Prime Minister Geir Haarde recently announced that in order to reduce the risk of fueling escalating inflation, the government will likely delay the implementation of tax cuts until the Icelandic economy improves.
In an interview with Bloomberg in Stockholm, Iceland’s Prime Minister said: “Timing is very important. There’s no rush and we wish to time it appropriately with respect to what’s happening in the rest of the economy.”
The central bank in Iceland has been implementing a number of changes in recent months in an attempt to cool the economy and halt rising inflation. On November 1st, the bank increased key interest rates to a level of 13.75 per cent, an unprecedented high. Consumer price growth has been increased beyond predictions every month since April 2004, spurring the bank’s drastic measures.
According to Haarde, tax cuts are “not important at the present time, but may become important and we wish to keep our options open.” He said that the next round of cuts may not occur until after the central bank’s interest rates come down, which many expect won’t occur until sometime next year.
Economist Ludvik Eliasson, of Landsbanki, said that any tax cuts by the government would most likely mean that the central bank “would have to keep policy tighter longer”.
Every year since 2005, the government has taken a percentage point off personal tax income.