Download budget proposal 2016 medium-term fiscal plan 2016-2019

BUDGET PROPOSAL 2016
MEDIUM-TERM FISCAL PLAN
2016-2019
September 18th 2015
IRREGULAR ITEMS ON THE REVENUE SIDE
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
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Budget Proposal 2016
» 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.
IRREGULAR ITEMS ON THE EXPENDITURE SIDE
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
3
fjarlog.is
Budget Proposal 2016
» 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.
FISCAL OBJECTIVES AND
PROSPECTS
BUDGET PROPOSAL
2016
1.
SPRING FISCAL PLAN 2016-2019 - MAIN TARGETS
5
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
.
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Budget Proposal 2016
Targets
696.3
Expenditure
Revenue
681.0
Surplus
15.3
6
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bn. kr.
Budget Proposal 2016
TREASURY OVERALL BALANCE 2016
TREASURY PRIMARY BALANCE 2005-2019*
Balance
% of GDP
Revenue, expend.
% of GDP
32.0
8.0
31.0
6.0
4.0
29.0
2.0
28.0
0.0
27.0
26.0
-2.0
25.0
-4.0
24.0
-6.0
23.0
-8.0
22.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Primary balance (L-axis)
Primary revenue (R-axis)
Primary expend. (R-axis)
* excluding irregular items
Adjusted for the transfer of the services for disabled people from the state to local governments.
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fjarlog.is
Budget Proposal 2016
30.0
TREASURY OVERALL BALANCE 2005-2019*
Balance
% of GDP
10.0
34.0
8.0
33.0
6.0
32.0
4.0
31.0
2.0
30.0
0.0
29.0
-2.0
28.0
-4.0
27.0
-6.0
26.0
-8.0
25.0
-10.0
24.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Total balance (l.axis)
Total revenue (r.axis)
Total expenditure (r.axis)
* excluding irregular items
Adjusted for the transfer of the services for disabled people from the state to local governments.
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Budget Proposal 2016
Revenue, expend.
% of GDP
ECONOMIC PROSPECTS
BUDGET PROPOSAL
2016
2.
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
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
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
Fixed capital
Government services
* Economic forecast from Statistic Iceland, June 2015
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Budget Proposal 2016
MAIN ECONOMIC ASSUMPTIONS FOR THE BUDGET
PROSPECTS FOR THE REAL ECONOMY
%
%
25
Forecast
8
20
6
15
4
10
2
5
0
0
-2
-5
-4
-10
-6
-15
2010
2011
fjarlog.is
2013
2014
2015
2016
2017
2018
Private consumption (l-axis)
Public consumption (l-axis)
GDP (l-axis)
Gross fixed capital formation (r-axis)
Source: Statistic Iceland
11
2012
2019
Budget Proposal 2016
10
CONTINUOUS ECONOMIC GROWTH
%
10
Forecast
8
4
2
0
-2
-4
-6
-8
-10
2007
2008
2009
Source: Statistic Iceland
12
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2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Budget Proposal 2016
6
A MORE DIVERSIFIED EXPORT SECTOR
Other services
17%
Agricultural products
1%
Tourism
29%
Aluminium and
Ferrosilicon
21%
Other manufactured
goods and products
9%
Source: Statistic Iceland
13
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Budget Proposal 2016
Marine products
22%
SURGE IN TOURISM
Monthly number of
visitors
200,000
180,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
2007
2008
2009
Source: Icelandic Tourist Board
14
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2010
2011
2012
2013
2014
2015
Budget Proposal 2016
160,000
REAL WAGES HAVE BEEN RISING STEADILY
Index: 2007=100
140
Forecast
120
110
100
90
80
2007
2008
Source: Statistic Iceland
15
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2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Budget Proposal 2016
130
INFLATION HAS BEEN LOW BUT IS RISING
%
14
Forecast
10
8
6
4
2
0
2000
2002
2004
2006
Inflation
Source: Statistic Iceland
16
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2008
2010
2012
2014
Inflation target
2016
2018
Budget Proposal 2016
12
GROSS FIXED CAPITAL FORMATION
% of GDP
40
Forecast
35
25
20
15
10
5
0
1980
1985
Source: Statistic Iceland
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1990
1995
2000
2005
2010
Gross Fixed Capital Formation
GFCF average 1980–2014
Business Sector Investment
BSI average 1980-2014
2015
2019
Budget Proposal 2016
30
PRIVATE CONSUMPTION
%
10
Forecast
8
4
2
0
-2
-4
-6
-8
-10
-12
2007 2008 2009 2010
Source: Statistic Iceland
18
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2011
2012
2013
2014
2015
2016
2017
2018 2019
Budget Proposal 2016
6
BUSINESS SECTOR INVESTMENT
%
30
Forecast
10
0
-10
-20
-30
-40
-50
-60
2007
2008
Source: Statistic Iceland
19
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2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Budget Proposal 2016
20
UNEMPLOYMENT
%
8
Forecast
7
5
4
3
2
1
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Statistic Iceland
20
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Budget Proposal 2016
6
UNEMPLOYMENT BY EDUCATION
%
8.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1991
1993
1995
1997
1999
Secondary education
Source: Statistic Iceland
21
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2001
2003
2005
Primary education
2007
2009
2011
University education
2013
Budget Proposal 2016
7.0
UNEMPLOYMENT BY DURATION
%
8.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2003
2005
<3 months
Source: Statistic Iceland
22
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2007
3 to 5 months
2009
2011
6 to 11 months
2013
Year or longer
Budget Proposal 2016
7.0
PRODUCTIVITY AND TOTAL HOURS WORKED,
BY SECTOR 2009-2014
Financial services
IT and telecom
Manufacturing
Fisheries
Retail and wholesale trade
Public sector, etc.
