The fiscal budget proposal for 2005

1. The fiscal budget proposal for 2005 October 1st 2004

2. Highlights of the 2005 budget The 2005 revenue surplus is estimated at 11.2 billion krónur, 1.2 per cent of GDP The 2005 financial surplus estimated at 4 billion krónur

3. Treasury finances

4. Revenue balance, excluding irregular items

5. Stronger fiscal finances • The revenue balance increases by 3.4 billion from 2004 and by 17.4 billion from 2003 • This reflects a tighter fiscal policy

6. Tight fiscal policy in 2006-2008 • The Government’s Medium Term Programme calls for a further tight fiscal policy in 2006-2008 • Public consumption to increase by 2 per cent a year in real terms and transfer payments by 2½ per cent a year

7. Investment declines 2005-2006 and increases 2007-2008 • Investment will be cut by 2 billion in 2005 and again by 2 billion in 2006... • to be increased again by 2 billion in 2007 and 2 billion in 2008

8. Room for tax cuts • Increased expenditure restraint and a rising revenue surplus creates room for significant tax cuts in 2005-2007... • ...for the benefit of households • A logical continuation of earlier tax cuts

9. Continued economic stability • ...without endangering economic stability, according to the projections of the Ministry of Finance • The fact that Treasury expenditure remains unchanged in 2005 and decline by 1.4 per cent in relation to GDP reflects the tightness of fiscal policy

10. The personal income tax

11. The personal net wealth tax

12. The personal income surtax

13. Main economic assumptions 2005

14. Economic growth 5% • Inflation 3½% • Rise in real disposable incomes 3¼% • Unemployment 2¾% • Current account deficit 11% of GDP • Exchange rate index 125

15. Strong economic growth

16. Price stability %

17. Increasing real disposable incomes

18. Low unemployment

19. Temporary increase in the current account deficit

20. Highlights of the budget

21. Treasury expenditure declines* in relation to GDP * Excl. irregular items

22. Tax revenue declines in relation to GDP

23. Priority in expenditures • Expenditure on education increases 8.8 per cent • Expenditure on law enforcement and security increases by 5.4 per cent • Special increase in development aid • Increase in housing space for the disabled and in nursing homes

24. Special expenditure measures • Expenditure cut by 800 million through a 1 per cent cost-efficiency demand upon government agencies • Investment is cut by 2 billion

25. Special revenue measures • The personal income tax rate will be cut by 1 per cent, from 25.75 to 24.75 per cent • The personal income surtax declines from 4 per cent to 2 per cent • Various user charges will increase in line with general prices

26. Looking ahead • A ministerial committee will conduct a review of government agencies • The aim is to increase efficiency and improve services • A special effort will be made to outsource government tasks • Transfer payments will be reviewed in order to reduce the automatic rise in expenditure

27. What has been achieved in recent years?

28. Treasury debt has declined by half since 1995...

29. ...which has led to an 11 billion reduction in interest payments

30. Prepayments against pension fund commitments have amounted to 79 billion since 1999 Reiknaðir vextir 5% árin 2004 og 2005

31. Social security and social assistance payments

32. Disability pensions

33. Expenditure on research, universities and other higher education 24 21,5 21,2 19 15,7 14 13,4 11,9

34. In summary • Sharply increased fiscal restraint to offset the impact of power project construction • Improved Teasury finances have led to declining debt and lower interest payments • A significant Treasury surplus, partly due to expenditure restraint, will create room for tax cuts in 2005-2007 • A review of government operations will be launched

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