Government of Iceland Announces Second Phase of Economic Response Package to the COVID-19 Crisis

Worth up to 420m USD, the latest phase of the economic response focuses on support and protections for small enterprises, innovation and vulnerable groups.

• Prioritisation of innovation with increased investments and higher reimbursement for research and development
• Closure subsidies to compensate companies forced to halt their operations for public health reasons
• Immediate support loans for small and medium-sized enterprises (SME)
• Companies to be allowed to carry 2020 losses back to offset 2019 income tax 
• Jobseekers and vulnerable groups to receive dedicated support
• Focus on mental health with remote medical services being strengthened and new campaign against domestic violence
• Multi-faceted support for children – special recreational subsidy for low-income families
• Wage differentials paid to healthcare workers due to COVID-19
• Funds set up to support summer school terms and creation of over 3,000 summer jobs for students in Iceland
• Summer term for students – work, study, and entrepreneurial projects
• Strengthening of food production through innovation and marketing

Support for small companies in operational difficulties; targeted help for students; strengthening of social support; focus on innovation for the future. These are among the highlights of the second phase of Government measures introduced by Prime Minister Katrín Jakobsdóttir, Minister of Finance and Economic Affairs Bjarni Benediktsson, and Minister of Transport and Local Government Sigurður Ingi Jóhannsson in response to the COVID-19 pandemic.

"In recent weeks and months, Icelanders have shown solidarity, resilience and flexibility in the face of this unprecedented pandemic. Today's announcement reflects our priorities to protect jobs, embrace our people and look to the future," says Prime Minister Katrín Jakobsdóttir.

Wage Enhancements for Healthcare Workers

Ministers have announced that front-line healthcare workers, who have been under additional strain and are at elevated risk of contagion, will receive a one-off bonus to reflect their service. 

Innovation Prioritised

The Government of Iceland has prioritised sustaining innovation through the pandemic and has today announced measures that will make additional contributions to companies investing in growth, and reimbursement ratios and caps on search and development (R&D) will be increased. Together the measures equal just under ISK 4.5bn and there is an aim is to expediate reimbursements for R&D expenses in 2019.

Iceland’s food production sector is set to receive further support and funding for the arts will be increased to allow a further 600 projects to be supported in 2020.

Closed Businesses Offered Subsidies 

Companies forced to halt their operations for public health reasons will be granted closure subsidies of up to ISK 2.4m. In addition, ISK 6m in non-indexed support loans offered at the Central Bank of Iceland’s seven-day term deposit rate (currently 1.75%) is available to these companies.

Total expenditures for these two measures are estimated at just over ISK 30bn. Furthermore, companies will be authorised to carry back up to ISK 20m in foreseeable year-2020 losses to offset income tax on 2019 profits. 

Vulnerable Groups, Job Seekers and Students Supported

The action plan includes a number of social measures to support vulnerable groups, job-seekers, and students.

A total of ISK 2.2bn will be used to create 3,000 temporary summer jobs for students aged 18 and over, and ISK 300m will be used to support innovation among young entrepreneurs through the Icelandic Student Innovation Fund.

ISK 800m will be used to support a summer school term at upper secondary schools and universities, for the benefit of both students and workers on full or partial unemployment benefits.

Measures will also be taken to support vulnerable groups, work against violence, counteract social isolation among the elderly and disabled, support job-seekers, and ensure that children from low-income families have the opportunity to participate in recreational activities. Priority will be given to increased access to mental health services for these groups, and telemedicine (remote medical services) will be strengthened. A total of ISK 8.5bn will be allocated to social measures in this phase.

Media Market and Travel Agencies to be Protected

In order to support pluralism and diversity in Iceland's media, privately owned media operations will be guaranteed special operational support during the current year, reflecting their sustained significant losses at a time when demand for their services has increased.

Travel agencies’ losses will be addressed with statutory amendments authorising them to reimburse certain trips by issuing credit vouchers.

Local Authorities Given Grants and Exemptions

In order to reach local development objectives in Iceland, the Government has proposed the provision of grants to local authorities and temporary authorisation to reimburse VAT on manual labour completed on construction sites.

To strengthen digital services within local authorities, vulnerable areas across the country are currently being identified and mapped.