Tourism
Misc. specialised services
-10
-8
-6
-4
Total hours worked
Source: Central Bank
23
fjarlog.is
-2
0
Productivity
2
4
6
8
10
%
Budget Proposal 2016
Construction
UNIT LABOUR COST
1999=100
220
180
160
140
120
100
80
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Iceland
Germany
OECD
Euro area
USA
Source: Central Bank
24
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Budget Proposal 2016
200
REAL EXCHANGE RATE
140
100
80
60
40
20
0
2000 q1
CPI
2002 q1
Source: Central Bank
25
fjarlog.is
2004 q1
2006 q1
Wages
2008 q1
2010 q1
2012 q1
2014 q1
Budget Proposal 2016
120
BALANCE OF TRADE IN GOODS AND SERVICES
b.kr.
80,000
40,000
20,000
0
-20,000
-40,000
-60,000
-80,000
1995
1997
Source: Statistic Iceland
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fjarlog.is
1999
2001
2003
2005
2007
2009
2011
2013
2015
Budget Proposal 2016
60,000
TERMS OF TRADE
Index,
2005 = 100
94
Forecast
90
88
86
84
82
80
2008
2009
Source: Central Bank
27
fjarlog.is
2010
2011
2012
2013
2014
2015
2016
2017
Budget Proposal 2016
92
DEBT
% of GDP
500
450
350
300
250
200
150
100
50
0
2004
2005
2006
2007
Corporate
Source: Central Bank
28
fjarlog.is
2008
2009
Household
2010
2011
Public sector
2012
2013
2014
Budget Proposal 2016
400
HOUSEHOLD DEBT
Housing capital
%
140
70
120
60
100
50
80
40
60
30
40
20
20
10
0
0
2007
2008
2009
2010
Household debt, % of GDP (l-axis)
Source: Central Bank
29
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2011
2012
2013
Housing capital (r-axis)
2014
Budget Proposal 2016
Debt
% of GDP
HOUSEHOLD DEBT
%
140
100
80
60
40
20
0
2004
2005
Indexed
Source: Central Bank
30
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2006
2007
Exchange rate-linked
2008
2009
Overdraft
2010
Non-indexed
2011
2012
2013
2014
Asset financing agreements
Budget Proposal 2016
120
FISCAL BALANCE
BUDGET PROPOSAL
2016
3.
FISCAL OUTCOME 2014
» 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
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Budget Proposal 2016
» The Treasury returned a surplus in the fiscal year 2014 for
the first time in 7 years.
» 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
33
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Budget Proposal 2016
ESTIMATED FISCAL OUTCOME 2015
FISCAL OUTLOOK 2016-2019
• 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.
34
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Budget Proposal 2016
» Current fiscal outlook assumes restrained expenditure
growth that will generate a growing surplus in the last
three years of the fiscal plan
TOTAL BALANCE 2010-2019*
INCLUDING AND EXCLUDING IRREGULAR ITEMS
bn. kr.
100
77
63
32
37
42 48
21 21
15
2015
proj.
2016
2017
4
34
48
0
-50
-44
-15
-36
-1
-64
-100
-150
-89
-123
2010
2011
2012
2013
Total balance incl. irregular items
2014
2018
Total balance excl. irregular items
*Balance in 2010 adjusted for the transfer of the services for disabled people from the state to local governments.
35
fjarlog.is
2019
Budget Proposal 2016
43
50
INTEREST BALANCE 2005-2019
bn. kr.
bn. kr.
100
80
80
60
60
40
40
20
20
0
-20
0
-4
3
2
6
-20
-40
-40
-60
-39
-40
-46
-54
-58
-60
-59
-58
-52
-50
-46
-80
-80
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Interest revenue
36
-60
fjarlog.is
Interest expenditure
Interest balance
Budget Proposal 2016
100
PRIMARY BALANCE 2010-2019*
INCLUDING AND EXCLUDING IRREGULAR ITEMS
bn. kr.
150
100
80 80
57 62
95
94100
73
84
122
93
39
50
18
2
0
-25
-50
-100
-43
-85
2010
2011
2012
2013
2014
Primary balance incl. irregular items
2015
proj.
2016
2017
2018
Primary balance excl. irregular items
*Balance in 2010 adjusted for the transfer of the services for disabled people from the state to local governments.
37
fjarlog.is
2019
Budget Proposal 2016
104
92
114
PRIMARY REVENUE AND EXPENDITURE 2005-2019*
% of GDP
34
30
28
26
24
22
20
2005
2006
2007
2008
2009
2010
2011
Primary revenue
* Excluding irregular items
38
fjarlog.is
2012
2013
2014
2015
2016
Primary expenditure
2017
2018
2019
Budget Proposal 2016
32
REVENUE SIDE
BUDGET PROPOSAL
2016
4.
REVENUE ASSUMPTIONS 2016–2019
» 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
40
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Budget Proposal 2016
 Macroeconomic assumptions
REVISED REVENUE ESTIMATE FOR 2015 (A)
b.kr.
685
+17,7
–1,1
Dividend,
interest
receipts
Other,
net
680
680.1
670
+4,8
665
+5,0
660
655
653.7
650
645
640
Budget
2015
41
fjarlog.is
General
revision:
taxes on labour
General
revision:
other taxes
Revised
estimate
2015
Budget Proposal 2016
675
REVISED REVENUE ESTIMATE FOR 2015 (B)
B.kr.
Change
accrual
cash
accrual
cash
accrual
cash
600,1
578,3
614,3
597,3
14,2
19,1
222,2
211,4
238,0
231,8
15,8
20,4
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
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
653,7
630,2
680,1
663,1
26,4
32,9
Tax revenue incl. SSCs
Taxes on income and profits
Social security contributions (SSCs)
Taxes on goods and services
Total revenue
42
Revised
fjarlog.is
Budget Proposal 2016
Budget
 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
43
fjarlog.is
Budget Proposal 2016
REVENUE ESTIMATE 2016–2019: MAIN RESULTS
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
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
% of GDP
Total revenue
1. Irregular items are not excluded.
44
fjarlog.is
Budget Proposal 2016
REVENUE ESTIMATE 2015–2019: OVERVIEW (A)
REVENUE ESTIMATE 2015–2019: OVERVIEW (B)
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
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
% of GDP
Total revenue
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.
