In 2018, the financial balance of the general government (i.e. the central government, the social security funds and the local governments) was positive by 23 billion ISK, amounting to 0.8% of GDP, compared with a 2017¹ surplus of 14.1 billion ISK and 0.5% of GDP. Improved financial balance in 2018 can be partly explained by a one-off capital transfer of 32 billion ISK from local governments to Brú Pension Fund in 2017.

General government revenue 42.8% of GDP in 2018
The general government total revenue amounted to 1,203.6 billion ISK or 42.8% of GDP in 2018. In 2017 the general government total revenue was 1,138.3 billion ISK or 43.6% of GDP. This translates to a government revenue increase of 65.3 billion ISK in current prices and a nominal growth of 5.7%.

The central government total revenue was 881.7 billion ISK in 2018, an increase of 4.8% from the previous year. Local government revenues increased by 8.9% and totalled ISK 362.8 billion in 2018. Social security contributions increased by 11.9%, to a total of ISK 251.2 billion in 2018.

Taxes on income increased by 5.7% in 2018
Taxes on income are the largest revenue item in the general government accounts and generated 42.5% of general government revenue in 2018. In total, revenue from income taxes amounted to 511.7 billion ISK in 2018, increasing by 5.7% from the previous year. Total income taxes in 2018 amounted to 18.2% of the year’s GDP. Taxes on goods and services increased somewhat less than income taxes in 2018 or by 4.4% and contributed 28.3% of the total revenue (12.1% of GDP).

Government expenditure increased by 5% in 2018
General government expenditure amounted to 1,180.6 billion ISK in 2018, increasing by 5% from the previous year. Central government expenditure rose by 7.5%, local government expenditure by 2% and social security fund expenditure by 9.5%. It should be noted that in 2017, the local governments transferred 32.0 billion ISK capital to Brú Pension Fund. Excluding this one-off 2017 item, local government expenditure is estimated to have increased by 11.8% in 2018.

Public consumption expenditure² amounted to 669.5 billion ISK or 23.8% of GDP in 2018, an increase of 8.9% compared with the year before. Wages and salaries expenditures increased by 8% in 2018 and investment expenditure increased by 41%, continuing an upward trend observed in the last few years. As a share of GDP, public sector investment last year was 4.4%. The significant growth in public investment can partly be explained by the transfer of the Hvalfjarðargöng road tunnel from the private limited company Spölur to the central government. The property is registered as an investment with the central government but to offset the investment expenditure, capital transfers are credited in the central government operations and therefore do not affect the financial balance.

Social transfers to households increased by 9.5% in 2018, and were 6.5% of GDP compared with 6.4% in 2017. Interest expenditure fell by 21.4% in 2018 compared with previous year. As a percentage of GDP, interest expenditure was 2.8% in 2018, compared with 3.9% in 2017.

Health and education expenditure
In 2018, the total government expenditure on health amounted to 211.7 billion ISK, 17.9% of the total government expenditures or 7.5% of GDP.

Government expenditure on education was 190.7 billion ISK in 2018, 6.8% of GDP. Almost half of the government expenditure on education went to primary education, 3.3% of GDP. Tertiary level expenditures were 18.7% of the total education expenditure or 1.3% of GDP, the upper secondary level expenditures were 16.2% and preschool 10.4%. Overall, education expenditures were 16.2% of the total government expenditure in 2018.

Government gross debt stood at 68.7% of GDP in 2018
General government financial assets amounted to 1,526 billion ISK at year-end 2018, 54.3% of GDP. Total government liabilities amounted to 1,932 billion ISK, or 68.7% of GDP, compared with 75.5% at year-end 2017. This is the seventh consecutive year that public liabilities, as a percentage of GDP, decline, reaching the lowest level in a decade. At year-end 2018, foreign loans are estimated at 4.5% of GDP, having decreased significantly in recent years. Domestic loans as a percentage of GDP have also decreased and were 7.3% of GDP at year-end 2018.

¹The government finance accounts for 2017 have been revised according to a correction published by the Financial Management Authority (FJS, Fjársýsla ríkisins) alongside the publication of the state account 2018.

²Due to delays in data delivery, the processing period of the government finance accounts and the GDP is not the same. The public consumption figures published in this document are thus different from the ones contained in the previously published GDP figures. These figures will be made consistent in the future.

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