The financial balance of the general government (i.e. the central government, the social security funds and the local governments) is estimated as 254 billion ISK in deficit in 2020, equivalent to 8.6% of GDP, compared with a deficit of 46.4 billion ISK in 2019 or 1.5% of GDP. The general government deficit has not been larger since 2008, but the Covid-19 pandemic has had a significant impact on both general government’s revenue and expenditure.
The general government revenue in current prices decreased by 3.3%, while the expenditure of the general government increased by 12.5% from the previous year.
When comparing amounts as a share of GDP it should be noted that GDP contracted in real terms by 6.5% in 2020.
2016: Revenue due to stability contribution of 384.2 billion ISK are included.
2017: The local government's 32.0 billion ISK contribution to the Pension Fund Brú are included as an expense.
The general government total revenue amounted to 1,231.6 billion ISK or 41.9% of GDP in 2020. In comparison, in 2019 the general government total revenue was 1,273.9 billion ISK or 41.8% of GDP.
The central government total revenue amounted to 867.1 billion ISK in 2020, a decrease of 7% from the previous year. Local government revenue increased by 5.4% and amounted to 404.8 billion ISK in 2020. The revenues of the social security funds increased by 23.7%, to a total of 358.1 billion ISK in 2020. Social security funds are funded through the central government.
Taxes on income are the largest revenue item in the general government accounts and generated 43.9% of the general government revenues in 2020. In total, revenues from income taxes amounted to 540.9 billion ISK in 2020, increasing by 2% from the previous year. Taxes on goods and services decreased by 3.3% in 2020, contributed 27.1% of the total revenue and amounted to 11.3% of GDP. Overall, there was no significant change in general government tax revenue between 2019 and 2020.
General government expenditure is estimated at 1,485.6 billion ISK in 2020, increasing by 12.5% from the previous year. Central government expenditure increased by 14.3%, local government expenditure by 7.3% and social security fund expenditure by 22.3%. Public consumption expenditure (i.e. wages and salaries, use of goods & services and depreciation) amounted to 818.9 billion ISK or 27.8% of GDP in 2020. Public consumption expenditure increased by 10.1% compared with the year before, mostly driven by a 9.2% increase in wages and salaries expenditure. The share of wages and salaries is the largest in public consumption expenditure, or around 58%.
The significant growth in public investment in 2018 can partly be explained by the transfer of the Hvalfjarðargöng road tunnel from the private limited company Spölur to the central government.
Public investment expenditure at current prices decreased slightly or by 0.4% in 2020 and amounted to 110 billion ISK. Central government investment expenditure increased by 6.7% from previous year while local government investment expenditure decreased by more than 11%. At current prices, general government interest expenditure has been declining since 2015 as well as a share of GDP, since 2012, as the ratio amounted to 4% in 2020, compared with 8.9% in 2012.
Impact of Covid-19 on public finance
Government measures to minimize the negative economic impact of the Covid-19 pandemic have had a major impact on public finances.
Social benefits to households increased by over 32.8% in 2020 and amounted to 295.2 billion ISK, compared to 222.3 billion ISK the previous year. The largest increase is in the Unemployment Insurance Fund’s expenditure as unemployment benefits expenditure increased by 141%, or from ISK 22.6 billion in 2019 to ISK 54.4 billion in 2020. Expenditure on partial benefits amounted to an additional 28 billion ISK. Other transfer expenditures increased by 47% in 2020, from the previous year. The largest item are the so-called relief grants, which amounted to almost ISK 10 billion in 2020.
Adjustments have been made for irregular items in 2016, ie. stability contribution for 384.2 billion ISK from the winding-up estates of failed financial institutions and a charge of 105.1 billion ISK due to the transfer of capital from the central government to the Pension Fund for State Employees.
General government expenditure by function
The largest general government expenditure item is social protection, social security, amounting to close to 29% of expenditure in 2020 or 407.3 billion ISK. Expenditure on social protection has increased in recent years and increased by 26.2% in 2020 compared to 2019.
The second largest function in public administration is health, which accounted for 17.1% of total general government expenditure in 2020. A total of 241.1 billion ISK went to health during the year, or 8.2% of GDP for the year. This is an increase in expenditure of 7.6% of GDP from the previous year at current prices, which is a slightly smaller increase than was estimated in the provisional issue of public finances last March.
General government expenditure on education amounted to 208.9 billion ISK in 2020, or 14.8% of total general government expenditure. General government expenditure on education, as a percentage of GDP, amounted to 7.1% in 2020. Almost half of the general government expenditure on education went towards primary school education. 15.8% of the public expenditure on education went towards the tertiary level education, 17.1% to the upper secondary level and 11.1% to the pre-school level.
Government gross debt stood at 113.5% of GDP in 2020
General government financial assets amounted to 2,46 billion ISK at year-end 2020, or 81.8% of GDP, and total government liabilities amounted to 3,338 billion ISK, or 113.5% of GDP compared with 98.7% at year-end 2019. Public borrowing at the end of 2020 amounted to 21% of GDP and the share of domestic borrowing was 12.2% of GDP and foreign borrowing amounted to 8.7% of GDP.