45
fjarlog.is
Budget Proposal 2016
Excl. irregular items (broadly defined)1
TREASURY TAX REVENUE 2013–2019
% of GDP
30.5
30.0
29.0
28.5
28.0
27.5
27.0
26.5
26.0
46
fjarlog.is
2013
2014
2015
2016
Total
Excl. irregular (narrowly defined)
2017
2018
2019
Excl. irregular (broadly defined)
Budget Proposal 2016
29.5
TREASURY REVENUE 2001–2019*
% of GDP
34
33
31
30
29
28
27
26
25
24
23
2001
2003
2005
2007
Total revenue
* Excluding irregular items.
47
fjarlog.is
2009
2011
2013
Primary revenue
2015
2017
Tax revenue
2019
Budget Proposal 2016
32
TREASURY TAX REVENUE 2001–2019
% of GDP
32
31
29
28
27
26
25
24
23
2001
2003
2005
2007
2009
2011
2013
Tax revenue excl. irregular items (broadly defined)
48
fjarlog.is
2015
2017
Tax revenue
2019
Budget Proposal 2016
30
TREASURY TOTAL REVENUE 2008–2019
% of GDP
35
33
32
31
30
29
28
27
2008
Total
49
fjarlog.is
2010
2012
2014
Excl. narrowly defined irregular items
2016
2018
Excl. broadly defined irregular items
Budget Proposal 2016
34
REVENUE ESTIMATE OF BUDGET PROPOSAL 2016:
CHANGE FROM AUTUMN 2014
b.kr.
720
+51.6
–7.1
–3.3
–2.5
700
696.3
690
680
670
665.1
660
650
Autumn
2014
50
fjarlog.is
General
revision
Tax
reform
2015
Tax
reform
2016
Interest
receipts,
dividends
Other,
net
Budget
proposal
Budget Proposal 2016
–7.4
710
BUDGET PROPOSAL REVENUE ESTIMATE:
NOMINAL CHANGE BETWEEN 2015 AND 2016
b.kr.
740
+27.9
+3.0
–10.9
730
–22.6
720
710
+25.0
700
696.3
690
680
680.1
670
Revised
estimate
2015
51
fjarlog.is
General
revision:
taxes on
labour
General
revision:
other
taxes
Other,
net
Tax
reform
2016
Bank
tax
Interest
receipts
dividends
Budget
proposal
2016
Budget Proposal 2016
–6.3
BUDGET PROPOSAL REVENUE ESTIMATE 2016:
BREAKDOWN RANKED BY SIZE
Asset sales
Other taxes
Per capita PIT
Property taxes
Budget Proposal 2016
Payroll taxes
Fishing Levy
Other revenue
Dividends
Interest receipts
Bank tax
Capital income tax
CIT
Other indirect taxes
SSCs
PIT
VAT
0
52
fjarlog.is
20
40
60
80
100
120
140
160
180
Billion kr.
Budget
Revised
budget
Budget
proposal
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
78.2
38.6
57.5
25.0
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
Billion kr.
Irregular items
thereof tax items
53
fjarlog.is
Treasury
Account
Budget Proposal 2016
REVENUE DEVELOPMENTS 2014–2016 (A)
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
3.9
1.8
2.7
1.1
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
Irregular items
thereof tax items
54
fjarlog.is
Budget Proposal 2016
REVENUE DEVELOPMENTS 2014–2016 (B)
NEW TAX REFORM PROPOSALS 2016–2017
 Reform of personal income tax (PIT) (two phases)
 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%
55
fjarlog.is
Budget Proposal 2016
» Number of rates reduced from three to two
» Reduced tax burden for all income groups, most for middle groups
TAX REFORMS IMPLEMENTED IN 2016
PIT
Excise on rental cars
Electricity tax
SSCs
Radio Fee
VAT (tourism)
Excises
-6
-5
-4
-3
-2
-1
0
1
2
Billion kr.
56
fjarlog.is
Budget Proposal 2016
Import duties
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
.
.
.
.
-7.4
-14.5
-14.7
-14.9
Total
57
fjarlog.is
Budget Proposal 2016
NEW TAX REFORM PROPOSALS 2016–2017:
REVENUE IMPACT IN 2016–2019
TAX REFORM SINCE 2013:
REVENUE IMPACT IN 2016–2019
Billion kr.
2015
2016
2017
2018
2019
Tax reform in Parliament 2013/2014 ...............
thereof bank tax ..........................................
Tax reform in Parliament 2014/2015 ..............
Tax reform in budget proposal for 2016 ..........
Tax reform, total ................................
thereof bank tax .............................
thereof other than bank tax ...............
21,4
32,1
-4,8
.
16,7
32,1
-15,4
12,5
25,7
-4,7
-7,4
0,4
25,7
-25,3
11,8
26,0
-4,3
-14,5
-7,0
26,0
-33,0
-11,5
3,1
-4,6
-14,7
-30,8
3,1
-33,9
-10,8
3,3
-5,0
-14,9
-30,7
3,3
-34,0
Earlier measures
Temporary provisions expire ..........................
Tax reform and earlier measures .............
thereof other than bank tax ...............
-8,4
8,3
-23,8
-10,8
-10,5
-36,2
-10,8
-17,7
-43,7
-10,8
-41,5
-44,6
-10,6
-41,3
-44,6
The total revenue impact in each year
58 fjarlog.is
Budget Proposal 2016
Tax reform since autumn 2013
THE PIT RATE STRUCTURE 1988–2015
50%
45%
40%
30%
25%
20%
15%
10%
5%
0%
1988
1991
1994
Local government
59
fjarlog.is
1997
Central gov.,
first bracket
2000
2003
Special surcharge
in 1993-2005
2006
2009
Central gov.,
second bracket
2012
2015
Central gov.,
third bracket
Budget Proposal 2016
35%
PIT REFORM IN 2016 AND 2017
2015
2016
2017
22.86%
22.68%
22.50%
Bracket 2 (additional) ........................................
