In the third quarter of 2020, the financial balance of the general government (i.e. the central government, the social security funds and the local governments) is estimated at 68.6 billion ISK in deficit, equivalent to 9.4% of quarterly GDP. The effects of Covid-19 on the financial balance of the general government have been significant in 2020 and the Government’s measures to mitigate the economic and societal effect of the Covid-19 outbreak have had noticeable impact on both general government revenue and expenditure.

Overall, general government revenue is estimated to have decreased by 5% compared with Q3 2019. Revenue from taxes on income and profit is estimated to have increased by 3%. It is estimated that revenues from taxes on goods and services have decreased by 21.5% in Q3, which can largely be explained by a contraction in VAT revenue, which decreased by 37%. Revenues from social security contributions decreased by 6.2% in Q3 and can be explained partly by government’s measures to reduce the social security contributions by 0.25 percentage points.

Total general government expenditure is estimated to have increased by 13.4% in Q3 2020 compared with last year’s corresponding quarter. Compensation of employees is the largest part of expenditure with an estimated share of 32% of total general government expenditure. Social transfer to households is estimated to have increased by 15% compared with Q3 2019 and the largest share of the increase is due to Unemployment Insurance Fund’s increase in expenditure. Expenditure due to the entitlement to the payment of unemployment benefits alongside reduced employment ratio, a measure taken as a response to the economic effects of Covid-19, amounted to 2 billion ISK alone. Additionally, the expenditure on general unemployment benefits increased significantly due to increased unemployment in the quarter. Government subsidies on production increased by 134% from Q3 2019, the largest item being salary and salary related expenses during a notice period amounting to 9.4 billion ISK in the quarter.

During the review of the sector classification of public entities published on 30 November, 24 public entities, which have so far been classified outside the general government sector, were reclassified to the public sector. The financial information of these entities for 2020 is not yet available and therefore estimated in this publication.

Preliminary data for 2020.

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