Iceland is crowdsourcing ways to cut state spending

Iceland is crowdsourcing ideas from the population on budget savings to ensure taxpayer money is well spent, Finance Minister Dadi Mar Kristofersson said.

“The state needs to have an ongoing review of increased efficiency,” Kristofersson said in an interview in Reykjavik on Wednesday, adding that such work “needs to be more active than it has been so far.”

In that vein, the new Social Democrat-led coalition government that was sworn in last month, has started collecting suggestion on an online portal. About 1% of the country’s population have already taken part.

“Our consultation with the public on where to save reflects our emphasis of wanting to utilise public funds better,” he said. “That entails that existing projects are well run and also that we decide which projects to proceed with.”

Iceland’s government is grappling with a persistent budget deficit, with the previous cabinet setting a target to return to a fiscal surplus by 2029. Policymakers have reined in spending as inflation remains above the central bank’s target, forcing rate-setters to keep borrowing costs at the highest level in western Europe, currently at 8.5%.

“Our main goal is to bring down inflation and interest rates and to ensure the fiscal stance supports monetary policy,” Kristofersson said. The government also aims to close the budget gap “as soon as possible,” he said, adding that the plan is to give a target timing in March.

“There is still need for a firm fiscal stance but we are hopeful that we will be able to ease that very soon,” he said, given the economy is holding up and “we don’t see any signs of a rough landing.”

Volcanic activity in the country’s southwest since 2021 has added to state spending, as the country of about 380,000 people has had to re-house about 1% of its population, displaced after earthquakes and lava ravaged a fishing town.

The island nation has also seen large shifts in the structure of its economy in recent years. Vulnerable to boom-bust cycles, the north Atlantic nation was hobbled in the aftermath of the global financial crisis, which crippled its out-sized banking sector and almost wiped out the domestic stock market.

The state then took over lenders in 2008. It’s planning to divest the remaining 42.5% of shares in Islandsbanki hf this year in a sale that will prioritize the general public, Kristofersson said.

Read More: Iceland to Sell Islandsbanki Shares to Public: Finance Minister

Tourism has become a key industry for the rocky outpost in the middle of the ocean, as people attracted by its wilderness, glaciers and geysers flock in for holidays. That’s also putting strains on nature, housing and other resources, and the new government is planning a fee for entering publicly owned tourist destinations.

“The idea behind collecting the fees is to reduce the collective negative impact,” Kristofersson said. “Our common interest is that Iceland is a good destination.”

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