UNEMPLOYMENT / DEC. 27, 2012
version 19, draft 19

Investment Plan for Iceland 2013-2015 – New Emphases on Employment

21.5.2012

The objective of the Investment Plan for Iceland (2013-2015) is to strengthen economic growth and diversity in the economy. This plan is a part of the recovery plan launched in the wake of the economic collapse and is designed to support the economic recovery already underway. The plan rests on two pillars. The first is that the Treasury will recover a large part of the capital it provided to re-capitalize the banking system and the second pillar that, with the adoption of the new legislation on fisheries management and fishing fees, the nation will benefit from a greater share in the dividends yielded by marine resources.

The reasoning behind the Investment Plan for Iceland is that, with the current state of the economy, it is sensible to spend a substantial portion of the capital that has been tied up in the banks and a portion of resource fees on infrastructure investments in an organised and systematic fashion, in the interest of the general public. This will strengthen the foundations of economic growth and the Treasury's revenue base for the future.

The medium-term fiscal plan naturally remains a priority, as before, and the Investment Plan will not alter the objective to achieve overall fiscal balance by 2014.

The preparation of this investment plan and priority tasks was based on the Government's existing fiscal and economic policies and the Iceland 2020 Policy Statement. 

The Investment Plan, directly and indirectly, results in investments of around ISK 88 billion, some ISK 39 bn. of which are expected to be financed by the Investment Plan. The financing is twofold:

  • ISK 17 billion will come from the proceeds of the special fishing fees and the rental of catch quotas and the plan is therefore contingent on the approval of the bill on fisheries management and fishing fees currently being discussed by the Althing (parliament). In total the increase in fishing fees is expected to yield between ISK 40 bn. and ISK 50 bn. over the next three years.

  • ISK 22 billion will come from the dividends and asset sales of government holdings in the banks, according to the draft strategy of the ISFI (Icelandic State Financial Investments), and this financing is therefore contingent on the implementation of that strategy. Some ISK 75 billion can be expected to come from government holdings in the banks over the next three years. The largest part of this revenue will be allocated to the financing of the Medium Term Fiscal Plan.  

 As already mentioned, part of the special fishing fees, according to the new bill proposed by the Minister of Fisheries, will be channelled into select parts of the investment plan from 2013 onwards. In 2012, the special fishing fees will be used to strengthen the Treasury's position.

As of 2013, allocations will be as follows:

  1. ISK 2,500 m. annual contribution to finance transport/tunnel projects.

  2. ISK 2,000 m. annual contribution to the Icelandic Research Fund and the Technology Development Fund.

  3. ISK 1,200 m. annual contribution for the development of employment and regional plans of action.  

Contributions to regional plans of action are expected to be financed by revenue from rented catch quotas on the Quota Exchange Market (40%). This investment plan is contingent on  the Althingi's approval of the new bill on fisheries management and fishing fees.

Other investment projects are proposed with the proviso that the estimated dividends and asset sales of the banks are realised.

The following table places the plan in context with macroeconomic aggregates and reveals additional investments connected to and stemming from the plan.  

The impact the Investment Plan for Iceland will have on unemployment, , GDP growth and the Treasury's revenue has been estimated in a macroeconomic model. The following is an overview of the impact of key aggregates:

It should be noted that this is a conservative estimate of the macroeconomic impact. The investment plan is expected to directly create a total of 4,000 jobs, and on the basis of general assumptions regarding the generation of indirect and derived employment, the total impact can be expected to be 11,000 jobs. Considerably more conservative assumptions are applied in the above table, however, which is based on a macroeconomic model. 

The increase in economic activity, which this plan entails, will increase tax revenue and reduce unemployment costs. The Treasury's tax revenue is estimated to increase by what could amount to ISK 17 billion over a three year period, with reduced unemployment estimated to  lower spending by an additional ISK 2-3 billion.

The ministerial committee for employment will monitor the plan in collaboration with the relevant line- ministries   The Plan will be included  in frame budgets for the next four years, the budget for 2013 and will entail additional financing for existing programmes, including the Transport Plan for 2011-2022 now being discussed in the Althing.  

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