2.44%
1.22%
9.30%
Bracket 3 (additional) ........................................
6.50%
7.90%
-
31.80%
31.80%
31.80%
14.44%
14.44%
14.44%
Bracket 1 ................................................................
37.30%
37.12%
36.94%
Bracket 2................................................................
39.74%
38.34%
46.24%
Bracket 3................................................................
46.24%
46.24%
-
Lower.............................................................
309.1
309.1
-
Upper................................................................
836.4
770.0
700.0
Central and local government PIT rates
Bracket 1 ................................................................
Total...............................................................
Local government (average rate)........................................
PIT rate total
Bracket threshold per month (thous. kr.)
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.
60
fjarlog.is
Budget Proposal 2016
Central government
PIT REFORM: EFFECT ON DISPOSABLE INCOME 2017
kr./month
14,000
10,000
8,000
6,000
4,000
2,000
0
100
200
300
400
500
600
700
800
900
1000
income
thous.kr./month
61
fjarlog.is
Budget Proposal 2016
12,000
PIT BURDEN BEFORE AND AFTER THE REFORM
Tax burden
40%
30%
25%
20%
15%
10%
5%
0%
0
100
200
300
400
500
PIT 2015
62
fjarlog.is
600
700
PIT 2017
800
900
1,000
1,100
Income
thous.kr./month
Budget Proposal 2016
35%
MARGINAL PIT RATES BEFORE AND AFTER THE REFORM
%
48%
46%
42%
40%
38%
36%
34%
32%
30%
100
200
300
400
500
PIT 2015
63
fjarlog.is
600
PIT 2017
700
800
900
1000
income
thous.kr./month
Budget Proposal 2016
44%
TAX EXEMPTION THRESHOLD PER MONTH 2007–2017*
kr./month
240,000
220,000
180,000
160,000
140,000
120,000
100,000
2007
2008
2009 2010
2011
Central government
2012
2013
2014 2015
Local government
2016
2017
*At fixed 2015 prices. It is assumed that a 4% pension contribution is deducted before tax is calculated.
fjarlog.is
Budget Proposal 2016
200,000
PERSONAL INCOME TAX BURDEN AND SHARE OF
CENTRAL AND LOCAL GOVERNMENT 2013–2017
Tax burden per
month
40%
35%
25%
20.45%20.05%19.77%19.72%
13.55% 13.12% 12.51%
11.90%
20%
17.05%16.60%
15.76%14.93%
5.38% 5.19% 5.01% 4.83%
15%
10%
1.69% 1.65% 1.47% 1.29%
14.44%
14.44%
14.42%14.44%
14.44%
5%
14.44%
14.42%
14.44%
14.44%
14.44%
14.42%
14.44%
14.42%14.44%14.44%14.44%
14.42%14.44%14.44%14.44%
Monthly income: 250.000
300.000
Local gov. PIT
65
fjarlog.is
500.000
Central gov. PIT
700.000
1.000.000
2017
2016
2015
2013
2017
2016
2015
2013
2017
2016
2015
2013
2017
2016
2015
2013
2017
2016
2015
2013
0%
Budget Proposal 2016
30%
PIT TO CENTRAL AND LOCAL GOVERNMENT 1988–2014
100%
90%
70%
60%
50%
40%
30%
20%
10%
0%
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Central
66
fjarlog.is
Local
Budget Proposal 2016
80%
THE PIT SYSTEM IN 2016: NET IMPACT BY LEVEL OF
GOVERNMENT (B.KR.)
10,9 (3%)
Tax credit towards payment of
local government PIT
Central government PIT, net
Child benefits
Interest rebates
Local government PIT
173,2 (53%)
10,9 (3%)
6,2 (2%)
67
fjarlog.is
Budget Proposal 2016
126,8 (39%)
m.kr.
7,000
% of tax revenue
1.4
6,000
1.2
5,000
1.0
4,000
0.8
3,000
0.6
2,000
0.4
1,000
0.2
0
0.0
2014
Food
68
fjarlog.is
2015
Clothes and shoes
2016
2017
Other items
% of tax revenue
Budget Proposal 2016
IMPORT DUTIES: REVENUE COMPOSITION BY TYPE OF
GOODS 2014–2017
IMPORT DUTIES: SHARE OF TOTAL REVENUE 1990–2019
%
4.5
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
69
fjarlog.is
Budget Proposal 2016
4.0
IMPORT DUTIES REPEALED FROM CERTAIN GOODS
 1 January 2017: All goods except food
 Rates in the range 7.5% – 15%
70
Clothes – examples:
Other goods – examples:
-
-
Pants
Jackets
Shirts
Sportswear
Sports shoes
Lingerie
fjarlog.is
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
Budget Proposal 2016
 1 January 2016:Clothes and shoes
 Most common rate is 15%
EXCISE ON MOTOR VEHICLES: RELIEF FOR RENTAL CARS (A)
 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
71
fjarlog.is
Budget Proposal 2016
 Car rental companies have since 2000 benefited from a
reduced excise duty on rental cars – with a cap per car
since 2011
COMPOSITION OF TAX REVENUE IN 2007, 2013 AND 2016*
share of total tax
revenue
40%
30%
25%
20%
15%
10%
5%
0%
Taxes on income
and profit
SSCs
VAT
2007
* Irregular items are excluded.
