Prime Minister's Policy Address 2004

Halldór Ásgrímsson, Prime Minister of Iceland
Althingi, October 4, 2004

Mr. Speaker, fellow Icelanders:

This year we have commemorated the centenary of Home Rule, and also the sixtieth anniversary of the establishment of the Republic of Iceland at Þingvellir in 1944.

Looking back, it is easy to be swept along by the optimism and courage of the leaders of the young republic. And the fact is that we have been more successful in building up our society than anyone would have dared to hope at that time.

I have now assumed the duty of delivering the Government’s policy address, after the changes made to the Government on September 15 this year. I would like to use this opportunity to thank Davíð Oddsson, Minister for Foreign Affairs, for his successful leadership of this country’s affairs for more than thirteen years.

At this turning point no changes will be made to the Government’s main objectives, which are presented in the policy statement of the Progressive Party and Independence Party for the entire term of office. Since these parties began their coalition partnership in 1995, Iceland has made enormous advances. There has been steady and continuous growth in real disposable income, unemployment has dropped, the welfare system has strengthened and business has flourished, to name only a few points.

So there is nothing that calls for radical changes. On the contrary, there is reason to continue on the same track.

Although peace has generally prevailed in the labour market in recent years, this speech is delivered in the shadow of a serious teachers’ strike. The school stoppage is a great setback for households. The central government is not a party to this dispute, since the operation and oversight of primary schools is in the hands of the municipal authorities. Central and local government authorities negotiated an agreement on the transfer of primary schooling, and adequate funding was provided for it.

In the past few days the parliamentary opposition has tried to draw the Government into this dispute with the notion that it is the responsibility of the state to resolve the disagreement between parties to these negotiations. Arousing false hopes in this way is an underhand move which serves no one’s interests and may deter the negotiators from shouldering their responsibility.

Recently the central and municipal authorities signed a joint declaration stating their determination to continue strengthening local government. Special consideration will be paid to the municipal authorities and regions whose finances are weak, to identify the causes and recommend improvements. Of course, by no means all local authorities face problems. Where problems exist, however, it is necessary to take action and ensure as far as possible that the municipalities will be sufficiently strong to be able to provide the services that their residents and businesses desire for the future.

We politicians are accustomed to tackling issues and seeing past events in different lights. Likewise, people take different views of the future and the possibilities that it offers.

The present Government’s vision is clear. We want to see more diversity in the Icelandic economy. We want to see that, at the beginning of the next government’s term of office, real disposable income will have grown by 50% since our parties entered into coalition. We want to see Icelandic businesses as strong participants in the global economy. We want to see increased foreign investment in this country. We want to play an increasing role in international cooperation and assume more responsibility. We want diverse education, which will enable us to withstand growing competition and adopt innovations. We want a strong health and welfare safety net for our families and generations to come.

The bottom line of the budget proposal for 2005 is that economic stability will continue, despite the increased level of activity. This is the fruit of the tight fiscal stance that the Government has maintained.

As in previous years, the Treasury budget surplus will be deployed on retiring debt. According to these plans, Treasury debt will have been reduced by one-third from 1998 to 2005, from the equivalent of 41% of GDP to 27½%.

The budget proposal also presents the Government’s fiscal strategy for 2005-2008. This strategy is critical in light of the extensive investments that have been launched [for the aluminium and power sectors] and calls for responsible but flexible economic policies and a firm fiscal stance. At the same time, this strategy is an important precondition for planned tax cuts.

The Government has decided to reduce personal income tax by four percentage points over the next three years, from 25.75% to 21.75%. When the tax cuts have been fully implemented, personal income tax will have been reduced by 8.66 percentage points since 1997. It has also been decided to abolish net wealth tax on private individuals and legal entities. Child allowance will be raised as well. Details of these proposals will be announced in a parliamentary bill shortly. Furthermore, value-added tax will be reviewed. Bearing in mind the economic outlook and scheduling of investments in power-intensive industry, it is assumed that the tax cuts will largely take effect in the second half of this Government’s term of office.

Under the auspices of the Executive Committee on Privatisation, preparations are now being made for the sale of Iceland Telecom, in line with the Government’s policy agreement and the authorisation granted by parliament. Since market conditions are now considered favourable, the Treasury is likely to obtain a fair and normal price for this asset. Work is in progress at the same time on ensuring good telecommunications services for the public and on upgrading the distribution network. The committee recently advertised for a consultant to work on the privatisation of Iceland Telecom. It is aimed to commission the consultant in November this year with the role of working with the committee on further preparations and providing opinions on arrangements for the sale, the amount of shares sold and the scheduling of offerings. Since this work will take some time, the actual sales process and sale are not expected to begin until the first half of next year.

