The financial balance of the general government (i.e. the central government, the social security funds and the local governments) is estimated as 288.3 billion ISK in deficit in 2021, equivalent to 8.9% of GDP, compared with a deficit of 254 billion ISK in 2020 or 8.7% of GDP.
The general government revenue in current prices increased by 6.1% and the expenditure of the general government increased by 7.4% from the previous year.
Financial balance continues to decrease in fourth quarter of 2021
The financial balance of the general government is estimated to be negative by 89.5 billion ISK in the fourth quarter of 2021, a deficit equivalent to 10.2% of the quarterly GDP. Overall, the general government revenues are projected to have increased by 2.9% in the fourth quarter of 2021, while the general government expenditure is estimated to have increased by 9.0%.
General government revenues were 40.4% of GDP
The general government total revenues are estimated to have been 1,306.7 billion ISK or 40.4% of GDP in 2021. In comparison, in 2020 the general government total revenues amounted to 1,231.6 billion ISK or 42.1% of GDP. This translates to a government revenue increase of 75 billion ISK in current prices or 6.1%. This increase in revenue is a reversal from the previous year, but general government revenues decreased by 3.3% between 2019 and 2020.
The central government total revenues are estimated to be 911.5 billion ISK in 2021, as preliminary figures suggest an increase of 5.1% from the previous year. Local government revenues are estimated to have increased by 7.4% and amounted to 434.8 billion ISK in 2021. The revenues of the social security funds increased by 6%, to a total of 379.6 billion ISK in 2021, but 99.5% of the funds are funded through the central government. At central government level, the contributions to the social security funds are categorized as transfers to other levels of government. When general government revenues and expenditures are combined, contributions between government units are adjusted to prevent overestimation of revenues and expenditures.
Statistics Iceland’s treatment of general government accounts is according to the European Union's national accounts system. The treatment of the sale of assets and income from associated companies and joint ventures differs from the treatment of the Governments Accounts and municipalities. In Statistics Iceland's general government accounts, income from the sale of assets, share of income and changes in the value of assets are only recognised in the balance sheet. Revenues from publicly owned companies are only recognised as income in the form of dividends up to a maximum of the previous year's profit.
Government expenditure at 49.3% of GDP
General government expenditure is estimated at 1,595.0 billion ISK in 2021, or 49.3% of GDP. In comparison, in 2020 the general government total expenditure amounted to 1,485.6 billion ISK or 50.7% of GDP. Total central government expenditure is estimated at 1,177.6 billion ISK in 2021, an increase of 6.7% from the previous year. Estimated local government expenditure amounts to 466.4 billion ISK in 2021, an increase of 7.9% from the previous year.
Public consumption expenditure (i.e. wages and salaries, use of goods & services and depreciation, taking into account sales of goods and services) amounted to 886.7 billion ISK or 27.4% of GDP in 2021. An increase of 8.8% compared with the year before, driven by a 9.3% increase in wages and salaries expenditure.
Preliminary figures suggest that public investment expenditure amounted to 134.6 billion ISK in the year 2021, or 4.2% of GDP. As a percentage of GDP for each year, public investment has increased in recent years and, at current prices, it is estimated that public investment has increased by 21.2 billion ISK between 2020 and 2021.
Preliminary figures for 2021 indicate that social transfers to households amounted to 304.6 billion ISK, an increase of 3.2% from 2020. In 2020, general government expenditure on social transfers increased by 32.8% from the previous year. This increase is largely due to the effects of the Covid-19 pandemic and related government actions.
Estimated general government interest expenditure amounted to 132.4 billion ISK and as a percentage of GDP it amounted to 4.1% in 2021, which is a similar proportion as in 2020. General government interest expenditure has been declining in recent years and amounted to 6.8% in 2015.
In 2021, the total government expenditure on health is estimated to have been 271.4 billion ISK, 18% of the total government expenditures. That is an increase of 12.4% from 2020, or 30 billion ISK increase. Of this, it is estimated that almost 13 billion ISK can be considered as direct expenditure due to the Covid-19 pandemic.
Government expenditure on education is estimated at 227.4 billion ISK in 2021, or 15% of total government expenditure. That is an increase of 8% from 2020. As a percentage of GDP for the year, there is a slight contraction in expenditure on education, but it should be borne in mind that GDP increased considerably in 2021 after a significant contraction in 2020.
It is estimated that 50.4% of the government expenditure on education was allocated towards primary education, or 3.5% of GDP. Tertiary level expenditures were 15.9% of the total education expenditure or 1.1% of GDP and the upper secondary level expenditures were 17.1% or 1.2% of GDP.
Government gross debt stood at 109.7% of GDP in 2021
General government net financial assets are estimated to be negative by 1,116.1 billion ISK at the end of 2021, equivalent to 34.5% of GDP. General government financial assets amounted to 2,432.0 billion ISK at year-end 2021, or 75.2% of GDP, and total government liabilities amounted to 3,548.1 billion ISK, or 109.7% of GDP compared with 114% at year-end 2020. In the period 2012 to 2018, general government gross debt began to decline, but due to the general government deficit in 2019 to 2021, public debt is on the rise again.
The central government gross debt is estimated at 3,109.2 billion ISK in 2021, an increase of 170.8 billion ISK from the previous year. The estimated gross debt of local governments is 444.1 billion ISK, an increase by 39 billion ISK from the year 2020. Special circumstances due to the Covid-19 pandemic have caused considerable deficit in the years 2020 and 2021 as revenue sources have shrunk and expenditures have increased. The general government deficit in 2021 appears to be largely financed by borrowing, but public borrowing, which has been netted off at the end of 2021, is estimated at 24,5% of GDP for the year, compared with 21.1% at the end of 2020.
Financial balance for the general government, together with financial assets and liabilities are estimated on the basis of preliminary figures, the results of which will change when the final figures are published in September 2022.