72
fjarlog.is
2013
Other on goods
and services
2016
Other taxes
Budget Proposal 2016
35%
REVENUE FROM VAT 1998–2016
%
of tax revenue
38
% of GDP
37
11.5
36
11.0
35
10.5
34
10.0
33
9.5
32
9.0
31
8.5
30
8.0
29
7.5
28
7.0
27
6.5
26
6.0
1998
2000
2002
2004
2006
% of tax revenue (left-hand axis)
73
fjarlog.is
2008
2010
2012
2014
% of GDP (right-hand axis)
2016
Budget Proposal 2016
12.0
TAX REVENUE COMPOSITION 2007–2016
100%
0.4%
0.5%
1.6%
1.4%
1.5%
1.9%
2.2%
49.0%
46.3%
46.4%
45.4%
46.0%
46.2%
43.8%
2.9%
1.8%
10.6%
1.4%
2.3%
2.5%
3.2%
12.6%
16.0%
15.8%
14.9%
7.3%
6.5%
5.1%
39.5%
40.4%
40.9%
3.1%
2.9%
1.2%
1.2%
15.0%
13.4%
14.1%
14.5%
80%
70%
60%
50%
40%
10.1%
30%
20%
37.6%
40.7%
38.0%
34.8%
34.3%
33.8%
35.9%
37.0%
37.8%
38.3%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
10%
0%
Taxes on income and profit
Property taxes
74
fjarlog.is
Taxes on labour/payroll
Other taxes
Taxes on goods and services
Budget Proposal 2016
90%
EXPENDITURE SIDE
BUDGET PROPOSAL
2016
5.
Estimate
2016
Estimate
2017
Estimate
2018
Estimate
2019
Total expenditures
681,0
689,2
714,7
739,6
Irregular items
Pension liabilities
Capital gains tax
Tax write-offs
Unemployment
M unicipal Equalisation Fund
State guarantees
Write-offs of outstanding claims
Contributions to HFF
Amortization of indexed mortgages
Interest expenditures
Total irregular items
12,4
5,0
13,0
13,3
19,4
0,0
0,1
1,3
15,5
74,4
154,4
13,9
4,6
13,8
13,9
20,4
0,0
0,1
0,0
0,0
68,4
135,1
14,4
5,0
14,1
14,3
21,0
0,0
0,1
0,0
0,0
68,7
137,6
14,9
4,9
15,0
14,8
22,0
0,0
0,1
0,0
0,0
62,9
134,7
Expenditure frame
526,6
554,1
577,2
604,9
ISK bn.
76
fjarlog.is
Budget Proposal 2016
BUDGET FRAMEWORK 2016-2019
BUDGET FRAMES FOR MINISTRIES 2016*
Proposal
2016
ch.
ISK bn.
ch.
%
Budget frames
The Presidency, Althingi and Supreme Court...............
Office of the Prime M inister..........................................
M inistry of Education, Science and Culture..................
M inistry for Foreign Affairs**......................................
M inistry of Industries and Innovation..........................
M inistry of the Interior**.............................................
M inistry of Welfare.......................................................
M inistry of Finance and Economic Affairs...................
M inistry for the Environment and Natural Resources..
Total, excl. irregular items........................................
4,3
3,1
72,9
11,5
30,6
58,1
253,6
41,4
10,1
485,6
4,4
3,3
75,1
12,7
31,4
59,5
262,4
41,3
10,1
500,2
0,1
0,2
2,2
1,2
0,8
1,3
8,8
-0,1
0,1
14,6
2,7
6,4
3,0
10,3
2,8
2,3
3,5
-0,1
0,8
3,0
Interest expenditures......................................................
Other irregular items......................................................
Total irregular items..................................................
82,5
82,0
164,5
74,4
77,4
151,8
-8,1
-4,6
-12,7
-9,8
-5,7
-7,7
Total, incl. irregular items.........................................
650,1
652,0
1,9
0,3
ISK bn.
77
*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.
fjarlog.is
Budget Proposal 2016
Budget
2015
EXPENDITURE CHANGES FROM 2015 BUDGET
ISK bn.
700.0
690.0
-8.1
29.0
670.0
-0.8
660.0
12.4
650.0
640.0
681.0
-1.6
650.1
630.0
620.0
Budget
2015
78
fjarlog.is
Net ch. in
exp. obl.
New and
increased
expenditures
Restraint Wage-, price- Interest
measures and exchange expenditure
rate ch.
Budget
proposal
2016
Budget Proposal 2016
680.0
NEW AND INCREASED EXPENDITURES
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
79
fjarlog.is
Budget Proposal 2016
ISK bn.
NET CHANGES IN EXPENDITURE OBLIGATIONS IN BUDGET
PROPOSAL 2016
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
80
fjarlog.is
Budget Proposal 2016
ISK bn.
WAGE AND PRICE 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.
81
fjarlog.is
Budget Proposal 2016
» Wage assumptions:
WAGE AND PRICE 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:
82
•
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.
fjarlog.is
Budget Proposal 2016
» Wage assumptions:
WAGE AND PRICE ASSUMPTIONS
•
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:
83
•
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.
fjarlog.is
Budget Proposal 2016
» General price assumption:
» 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.
84
fjarlog.is
Budget Proposal 2016
WAGE AND PRICE CHANGES IN 2015 AND 2016
EXPENDITURES BY ECONOMIC FUNCTION*
25.2%
Health services
23.2%
Social security and welfare services
11.7%
Education
9.9%
General public services
36
30
Transportation and communication
28
Public order and safety
27
Agriculture, forestry, fishing, and hunting
19
Recreation, culture, and religion
19
Other industries
74
63
12
Housing and community amenities
9
Mining, manufacturing and construction
6
Fuel and energy
4
0
20
40
60
80
100
120
*Irregular items other than interest expenditure are excluded
Economic function according to COFOG (Classification of the Functions of Government)
fjarlog.is
147
140
160
180
ISK bn.
