The management poses a political risk

"Iceland should be based on stability and responsible decisions made on a solid foundation. But when the government puts forward poorly prepared bills without consultation and does not respond to legitimate criticism, the result is instability and decreasing credibility. Such governance creates political risk.

We saw this danger clearly materialise during the times of the left-wing government 2009-2013, when there was an aim to radically change Icelandic society in a short time. Then, there was an increase in taxes on the public and businesses, along with attempts for revolutionary changes in various areas of society that were to materialise in a relatively short period. This attempt failed spectacularly.

A policy that undermines employment

The government has put forward bills and announced measures that create increased uncertainty and undermine the financial fundamentals of important industries. The most significant is the proposed increase in fishing fees which will have serious effects on many fishing communities. Despite warnings from 26 municipalities, where about 100 thousand people live, there is no retreat. Auditors and companies serving the fisheries sector, along with smaller and larger fisheries, have made significant comments and called for answers to very pressing questions but have not been consulted.

At the same time, there are plans to increase charges and taxes on the tourism industry, despite dark clouds on international markets and reduced competitiveness of the sector. Additionally, various changes regarding the pension fund system are planned, which will negatively affect pension incomes for both the elderly and future generations in the labour market. In fact, it can be said that the government's main focus in economic issues is to increase charges on the public and companies without an assessment of the impacts on economic growth, job numbers, and investment willingness in the business sector being present. An all too familiar refrain.

The uncertainty spreads into the economy

Thus, the fundamental industries of the nation are placed in a state of constant uncertainty domestically, which adds to the unrest already existing in international markets. All of this undermines the market's confidence in economic management and increases the likelihood of persistent inflation and high interest rates, reduces investment willingness, slows job creation, and thus weakens the foundation of value creation in society.

In an article by Gunnar Baldvinsson, executive director of Almenni pension fund, in Viðskiptablaðið on 4th July, it is revealed that recent actions of the government might have such substantial effects that pension funds might be forced to increase their assessment of political risk. They also need to take actions to mitigate possible damage if the risk materialises. Such a development underscores that political uncertainty has already had measurable impacts on the financial environment of key institutions in society. With the government's unchanged policy, investments will decline and job creation will decrease. Such development weakens the foundations of the economy and reduces society's ability to support a strong welfare system.

The government's management is already having significantly negative effects."

Sigurður Ingi Jóhannsson, Chairman of Framsókn

The article first appeared in Morgunblaðið on 10th July 2025