“Working people are deeper in the red”

Iceland’s government may have balanced the books, but VR union leader Halla Gunnarsdottir says working people are being pushed further into the red. After reviewing next year’s budget proposal, she warned that a deficit-free budget means little if it produces higher inflation, rising unemployment and stagnation.

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There should be an unconditional duty to manage public funds well, but a balanced budget serves no purpose if the result is increased inflation, rising unemployment and stagnation, which can have serious long-term consequences for the economy and society.

The proposal, presented by Finance and Economic Affairs Minister Daði Már Kristófersson, keeps the budget in balance while raising various taxes and charges by 5.2% next year. Gunnarsdottir questioned the political pride surrounding the zero figure. “The government reached zero, but working people are deeper in the red,” she wrote in a Facebook post.

She argued that balancing state spending should not be a goal in itself, but a tool for building a stronger economy and improving social welfare. Her main concern was the government’s apparent reliance on higher charges to close the budget gap, rather than taxes on those with the greatest wealth. Higher tariffs, she said, would feed directly into inflation, raising costs through charges such as mileage fees and admission fees, as well as through broader price and housing pressures.

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The government reached zero, but working people are deeper in the red.

That pressure could also prolong the country’s high-interest-rate policy, she said, while interest costs already weigh heavily on the state treasury. Gunnarsdottir said the economic assumptions behind collective agreements had broken down, but the budget contained no measures to help preserve them. VR, LÍV and other unions have begun talks with the Confederation of Icelandic Enterprise on the way forward and are also pursuing joint issues with the government and employers through the Icelandic Confederation of Labour. She said unions and employers had called for a freeze on charges to curb inflation, but the proposal instead links them to inflation and includes a sharp increase in the mileage charge. She also criticized the apparent end of a fuel price cap, which she described as a way to shield Icelandic households from inflationary effects linked to the United States’ war against Iran.

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What is most concerning about this new balance is the tendency to use increased charges to close the gap.