20
16
GENERAL GOVERNMENT AND MUNICIPALITIES
8.
Bud
get P
ropo
sal 2
016
fjarlog.is
REVENUES OF MUNICIPALITIES 2014-2019
125
ISK bn.Acc.
2014Proj. 2015
Proj. 2016
Proj. 2017
Proj. 2018
Proj. 2019
Total revenue ............................. 258,1 278,0 301,2 320,3 337,3 356,4Tax revenue ................................ 191,7 208,4 226,7 242,2 255,9 270,4
Tax on revenue and profits ....... 157,9 171,9 187,4 200,4 211,7 223,8Tax on assets ............................ 31,8 34,3 37,0 39,3 41,6 43,8Tax on goods and services ......... 2,0 2,2 2,4 2,5 2,6 2,8
Contributions ............................ 28,9 29,7 31,7 32,4 33,3 35,3O ther revenue ........................... 37,5 39,9 42,8 45,7 48,1 50,7
Revenue from assets .................. 10,3 10,7 11,2 11,8 12,1 12,4Sale of goods and services .......... 26,3 28,3 30,6 32,8 34,8 37,0Other revenue ........................... 0,9 0,9 1,0 1,1 1,1 1,2
Total revenue, % of GDP ........... 12,9 12,8 12,9 12,9 12,8 12,8
Bud
get P
ropo
sal 2
016
fjarlog.is
EXPENDITURES OF MUNICIPALITIES 2014-2019
126
ISK bn.Acc.
2014Proj. 2015
Proj. 2016
Proj. 2017
Proj. 2018
Proj. 2019
Total expenditure ...................... 263,8 281,3 303,2 322,7 340,5 360,4Wages ...................................... 205,7 220,3 238,3 255,1 270,0 286,0Goods and services .................... 7,9 8,1 8,3 8,4 8,6 8,6Interest expenditures ................ 27,7 29,4 31,7 33,6 35,3 37,1Transfers and subsidies .............. 22,4 23,5 24,9 25,7 26,6 28,7
Total expenditure, % of GDP ... 13,2 13,0 13,0 13,0 12,9 12,9
Bud
get P
ropo
sal 2
016
fjarlog.is
FINANCIAL BALANCE OF MUNICIPALITIES 1990-2019
127
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Balance % of GDP
Rev., exp. % of GDP
Operating balance (r-axis) Total balance (r-axis) Revenue (l-axis) Expenditure (l-axis)
Bud
get P
ropo
sal 2
016
fjarlog.is
10,8 10,3 10,3 9,8 9,3 8,9 8,6 8,6 8,8 8,0 7,7 7,2 6,8 6,4
-12,1 -12,9 -14,0 -13,7 -12,9 -12,8
-9,9
-12,6 -14,2 -13,9 -13,8 -13,8
-12,8 -12,4
-1,4 -2,6
-3,7 -3,9 -3,6 -3,9
-1,3
-4,0 -5,4 -5,8 -6,1 -6,6 -6,0 -6,0
-18,0
-15,0
-12,0
-9,0
-6,0
-3,0
0,0
3,0
6,0
9,0
12,0
15,0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% of GDP
Financial assets Debt Net financial assets
NET FINANCIAL ASSETS OF A-PART OF MUNICIPALITIES
128
Bud
get P
ropo
sal 2
016
fjarlog.is
GENERAL GOVERNMENT FINANCES 2014-2019
129
% of GDPAcc.
2014Proj. 2015
Proj. 2016
Proj. 2017
Proj. 2018
Proj. 2019
Total revenue .......................... 45,6 43,4 42,2 41,7 40,6 40,6Tax revenue .......................... 35,3 33,4 33,1 32,8 31,8 31,9Social security contribution .... 3,7 3,7 3,7 3,7 3,7 3,7Contributions ......................... 0,1 0,1 0,1 0,1 0,1 0,1Other revenue ........................ 6,6 6,2 5,3 5,1 5,0 4,9
Total expenditure ................... 45,2 43,3 41,8 40,5 39,9 39,0Operating expenditure ........... 44,4 42,7 41,5 40,1 39,4 38,5Investment expenditure ......... 0,8 0,6 0,4 0,4 0,4 0,5
Investment ........................ 2,8 2,4 2,2 2,2 2,1 2,2Depreciation ...................... -2,0 -1,9 -1,8 -1,8 -1,7 -1,7
Total balance ........................... 0,5 0,1 0,3 1,2 0,7 1,5
Bud
get P
ropo
sal 2
016
fjarlog.is
-0,6
0,8 1,3
-0,9 -2,8 -3,1
-0,3
4,4 5,8
4,9
-13,1
-9,7 -9,7
-5,6
-3,7
-1,7
0,5 0,1 0,3 1,2 0,7
1,5
-15,0
-12,0
-9,0
-6,0
-3,0
0,0
3,0
6,0
9,0
30,0
33,0
36,0
39,0
42,0
45,0
48,0
51,0
54,0
57,0
60,0
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Balance % of GDP
Rev., exp. % of GDP
Total balance (r-axis) Revenue (l-axis) Expenditure (l-axis)
GENERAL GOVERNMENT BALANCE 1998-2019
130
BUD
GET
PRO
POSA
L 20
16
FISCAL OUTLOOK – OTHER ASPECTS
9.
Bud
get P
ropo
sal 2
016
fjarlog.is
MAIN WEAKNESSES
132
» Indebted Treasury and significant interest balance deficit
» Expenditures as % of GDP are historically low and are projected to be restrained for the coming years
» Liberalization of capital controls
Bud
get P
ropo
sal 2
016
fjarlog.is
MAIN STRENGTHS
133
» Favorable demographics
» Stable and positive economic prospects in the medium-term
» Considerable assets that partly offset the debts of the Treasury
» Fully funded private pension system
» Renewable natural resources