Prime Minister Sigmundur Davíð Gunnlaugsson introduced his long-awaited household debt relief package last Friday.
A major campaign point of the Progressive Party was to help Icelandic homeowners come out from under debts owed to the banks on their homes. Last Saturday, the Prime Minister formally unveiled his plan to the public.
The package takes a two-prong approach: 80 billion ISK of household debt will be immediately cancelled. Another 70 billion ISK will come from allowing people to use their own tax-free, private pension holdings to pay down their debts – in effect, paying the debts themselves, albeit with money they normally would not be able to access until retirement.
While the Prime Minister was quick to declare the plan “a world record in household debt relief”, a closer look at the figures shows a different story.
In fact, debt relief during the previous government – from 2009 to 2013 – when totalled from various operations both at home and abroad, comes to about 238 billion ISK.
The actual source of the government’s part in debt relief – the first 80 billion ISK – will come from an increase on the estate tax of the old management of Iceland’s banks. This tax will be collected over the course of the next four years, and the government estimates enough revenue will be generated to cover the debt relief.
The 150 billion ISK package is also half the debt relief the Progressives promised during election season.
For more in-depth and critical analysis of the Prime Minister’s plan – in English – visit the super informative Icelandic Economics blog.