Sigmundur Davíð: “Confirmation of surrender”

Sigmundur Davíð Gunnlaugsson has dismissed Iceland’s budget proposal as “confirmation of surrender,” saying the government is continuing with tax and fee increases that will worsen the economic situation.

The Centre Party leader said he was deeply disappointed and had little confidence that the budget would end the year without a deficit. Asked to describe the proposal in one sentence, he replied: “Confirmation of surrender.” He also told mbl.is, “I have a very poor opinion of this.”

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Confirmation of surrender.

Gunnlaugsson said the government appeared to have learned nothing from recent experience. In his view, it was doing more of what had held back value creation and job creation while driving inflation higher. He singled out the bank tax, arguing that its cost would ultimately fall on bank customers and could push interest rates higher.

He said the government should have exercised greater restraint in public spending and aimed for a balanced budget without extensive tax increases. Such an approach, he argued, would strengthen the government’s credibility, help reduce inflation expectations and create room for investment and value creation.

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I have a very poor opinion of this.

Gunnlaugsson also questioned the government’s revenue estimates. Higher taxes and fees could reduce consumption, including tourism activity, and therefore generate less revenue than projected. He said a tax increase could not simply be counted as unchanged additional income because fewer transactions and purchases would reduce tax receipts.

He predicted that the result could be a “tax-increase budget” that still ran a deficit. He warned that this could keep inflation expectations high ahead of renewed wage negotiations, as expectations of continuing price increases could affect both prices and wage demands.

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You cannot simply assume that raising taxes will produce all that revenue, because there will be fewer transactions, fewer purchases and therefore lower tax revenue.