The fiscal budget proposal for 2005 October 1st 2004

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

Treasury finances

Revenue balance, excluding irregular items

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

The Governments Medium Term Programme calls for a further tight fiscal policy in Public consumption to increase by 2 per cent a year in real terms and transfer payments by 2½ per cent a year Tight fiscal policy in

Investment declines and increases Investment will be cut by 2 billion in 2005 and again by 2 billion in to be increased again by 2 billion in 2007 and 2 billion in 2008

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

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

The personal income tax

The personal net wealth tax

The personal income surtax

Main economic assumptions 2005

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

Strong economic growth

Price stability %

Increasing real disposable incomes

Low unemployment

Temporary increase in the current account deficit

Highlights of the budget

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

Tax revenue declines in relation to GDP

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

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

Special revenue measures The personal income tax rate will be cut by 1 per cent, from to 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

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

What has been achieved in recent years?

Treasury debt has declined by half since

which has led to an 11 billion reduction in interest payments

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

Social security and social assistance payments

Disability pensions

Expenditure on research, universities and other higher education 11,9 13, , ,2 21,5 24

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

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