200
Budget Proposal 2016
Interest expenditure
Expenditures not classified by major group
85
160
MAIN EXPENDITURE CHANGES FROM 2015 BUDGET
» 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)
86
fjarlog.is
Budget Proposal 2016
» 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)
MAIN EXPENDITURE CHANGES FROM 2015 ESTIMATE
» 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.
87
fjarlog.is
Budget Proposal 2016
» Primary expenditures are estimated ISK 607 bn. and
increase by ISK 4 mia.kr. from the estimate for 2015 in
nominal prices
DECREASE IN TOTAL EXPENDITURE*
% of GDP
33.5
34.0
32.0
30.1
30.0
29.3
28.9
27.9
28.0
26.0
29.9
27.8
27.2
26.4
26.1
25.7
25.3
24.0
22.0
20.0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
* Excluding irregular items
Adjusted for the transfer of services for disabled people from the state to local governments
88
fjarlog.is
2018
2019
Budget Proposal 2016
31.0
TREASURY’S INTEREST EXPENDITURE 2007-2019
% of GDP
6.0
84
80
76
68
70
79
74
77
74
68
66
5.0
69
63
60
4.0
50
3.0
40
35
30
2.0
22
20
1.0
10
0
0.0
2007
2008
2009
2010
2011
2012
Interest expenditure, ISK bn. (l.axis)
89
fjarlog.is
2013
2014
2015
2016
2017
2018
Interest expenditure, % of GDP (r.axis)
2019
Budget Proposal 2016
ISK bn.
90
MODERATE GROWTH IN PRIMARY EXPENDITURE*
ISK bn.,
2016 prices
650
612
599
574
569
569
552
552
554
554
2012
2013
2014
2015
560
568
574
583
550
500
450
400
2007
2008
2009
2010
2011
2016
2017
* in 2016 prices excluding irregular items
Adjusted for the transfer of the services for disabled people from the state to local governments
90
fjarlog.is
2018
2019
Budget Proposal 2016
600
TREASURY’S CURRENT EXPENDITURE 1998-2019*
% of GDP
16.0
14.0
10.0
8.0
6.0
4.0
2.0
0.0
Current expenditure
* excluding irregular items
91
fjarlog.is
Current expenditure - average 1998-2007
Budget Proposal 2016
12.0
TREASURY’S TRANSFER PAYMENTS 1998-2019*
% of GDP
14.0
10.0
8.0
6.0
4.0
2.0
0.0
1998
2000
2002
2004
2006
2008
Transfer payments
*excluding irregular items and unemployment benefits
92
fjarlog.is
2010
2012
2014
2016
Transfer payments - average 1998-2007
2018
Budget Proposal 2016
12.0
TREASURY’S MAINTENANCE AND CAPITAL EXPENDITURE
1998-2019*
% of GDP
4.0
3.5
2.5
2.0
1.5
1.0
0.5
0.0
1998
2000
2002
2004
2006
Maintenance and capial expenditure
* excluding irregular items
93
fjarlog.is
2008
2010
2012
2014
2016
2018
Maintenance and capial expenditure - average 1998-2007
Budget Proposal 2016
3.0
FUNDING AND DEBT
MANAGEMENT
BUDGET PROPOSAL
2016
6.
STRATEGY ON CAPITAL ACCOUNT LIBERALIZATION
• 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
95
fjarlog.is
Budget Proposal 2016
• Estimated Treasury revenues arising from the execution
of the liberalization strategy amounts to ISK 450-850 bn.
STABILITY CONDITIONS / STABILITY TAX
• 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
96
fjarlog.is
Budget Proposal 2016
• The effects of the tax are clear
FUNDING AND DEBT MANAGEMENT
• Good progress have been made in debt management
• 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%
97
fjarlog.is
Budget Proposal 2016
• Polish loan was pre-paid in May – ISK 7.5 bn.
FUNDING AND DEBT MANAGEMENT
• 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
98
fjarlog.is
Lowered funding cost
Improved overall balance
Budget Proposal 2016
• Lower debt levels along with the strategy on lifting
capital controls have had positive effects on ratings
GROSS DEBT AND NET FINANCIAL POSITION
ISK bn.
% of GDP
2,000
100.0
90.0
1,500
70.0
1,000
60.0
500
50.0
40.0
0
30.0
20.0
-500
10.0
-1,000
0.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Gross debt. (l.ax.)
99
fjarlog.is
Net financial position (l.ax.)
Debt-to-GDP.(r.ax.)
Budget Proposal 2016
80.0
REDUCTION OF TOTAL DEBT*
Other debt ISK 371
bn.
ISK 1.177 bn.
ISK 216 bn.
Sales proceeds of
Landsbanki
ISK 71 bn.
Recapitalization of
financial institutions
ISK 142 bn.
* Total debt is estimated at ISK 1.177 bn. at year-end 2016
100
fjarlog.is
Foreign reserve loans
ISK 304 bn.
Budget Proposal 2016
Recapitalization of
Central Bank ISK 145
bn.
Accumulated
funding of fiscal
deficit ISK 360 bn.
FUNDING AND DEBT MANAGEMENT
• 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
101
fjarlog.is
Budget Proposal 2016
• Further debt reduction is forecasted in 2016
DEBT COMPOSTION AFTER MEASURES TAKEN*
Other debt
ISK 371 bn.
ISK 1.177 bn.
Recapitalization
of financial
institutions
ISK 142 bn.
* Estimated composition year-end 2016
102
fjarlog.is
Foreign reserve
loans
ISK 304 bn.
Budget Proposal 2016
Accumulated
budget deficit
ISK 360 bn.
INTEREST BALANCE
• 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
103
fjarlog.is
Budget Proposal 2016
• Lower interest expense improves the interest balance, interest
income is more stable
INTEREST BALANCE 2009 - 2019
ISk bn.
