Largest tax hikes since the Jóhanna government, business leader says

Bjarni Benediktsson, director general of the Confederation of Icelandic Enterprise, says the tax increases announced in Iceland’s budget are the biggest since the government led by Jóhanna Sigurðardóttir in the years after the 2008 financial crash.

He told mbl.is that Iceland is struggling with limited growth in value creation, while the latest measurements show productivity declining. From the business community’s perspective, he said, the priority should be to reverse that trend. Instead, the government has introduced tax increases worth tens of billions of Icelandic krónur, with value-producing industries carrying a significant share of the burden.

“This is like giving patients the wrong medicine,” Benediktsson said. He added that the Confederation was deeply concerned about where the policy was heading, alongside what it described as weak assumptions in the government’s fiscal planning.

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This is like giving patients the wrong medicine.

He also criticized the decision to link benefit payments to the wage index. State spending on benefits has risen with the index this year, even though wage growth has moved far out of line with value creation in the economy. Benediktsson said benefits were therefore rising much faster than wages, making the systems increasingly expensive.

Benediktsson called for a reversal of the trend and urged the government to create conditions in which value-producing sectors can grow. He pointed to limited economic growth since 2023 and negative productivity growth, while wages, particularly in the public sector, continued to rise. The likelihood of a hard landing, he said, was increasing.

He also questioned the government’s credibility after two years of large promises and plans. In his view, the two largest spending areas, benefit systems and public-sector wages, were not being taken seriously. He said the income-tax system would also create a growing tax burden for middle-income earners because the government plans to stop adding a productivity adjustment to the thresholds between tax brackets.

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The likelihood of a hard landing is therefore increasing significantly.