Credit rating agency Moody’s believes that Prime Minister Sigmundur Davíð Gunnlaugsson’s debt relief package will actually have a positive effect on the Housing Financing Fund (HFF) – directly contradicting the International Monetary Fund on the same subject.
RÚV reports that Moody’s does not believe the plan will negatively effect the economy, because the money is coming from a tax on a company (in this case, Landsbanki) rather than raising individual income taxes. The resulting cuts to loan payments will, they also contend, give people more spending money and more purchasing power.
This opinion is not shared by the IMF, who believe that the HFF is already struggling to stay solvent, and that money could be better spent paying down public debt.
The debt relief package takes a two-prong approach: 80 billion ISK of household debt will be immediately canceled. This money 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. 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.
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