120.0
100.0
60.0
40.0
20.0
0.0
-20.0
-40.0
-60.0
-80.0
2009
2010
2011
2012
Interest expense
104
fjarlog.is
2013
2014
2015
Interest revenues
2016
2017
Interst balance
2018
2019
Budget Proposal 2016
80.0
INTEREST EXPENDITURE
• 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
105
fjarlog.is
Budget Proposal 2016
• Interest expense will be reduced in the next few years
TREASURY’S INTEREST EXPENDITURE 2007-2019
% of GDP
6.0
84
80
76
68
70
79
74
77
74
68
66
5.0
69
63
60
4.0
50
3.0
40
35
30
2.0
22
20
1.0
10
0
0.0
2007
2008
2009
2010
2011
2012
Interest expenditure, ISK bn. (l.axis)
106
fjarlog.is
2013
2014
2015
2016
2017
2018
Interest expenditure, % of GDP (r.axis)
2019
Budget Proposal 2016
ISK bn.
90
INTEREST REVENUES
• 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
107
fjarlog.is
Budget Proposal 2016
• Interest revenues are interests from tax revenues, loans
and deposits
» 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
108
fjarlog.is
Budget Proposal 2016
DOMESTIC DEBT MANAGEMENT STRATEGY
REDEMPTION PROFILE – DOMESTIC DEBT
ISK million
300,000
200,000
150,000
100,000
50,000
0
Govenment bonds
Recapitalisation of financial institutions
Recapitalisation of the Central Bank
Government guarantees
Other domestic loans
fjarlog.is
Budget Proposal 2016
250,000
» 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
110
fjarlog.is
Budget Proposal 2016
FOREIGN DEBT MANAGEMENT STRATEGY
REDEMPTION PROFILE – FOREIGN DEBT
ISk million
140,000
100,000
80,000
60,000
40,000
20,000
0
2015
fjarlog.is
2016
2017
2018
2019
Currency reserve loans
2020
2021
2022
Other foreign loans
2023
2024
Budget Proposal 2016
120,000
ICELAND IN AN
INTERNATIONAL
COMPARISON
BUDGET PROPOSAL
2016
7.
ECONOMIC GROWTH IN 2014 AND FORECAST FOR 2015
GDP growth
%
6.0
4.0
3.0
2.0
1.0
0.0
-1.0
2014
Source: IMF and Statistics Iceland
113
fjarlog.is
2015 proj.
Budget Proposal 2016
5.0
ECONOMIC GROWTH 2008-2015
GDP growth
%
6
2
0
-2
-4
-6
-8
2008
2009
France
Source: IMF
114
fjarlog.is
2010
Germany
2011
Iceland
2012
2013
Netherlands
2014
Spain
2015
UK
Budget Proposal 2016
4
UNEMPLOYMENT IN OECD COUNTRIES 3Q2015
%
30
20
15
10
5
0
ICE
Source: OECD
115
fjarlog.is
CAN
NET OECD SWE
FIN
POL
FRA
EU
EUR
IRL
ITA
SPA
GRE
Budget Proposal 2016
25
0%
116
50%
40%
30%
20%
10%
Source: OECD, september 2015
fjarlog.is
Budget Proposal 2016
Mexico
Norway
Canada
Sweden
Australia
Finland
Iceland
Turkey
Austria
Denmark
USA
Luxemburg
Russia
Switzerland
OECD
Netherlands
UK
Poland
France
Japan
Lithuania
Estonia
Germany
Czech rep.
Rumenia
Belgium
EU
Latvia
Spain
Hungary
Slovenia
Portugal
Italy
Ireland
Croatia
Slovak rep.
Greece
LONG TERM UNEMPLOYMENT IN 2013
% of unemployed
70%
60%
INFLATION IN 2015 IN OECD COUNTRIES
%
3
1
0
-1
-2
Source: OECD ,August 2015
117
fjarlog.is
Budget Proposal 2016
2
GENERAL GOVERNMENT DEBT AND FINANCES OF A FEW
EUROPEAN COUNTRIES IN 2014, % OF GDP
200
180
160
140
Portugal
120
100
Cyprus
Italy
UK
80
Iceland
60
Masstricht criteria
40
Denmark
20
Estonia
0
-10
-9
-8
-7
Source: OECD, September 2015
118
fjarlog.is
-6
-5
-4
-3
-2
-1
General government balance (% af GDP)
0
1
2
3
Budget Proposal 2016
General government debt (% of GDP)
Greece
REAL EFFECTIVE EXCHANGE RATE 1994 -2014:
COMPARISON WITH OTHER COUNTRIES
180
140
120
100
80
60
EUR
Denmark
Source: Eurostat, September 2015
119
fjarlog.is
Finland
Sweden
Iceland
Norway
USA
Budget Proposal 2016
160
NATIONAL SAVINGS 1980-2020
% of GDP
45
40
30
25
20
15
10
5
0
Denmark
Finland
Source: IMF, september 2015
120
fjarlog.is
Iceland
Norway
Sweden
UK
Budget Proposal 2016
35
0.0
-2.0
-4.0
-6.0
-8.0
Source: Eurostat
121
fjarlog.is
Budget Proposal 2016
Cyprus
UK
Finland
Spain
Croatia
Bulgaria
Slovenia
France
Sweden
Poland
Slovak rep.
Netherlands
Czech rep.
EU
Ireland
Austria
Belgium
Latvia
Portugal
Rumenia
Greece
Luxemburg
Estonia
Malta
Lithuania
Hungary
Italy
Denmark
Germany
Iceland
PRIMARY BALANCE – EU AND ICELAND 2014
% of GDP
6.0
4.0
2.0
GENERAL GOVERNMENT DEBT* – EU AND ICELAND 2014
% of GDP
200
180
140
120
100
80
60
40
20
Source: Eurostat
122
fjarlog.is
Estonia
Luxemburg
Norway
Sweden
Denmark
Finland
Germany
Iceland
Netherlands
* According to the Maastricht criteria
UK
EU
France
Spain
Portugal
Italy
Greece
0
Budget Proposal 2016
160
123
fjarlog.is
Source: Eurostat
8
6
4
2
0
Budget Proposal 2016
Estonia
Luxemburg
Sweden
Finland
Denmark
Netherlands
France
Germany
EU
UK
Greece
Spain
Italy
Portugal
Ireland
Iceland
INTEREST EXPENTITURE OF THE GENERAL GOVERNMENT –
EU AND ICELAND 2014
% of GDP
12
10
GENERAL GOVERNMENT
AND MUNICIPALITIES
BUDGET PROPOSAL
2016
8.
