News - 10.09.2026

The Government Balances the Budget at the Expense of Workers

The VR Board expresses serious concern over the Government’s budget bill, which, if left unchanged, reduces the likelihood that the collective agreements in the private sector can remain in force. The Board demands that the Government and Parliament reconsider the bill with the interests of workers as their guiding principle, reduce the planned additional burdens on households, freeze public-sector fees and charges, and put forward genuine measures to bring down inflation and interest rates.

When the latest collective agreements were signed, the central government and municipalities committed to keeping increases in fees and charges moderate and making significant progress on housing. These commitments have not been honoured and this, together with price increases by companies, has resulted in the assumptions underlying the collective agreements no longer being met. For months, VR, Iceland’s largest trade union, has called on the authorities to change course and honour their commitments in relation to the collective agreements, not least by freezing fees and charges and ensuring that any increases do not exceed the Central Bank’s inflation target. The budget bill, however, provides for fees and charges to rise in line with inflation, which could perpetuate a spiral of inflation and high policy interest rates.

The VR Board demands that the cap on oil prices be reinstated by law and remain in place for as long as the oil crisis continues. The price cap has protected households from the effects of sharp increases in oil prices resulting from the war of aggression against Iran, and it is astonishing that this progressive measure is being allowed to lapse without discussion. If nothing changes, the removal of the price cap will cause inflation to rise, which, like increases in fees and charges, will add to inflationary pressure and thereby feed into people’s housing costs. This vicious cycle must be broken.

The VR Board believes there is a clear need for the Government to take decisive action on housing. The Board supports the proposed rent brake and stronger rights for tenants, but believes that the authorities must take practical measures that promote long-term stability in the housing market. As things stand, there is nothing to inspire optimism that this will happen. Plans are in place to reduce capital contributions to the non-profit housing system and lower VAT reimbursements for residential housing. Housing benefits and child benefits will continue to be allowed to erode, even though they are among the most targeted ways of supporting households in vulnerable circumstances. Changes to the calculation of the personal tax credit will also increase the tax burden on workers.

In summary, the Government’s budget bill is a cold response to workers who must now contend with the failure of the assumptions underlying the collective agreements, a lack of trust in the authorities and companies, and the consequences of four years of high interest rate policy.

The VR Board
9 September 2026