Education is the most vital issue for long-term economic development. Only a handful of other countries devote more funding than Iceland to education.

In the near future secondary schooling reforms will be drawn up, emphasising continuity all the way from preschool to the end of the secondary level, for academic and vocational education alike.

A prerequisite for these plans is the major reforms that have been made in the education system over the past decade. These changes present an opportunity, among other things, to shorten the secondary school level by one year without any relaxation of educational requirements.

Iceland’s universities are flourishing. Courses on offer have reached a record level, and so have the number of university students. This welcome development indicates that the Government’s policy of boosting education and research has already produced significant results. The Student Loan Fund Act is under review and legislation on media ownership is being drawn up at the Ministry of Education, Culture and Science.

This Government emphasises the need for a strong welfare system. In recent years, it has been engaged on reducing waiting lists for housing for the disabled. The number of places at communities for the disabled will increase by 110 from 2001 to 2005, thereby eliminating waiting lists. Another policy will secure satisfactory treatment and housing for the mentally handicapped over the period 2006-2010.

Health care is the pillar of the social services on which there is a broad consensus in the community. Effective health services for everyone in Iceland are the core of the welfare system. These services are open to all, irrespective of their financial position. Patients are always at a disadvantage in society and the consensus on the welfare system is based not least on general willingness to help this group in particular.

We know that lack of exercise and obesity can lead to diabetes, heart disease and other serious ailments. Smoking and alcohol can also have huge consequences later in people’s lives. We urgently need to pay attention to the interaction of lifestyle and disease.

Of course I am not implying that people become ill through their own fault and that people are the masters of their own fate in this respect. Far from it – and no Icelandic government since the establishment of the Republic has allocated as much funding to health care as the present coalition.

The parliamentary opposition and lobbyists accuse the Government of not keeping its promises to the disabled. The fact is that the Government has acknowledged the special status of the youngest group of people with disabilities by doubling their basic benefits. More than one billion krónur were allocated to this task. Not enough, not enough, the opposition says and demands higher contributions, refusing to face up to the sizeable social problem that may be created by a large increase in the number of disabled.

Do people think that a 50% increase in the number of disabled in the space of six years is not felt in the accounts of the Social Security Institute? Do people think that tripling total benefit payments to the disabled over the same period does not appear anywhere in state spending figures? Do people expect the public or the electorate to believe that any other government could have given this group a better deal?

The figures speak for themselves. Tripling total benefit payments to the disabled in the space of six years is more than any other government can boast of.

Seldom, if at all, has the Icelandic economy witnessed more rapid transformation than in recent years. Competition has flourished in many markets where it was once restricted, and overseas expansion of Icelandic businesses has assumed proportions that no one could have predicted.

The Committee on the Icelandic Business Environment has now made its recommendations known. In response to the undesirable effects of cartel formation and other barriers to competition, the committee identifies the need to tighten up supervision of market competition, by such means as more efficient organisation of the competition authorities and higher funding for them. The committee’s proposals on management practices and individual shareholders´ rights aim in particular at greater protection for minority shareholders, improved communication of information and increased shareholder democracy.

These reforms will be addressed on the basis of the committee’s recommendations and the responses to them.

Transport infrastructure projects are now under way on an unparalleled scale. Road tunnels in East Iceland are nearing completion and will greatly enhance transportation. The same is true of the road tunnel to Siglufjörður which will soon enter construction. Converting the main Reykjanes road [SW Iceland] to a dual carriageway is an important project, and it is no less important in the Greater Reykjavík Area to complete plans for the Sundabraut road, which will partly be a private enterprise. Likewise it is obvious that improvements to [Reykjavík’s main] Kringlumýrarbraut and Miklabraut intersection are urgently needed. We should regard these important projects as challenges that need to be tackled and resolved, instead of presenting them as conflicting with each other.

Communications have been in the spotlight for the past few weeks and months. The proposed privatisation of Iceland Telecom, rapid technological advances in digital television networks and mergers in the telecommunications and media sector make clear Government policies even more necessary than before. A telecommunications strategy for 2005-2014 is currently being drafted.

As before, the environment will be a priority issue. Implementation of the sustainable development strategy agreed by the Government in 2002 will be reviewed next year and preparations for implementing the Kyoto Protocol in 2008 will continue with a new status assessment in 2005.