REVENUES OF MUNICIPALITIES 2014-2019
125
Proj.
2015
Proj.
2016
Proj.
2017
Proj.
2018
Proj.
2019
Total revenue .............................
258,1
278,0
301,2
320,3
337,3
356,4
Tax revenue ................................
191,7
208,4
226,7
242,2
255,9
270,4
T ax on revenue and profits .......
157,9
171,9
187,4
200,4
211,7
223,8
T ax on assets ............................
31,8
34,3
37,0
39,3
41,6
43,8
T ax 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
35,3
O 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
12,4
Sale of goods and services ..........
26,3
28,3
30,6
32,8
34,8
37,0
Other 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
fjarlog.is
Budget Proposal 2016
ISK bn.
Acc.
2014
12,8
EXPENDITURES OF MUNICIPALITIES 2014-2019
Proj.
2015
Proj.
2016
Proj.
2017
Proj.
2018
Proj.
2019
Total expenditure ......................
263,8
281,3
303,2
322,7
340,5
360,4
Wages ......................................
205,7
220,3
238,3
255,1
270,0
286,0
Goods and services ....................
7,9
8,1
8,3
8,4
8,6
8,6
Interest expenditures ................
27,7
29,4
31,7
33,6
35,3
37,1
Transfers 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
126
fjarlog.is
Budget Proposal 2016
ISK bn.
Acc.
2014
FINANCIAL BALANCE OF MUNICIPALITIES 1990-2019
Balance
% of GDP
3.0
Rev., exp.
% of GDP
16.0
2.0
12.0
1.5
10.0
1.0
8.0
0.5
6.0
0.0
-0.5
4.0
-1.0
2.0
-1.5
0.0
-2.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Operating balance (r-axis)
127
fjarlog.is
Total balance (r-axis)
Revenue (l-axis)
Expenditure (l-axis)
Budget Proposal 2016
2.5
14.0
NET FINANCIAL ASSETS OF A-PART OF MUNICIPALITIES
% of GDP
15.0
10.8
10.3
10.3
9.8
9.3
9.0
8.9
8.6
8.8
8.6
8.0
7.7
7.2
6.8
6.4
6.0
3.0
0.0
-1.4
-3.0
-2.6
-1.3
-3.7
-3.9
-3.6
-3.9
-4.0
-6.0
-5.4
-5.8
-6.1
-6.6
-6.0 -6.0
-9.0
-9.9
-12.0
-12.1 -12.9
-15.0
-12.6
-12.9 -12.8
-14.0 -13.7
-14.2 -13.9 -13.8 -13.8
-12.8 -12.4
-18.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Financial assets
128
fjarlog.is
Debt
Net financial assets
Budget Proposal 2016
12.0
129
% of GDP
Acc.
2014
Proj.
2015
Proj.
2016
Proj.
2017
Proj.
2018
Proj.
2019
Total revenue ..........................
45,6
43,4
42,2
41,7
40,6
40,6
T ax revenue ..........................
35,3
33,4
33,1
32,8
31,8
31,9
Social security contribution ....
3,7
3,7
3,7
3,7
3,7
Contributions .........................
0,1
0,1
0,1
0,1
0,1
Other revenue ........................
6,6
6,2
5,3
5,1
5,0
Total expenditure ...................
45,2
43,3
41,8
40,5
39,9
39,0
Operating expenditure ...........
44,4
42,7
41,5
40,1
39,4
38,5
Investment expenditure .........
0,8
0,6
0,4
0,4
0,4
0,5
Investment ........................
2,8
2,4
2,2
2,2
2,1
Depreciation ......................
-2,0
-1,9
-1,8
-1,8
-1,7
-1,7
Total balance ...........................
0,5
0,1
0,3
1,2
0,7
Budget Proposal 2016
GENERAL GOVERNMENT FINANCES 2014-2019
1,5
fjarlog.is
3,7
0,1
4,9
2,2
GENERAL GOVERNMENT BALANCE 1998-2019
Rev., exp.
% of GDP
60.0
Balance
% of GDP
9.0
4.4
6.0
4.9
54.0
48.0
45.0
1.2 0.7 1.5
0.5 0.1 0.3
0.8 1.3
51.0
-0.6
-1.7
-2.8 -3.1
-3.0
-3.7
-6.0
-5.6
39.0
-9.0
36.0
-9.7 -9.7
-12.0
33.0
-13.1
30.0
1998
2000
2002
2004
Total balance (r-axis)
130
0.0
-0.3
-0.9
42.0
3.0
fjarlog.is
2006
2008
-15.0
2010
2012
Revenue (l-axis)
2014
2016
2018
Expenditure (l-axis)
Budget Proposal 2016
5.8
57.0
FISCAL OUTLOOK
– OTHER ASPECTS
BUDGET PROPOSAL
2016
9.
MAIN WEAKNESSES
» Expenditures as % of GDP are historically low and are
projected to be restrained for the coming years
» Liberalization of capital controls
132
fjarlog.is
Budget Proposal 2016
» Indebted Treasury and significant interest balance deficit
MAIN STRENGTHS
» Stable and positive economic prospects in the mediumterm
» Considerable assets that partly offset the debts of the
Treasury
» Fully funded private pension system
» Renewable natural resources
133
fjarlog.is
Budget Proposal 2016
» Favorable demographics