Debt Relief Package Might Fall Short

There might not be enough money to finance the household debt relief package the Progressive Party promised voters during election season.

Tryggvi Þór Herbertsson, a former Independence Party MP in charge with coordinating the debt relief project, told RÚV that things are proving difficult for the ambitious effort.

“I think the fall-back plan has always been to recall part of [the debt relief],” he told reporters. “It is dependent on funding every year.”

The reason for the possibility of a recall is unclear. As reported last December, the actual source of the government’s part in debt relief – the first 80 billion ISK – is to come from an increase on the estate tax of the old management of Iceland’s banks. This tax was to be collected over the course of the next four years, and the government estimated enough revenue would be generated to cover the debt relief.

However, Glitnir for one has contested any raising of taxes on their bank for the relief of household debt, and plan to take the matter to court. At the same time, Tryggvi contends that the money for debt relief will not be coming from the bank tax anyway – despite the plan presented by Prime Minister Sigmundur Davíð Gunnlaugsson.

“Despite the fact that politicians have connected [the debt relief] directly to the bank tax, this is in reality not possible,” he said. “This is because it’s funded directly from the national treasury,” with the bank tax going first into government coffers before it can go towards debt relief.

Formerly revealed last December, household debt relief was a major platform point of the Progressive Party before the 2013 elections.

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.

In addition, the 150 billion ISK package is also half the debt relief the Progressives promised during election season.