Special emphasis will be given to strengthening nature conservation and the national parks, and a national plan will be drawn up for the conservation of biological diversity. Work will continue on the framework plan for utilisation of hydro and geothermal power, focusing on obtaining the best possible data about Icelandic nature.

In the agricultural sector, the Government underlines making Icelandic agriculture more adaptable and strengthening its position to meet increasing competition from abroad and fulfil consumer demands regarding hygienic standards. An effort will be made to ensure the future development of agriculture by enhancing flexibility in the sector, spotlighting education, research and development.

Since the introduction of the quota system, the fisheries sector has undergone a raft of reforms. These have aimed to boost cost efficiency in the sector, and not least to reconcile opposing viewpoints. The most recent reforms, which abolished the fishing day effort quotas, and the introduction of fishing charges, are both decisions which are conducive to establishing a better consensus on the fisheries sector.

One of the cornerstones of the welfare of Icelandic families is security regarding housing. Iceland has a strong tradition of owner-occupancy. The role of the Housing Financing Fund is to provide loans which contribute to security and equality for housing, on manageable terms.

It is a gratifying development that commercial banks, savings banks and pension funds are now offering similar interest rate terms to the Housing Financing Fund. We can also ask ourselves what has prompted them to do so. I make no secret of my view, that the changes ushered in by the new housing legislation are the main factor at work, not forgetting the privatisation of the banks.

The Minister of Social Affairs will introduce a bill into parliament this autumn providing for 90% mortgages up to a specific limit, for all citizens irrespective of where they live in the country.

Last winter the Government approved a proposal by the Minister of Justice to reorganise the Special Unit of the police force and strengthen it over the coming years. Work has been duly under way and extra manpower will be recruited to the Special Unit next year.

Strengthening the Special Unit is consistent with the global pattern. Government authorities need to take wider and more stringent measures now to guarantee the safety of the public at large. Contingency plans for reducing the risk of terrorism require new procedures, for example in protection of air and maritime activities. International crime has spread across the entire world and needs to be challenged. Significant results have been achieved in the battle against drug smuggling to Iceland. However, action is needed to counter attempts at human trafficking and those who take advantage of the desperation of refugees and asylum seekers for their own benefit.

It is no longer particularly newsworthy when Iceland assumes a role of responsibility in the international arena. Chairmanship of the Arctic Council will be passed on to Russia at a ministerial meeting in November. New tasks will be taken on next year during Iceland’s chairmanship of the Baltic Council. Both are evidence of Iceland’s increased capacity for assuming responsibilities in the international arena. Preparations for Iceland’s candidacy for a seat on the UN Security Council are also well on track.

Secure air defences are no less important for Iceland than for any other country. In this respect we continue to rely upon the defence agreement with the US. Planned talks with the US will assess how Iceland can step up its participation in the operation of Keflavík Airport, where civilian air traffic has increased substantially.

Although government policy is an important engine for social progress, it is the interplay of different factors that proves decisive. Private initiative, industriousness, cooperation among different interest groups and faith in the country’s resources are some of these crucial factors. Few people fail to realise how many diverse opportunities there are, and that it is up to us to seize them.

However much has been achieved during the sixty-year history of the Republic of Iceland, our solidarity as a nation will be put to the test even further over the coming decades. Factors at work will be liberalisation, globalisation and revolutionary changes.

The people who were in the vanguard after Iceland won its independence were motivated by ambition and grand designs. Nothing but the best was good enough for Iceland and the Icelanders. Iceland should not be afraid to establish itself in the community of nations, on equal terms, they felt. This attitude could be seen in international affairs, the economy, social affairs and education alike. Yet there was one task that they passed on to coming generations to tackle. That was to review the constitution and determine Iceland’s constitutional framework for the future.

Last summer strong winds swept Icelandic politics. Now that the storm has died down it is important for us to embark on the task that has never been satisfactorily resolved. During the session of parliament that is now entering session, all political parties need to join forces on a review of the constitution. This work will need to ensure that parliament can conduct its legislative duties normally, and also ensure the democratic right of citizens to insist on referenda on crucial issues. The constitutional roles of the President, parliament and Government also need to be clarified.

This is a challenging task and it is vital for those involved in it to take a responsible attitude. We also need to ensure that the democratic mechanisms remain simple and clear, and do not become lost in a jungle of formalities and rules.

In reviewing the constitution we need to bear all this in mind. Only in this way can we remain loyal to the optimistic spirit that characterised the establishment of the Republic sixty years ago and has guided us ever since.

Thank you.