News - 10.10.2024

Out of Touch Iceland Chamber of Commerce

The draft budget for 2025 is now before the Althingi. The budget proposal has drawn attention, as is customary when governments present plans for national revenue and collective expenditures for the next twelve months. The budget indeed provides insights into the priorities for the coming year—what projects will be prioritized and which will be forgotten? Where will spending increase, and where will cuts be made?

It is therefore natural for different interest groups to disagree on the budget. Everyone has their own preferences, and opinions vary on how the nation’s collective funds should be allocated. For instance, abpout 60 submissions can be found on the Althingi website regarding the 2025 budget proposal from various stakeholders, each with differing views and priorities, as expected.

However, one submission stands out: it comes from the Iceland Chamber of Commerce.

The Chamber of Commerce proposes "9 efficiency measures for improved financial performance" that the government could adopt to achieve a balanced budget for 2025. According to the Chamber, in nine simple steps, it would be possible to run the national treasury with a 65 billion ISK surplus instead of a 41 billion ISK deficit. Notably, the Council suggests that the government should break its promises from the recent collective agreements and abandon all measures approved to facilitate agreements between workers and employers. The Chamber of Commerce encourages the government to cancel approved increases in child benefits, housing benefits, and the maximum payments from the parental leave fund. It also suggests scrapping the approved free school meals initiative, thereby saving 14 billion ISK.

People are unlikely to take the Chamber of Commerce’s proposal seriously. The suggestion is poorly conceived and out of touch with reality.

First, it is a simple fact that the government’s support measures have already been approved and are tied to the collective agreements. The Chamber’s proposal indirectly suggests breaking modest long-term wage agreements signed with the goal of lowering interest rates and inflation. Such an action would cause chaos, damage the credibility of wage agreements and the government, and work against the stated goals of reducing inflationary pressure and facilitating lower interest rates.

Second, the proposal represents an attack on public welfare. The Chamber of Commerce seems to believe it is more prudent for the government to break its trust with the labor market, resulting in the termination of wage agreements, rather than allocating funds to support low-income families with young children who face heavy mortgage or rental burdens. The Chamber appears willing to go to great lengths to ensure that children do not receive free school meals and that new parents do not benefit from the overdue increase in maximum parental leave payments.

The priorities reflected in the Chamber of Commerce’s proposals are thus peculiar. They are characterized by a mindset so steeped in austerity and harsh economic policies that the most incredible suggestions are thrown around to balance spreadsheets hastily created in sloppy Excel files.

The Chamber of Commerce suggests that the government should go back on its word and punish the public. For what? Clearly not to reduce inflation. Breaking wage agreements with the resulting instability will not achieve that goal.
In the document accompanying the proposal, ideas are put forward that it is undesirable or undemocratic for the government to facilitate wage agreements with promises of support packages, as has long been the tradition. This rhetoric could be understood as a half-baked argument for the government to abandon previously agreed-upon wage-related actions. However, this reasoning is weak. It is one thing to initiate a general discussion about the government’s role in future labor disputes, but it is entirely different to propose that signed agreements be disregarded, which is effectively what the Chamber of Commerce is suggesting.

The third possible justification for such proposals is based on political or ideological reasons, and therein lies the crux of the matter. With these proposals, the Chamber of Commerce is presenting a specific political vision of how society’s resources should be distributed. In the Chamber’s discussion of the budget proposal, it is stated:

"When it comes to closing the budget gap, the government faces a choice between tax increases and cuts. The Chamber of Commerce believes the latter option is preferable."

Firstly, this framing is misleading because it assumes that a budget deficit is unthinkable or always negative. Government finances do not work like household budgets, though many seem to struggle with this concept. Delivering a budget surplus during times of economic slowdown is not an economic necessity and will worsen the current situation. When households or businesses cut back, the government should step in to support the economy. When the government makes cuts or raises taxes to deliver a surplus, it takes money away from households and businesses, reducing overall demand, slowing growth, and increasing unemployment.

Secondly, the Chamber of Commerce’s rhetoric suggests that it finds it inconceivable for ordinary workers to receive support during a time when more and more people are struggling in a broken housing market. Long-standing government inaction has led to a shortage of housing, chaos in the rental market, and relentless interest rate hikes from the Central Bank of Iceland that have punished those in debt while rewarding those with capital (it is worth recalling that Iceland’s interest rates are among the highest in Europe, second only to Turkey, Russia, Ukraine, and Belarus). The Chamber of Commerce seems so consumed by the ideology of austerity that it believes it is better to leave the labor market in ruins than for the government to honor its promises to support these groups.

VR firmly rejects the absurd and irresponsible ideas presented in the Iceland Chamber of Commerce’s submission regarding the 2025 budget proposal. The proposals are ill-conceived, poorly crafted, and disconnected from economic or political reality. Above all, however, they are an insult to workers who accepted modest wage increases in the recent wage agreements and thus contributed to the fight against inflation.

VR stands with the public and trusts that the government and other reasonable parties will do the same.

Ragnar Þór Ingólfsson
Chairman of VR.