Rising from the Ruins 2

Government actions and their success, February 2009 – August 2009, Part 2.

A year and a half ago, in the wake of the economic collapse, the coalition of the Left-Green Movement and the Social Democratic Alliance took over a demanding task. Not only did it face the challenge of building a new economy from the ruins of the old, it took office in an atmosphere charged with anger and suspicion, not least toward politics. Such a situation was, and perhaps still is, only natural in view of how completely their political leaders - that the public had trusted and repeatedly given their endorsement to govern the country for almost two decades - had failed them. Huge protest demonstrations showed the importance of solidarity and that changes could be made, but at the same time created high expectations of those who took over. As a result, the government's task has not only been to get the economy back on track but also to rebuild confidence, or at least try to eliminate suspicion and restore lost faith.

Increasing credibility

During its term in office, the current government has emphasised responding to the demands for amendments and reform that reverberated through Icelandic society following the collapse. This has been done, for instance, by reinforcing and increasing the credibility of the supervisory bodies which failed, e.g. with a new, professional administration in the Central Bank and the Financial Supervisory Authority. The Office of the Special Prosecutor was strengthened very substantially, and in addition the well-known prosecutor Eva Joly was engaged as advisor. In addition, investigations into tax violations have been boosted and authorisations in this regard broadened, making it possible for instance to freeze assets while an investigation is underway.

Among the first actions taken by the coalition parties was to remove completely all special pension privileges of ministers and parliamentarians – the “shameful pension scheme”. Public sector per diem allowances and hospitality were lowered, and the highest salaries of public administrators were cut back. Last spring the Althingi passed legislation providing for judicial appointments to the Supreme Court and District Courts to be based on professional qualifications, as appointments to these positions have caused much controversy. This puts an end to the tradition of cronyism in judicial appointments by the holders of power, of which there are far too many examples. A bill providing a general code of ethics for all public servants was also adopted, and work is currently underway to set a specific code of ethics for ministers and employees of Government Offices on its basis.

Improving democracy

Demands for increased democracy have also been responded to. A Referendum Act was passed by the Althingi and this autumn there will be elections to a constitutional assembly, entrusted with the task of a complete revision of the Icelandic Constitution. These democratic reforms are actually a year behind schedule due to opposition by the Independence Party prior to the 2009 national elections.

Relief for the country's households

The situation of households faced with a difficult financial and debt situation following the economic collapse has been continually in focus by the government and the Althingi has adopted a large number of measures as a result. Among those actions taken immediately by the government were the expansion of the Domestic Debt Advisory Service, suspension of forced auctions, the adoption of legislation to enable withdrawal of private pension savings, an agreement with financial institutions on co-ordinated debt relief remedies, temporary freezing of foreign-denominated loans, an increase in interest subsidies to taxpayers, the adoption of debt mitigation legislation and penalty interest reduction. Legislation was subsequently adopted on payment smoothing of inflation-indexed loans, and acts on guarantors and on debt mitigation have been improved. The Domestic Debt Advisory Service was changed to the Office of the Debtors' Ombudsman to provide assistance to debtors, remedies for persons holding two properties are in preparation etc. Already almost 100,000 individuals have availed themselves of these services in one way or another to alleviate their financial difficulties. Of course there are many people who feel more needs to be done, but the question here is not a lack of willingness but rather an assessment of how much can be accomplished given the limited room we have to manoeuvre, and not least considering the heavily indebted Treasury. Major actions have been taken as well to deal with corporate debt and straitened financial circumstances, e.g. with adjustment of due dates and increased flexibility in settlement of taxes owed.

Stimulating business and industry

The government has undertaken wide-reaching measures to rebuild the economy and its economic recovery programme is on target, or even exceeding it. More on that in later articles.
Much has been done to ward off unemployment and stimulate business and industry. Firstly, emphasis has been placed on protecting state sector jobs in balancing the budget by finding solutions other than collective redundancies. As the state is the largest employer in Iceland, this emphasis has made a major different in containing unemployment. Large-scale public works projects are getting underway, including the building of a new national hospital, the Búðarháls power plant, doubling of the South Iceland highway, etc. The state and city of Reykjavík decided to continue with the construction of the concert hall and convention centre Harpa, thereby saving the jobs of some 400 workers and providing work for the additional ones involved. The government has greatly boosted funding for maintenance on public buildings. A total of ISK 3,200 million will be devoted to such projects in 2010. Reimbursement of VAT for home maintenance and improvements was raised to 100% and now special tax deductions have been added to provide an additional incentive. To follow up on this the government has collaborated closely with the Federation of Icelandic Industries, the Confederation of Labour and its members, the Confederation of Icelandic Employers, the Federation of Trade and Services and Innovation Iceland on the project “Everyone works”.

Job creation

At the end of 2009, legislation was passed improving the situation of innovative and start-up companies with tax concessions. As a result, the taxation environment in Iceland for such companies is among the best in the world and the effects are already being felt.
An energetic joint marketing campaign was launched to counteract the negative impact of the Eyjafjallajökull eruptions this spring on the travel industry. Thousands of summer jobs were created with special temporary projects, partial unemployment benefits were introduced and wide-ranging actions taken to ensure the active participation of persons seeking employment, since few things are more destructive than forced inactivity. Finally, everything possible has been done to enable the country's educational institutions to accept as many aspiring students as possible trying to make good use of their time to study during the current situation.

Bringing future dividends

Nor should we forget the many and varied improvements carried out by the government during its 18 months in office, despite the difficulties faced. It proves that where there's a will there's usually a way.
First among them is the new income tax system, which protects the lowest-income earners from tax increases and spreads the burden in quite a different and more equitable manner than before. Making the entire country a single taxation district increases efficiency greatly. Mention could also be made of the adoption of a universal marriage law, applying to everyone regardless of sexual orientation, prohibition against purchase of sex services, closure of sex shops, increases to the cost-of-living allowance of student loans, adoption of a clear and ambitious climate strategy, the elimination of the purposeless Icelandic Defence Agency, and numerous other actions. Any claims that the government is not acting are therefore simply unfounded, and anything but the truth. This government has, on the contrary, been especially diligent and has accomplished a lot in an extremely difficult situation.

Steingrímur J. Sigfússon
The author is Minister of Finance in Iceland.

English translation by Keneva Kunz