Iceland Nasdaq Boss Backs Exit Tax as New Currency Regime Looms

The head of Iceland’s stock exchange says an exit tax would protect the economy from sudden shocks as policy makers prepare to unwind capital controls in place since 2008.

“By deploying an exit tax, we’re not diving in from the deep end without knowing what could happen next,” Pall Hardarson, head of the 700 billion-krona ($5.1 billion) Nasdaq Iceland stock exchange, said in an interview in Reykjavik. “If the conditions are favorable, we can reduce the levy, if conditions are not favorable we can reduce or prevent outflows by raising the tax.”

Iceland, whose 2008 banking default on $85 billion pushed the economy into a recession that lasted through the first half of 2010, resorted to currency restrictions to prevent a capital exodus. The measures are blocking as much as $6 billion in kronur assets, or about 40 percent of gross domestic product, owned by foreign investors from leaving the economy, inflating domestic asset prices.

Iceland’s Nasdaq exchange is slowly rebuilding itself and now comprises 15 companies, with two more listings expected this year. The country had 75 companies with listed shares 16 years ago. Hardarson said further growth in the market would help ease potential turmoil that could come from lifting the capital controls.

“Greater diversity in the equities market could make abolishing capital controls easier,” he said. “It would reduce the chance of outflows.”

The OMX Iceland All-Share Index has more than doubled in value since the beginning of 2010 and is up about 9 percent since the start of the year. Of the 15 companies in the index, five have seen their shares lose value, with the shipping company Eimskipafelag Islands hf falling more than 5 percent. Prosthetics maker Ossur hf has seen its value jump more than 21 percent this year.

Earlier this month, real estate company Reitir fasteignafelag hf became the 15th company to list its shares.

As a way to prevent money exiting the economy when krona controls are removed, the government is planning to levy a “stability tax” on investors. Premier Sigmundur David Gunnlaugsson said in a speech on April 10 that enacting such a tax would generate “hundreds of billions of kronur and will, alongside other actions, allow the government to remove capital controls without jeopardizing economic stability.”

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