The effect of Covid-19 on the financial balance of the general government (i.e. the central government, the social security funds and the local governments) is significant in the second quarter of 2020 and is estimated at 78.4 billion ISK in deficit or 11.2% of quarterly GDP. Government’s measures to mitigate the economic and societal effect of the Covid-19 outbreak have had noticeable impact on both public revenue and expenditure.

Overall, general government revenue is estimated to have decreased by 7.1% compared with Q2 2019, which can be traced to a decline in Treasury’s main sources of revenue. Tax revenue is estimated to have declined by 9%, largely explained by the deferral of payments of personal income tax and deferral of prepayments of corporate income tax. It is estimated that income from social security contributions decreased by close to 16% in Q2, which can largely be explained by Government’s measures to reduce the social security contributions by 0.25% and the option of deferring the payments of social security contributions.

Quarterly government accounts are based on tax revenue collected on a cash basis and not on accrual basis. This time, there is an unusual amount of uncertainty around the collection rate due to government measures due to Covid-19, including the deferral of tax payments. According to international standards on government finance statistics, it should be on accrual basis where depreciated tax revenue is excluded. The quarterly government accounts will be revised as more detailed data becomes available.

At the National Power Company’s annual general meeting last April, a 10 billion ISK in dividend payment to the central government was decided and was entered as income in the second quarter of this year.

Total general government expenditure increased by 13.9%
Total general government expenditure is estimated to have increased by 13.9% in Q2 2020 compared to last year’s corresponding quarter. Compensation of employees are the largest part of expenditure with an estimated share of 33% of total general government expenditure. Social transfer to households are estimated to have increased by 58% compared to Q2 2019 and the largest share of the increase is due to increase in expenditure of the Unemployment Insurance Fund. Expenditure due to the entitlement to the payment of unemployment benefits alongside reduced employment ratio, a measure taken in response to economic effects of Covid-19, amounted to 15 billion ISK alone. Additionally, the expenditure on general unemployment benefits increased significantly due to increased unemployment in the quarter.

Other social transfers to households as a response to Covid-19 were the payment of child benefit supplement of 3 billion ISK. Government subsidies on production increased by 56% from Q2 2019, the largest item being salary and salary related expenses during a notice period amounting to 5 billion ISK in the quarter.

Preliminary data for 2020.

Preliminary data for 2020.

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