Bloomberg News

Iceland Will Raise Taxes, Impose New Ones to Bridge Budget Gap

October 01, 2011

Oct. 1 (Bloomberg) -- Iceland’s government will reduce public spending and introduce a new tax on financial institutions as it seeks to bridge a 42 billion-kronur ($356 million) gap in the budget, according to the island’s Finance Ministry.

The government presented the budget to parliament today. The equivalent of a value-added tax will be imposed on the north Atlantic island’s lenders, while the government plans to raise taxes for the use of natural resources, along with an increase in capital gains taxes.

Iceland completed a 33-month economic program with the International Monetary Fund in August, following the failure of its three biggest lenders in October 2008. The nation received a total of $4.6 billion from the IMF, Denmark, Finland, Norway and Sweden to avert a default.

“Following difficult years in the state’s finances, we’re foreseeing a considerable surplus on the preliminary balance of payments in 2012,” the Reykjavik-based ministry said in a statement on its website. “Furthermore, the bill doesn’t anticipate severe actions, neither on the expense or income side of the budget and therefore there will be no general tax increases in the year.”

Iceland’s $12 billion economy contracted 2.8 percent from the first quarter after growing a revised 1.9 percent in the previous period, the Reykjavik-based statistics office said on Sept. 8. Output expanded an annual 2.5 percent in the first six months, the agency said.

--Editors: Steve Bailey, Digby Lidstone

To contact the reporter on this story: Omar Valdimarsson in London at valdimarsson@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net


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