Iceland Sees Budget Surplus in 2014 After Taxing Failed Banks

Iceland’s government predicted it will be able to balance its budget next year raising taxes on the lenders that failed in its 2008 collapse.

The budget will show a surplus of 500 million kronur ($4.2 million) in 2014, the Finance Ministry in Reykjavik said today. Income will reach 587.6 billion kronur and spending 587.1 billion kronur. The ministry expects a surplus of 2.6 billion kronur, or 0.1 percent of gross domestic product, in 2015. That compares with an estimated 31.1 billion-krona deficit this year.

The new government, which was elected in April on pledges to boost economic growth and complete the island’s re-emergence from the 2008 economic collapse, also said it will cut income taxes next year. Iceland is struggling to remove capital controls put in place in 2008 after the krona plunged as much as 80 percent against the euro offshore. The restrictions are stopping as much as $8 billion in kronur assets from being exchanged, according to an estimate by Arion Bank hf.

“The main theme of the Treasury’s financial policy is to reduce the state’s debts and thereby the interest burden,” the ministry said. “It’s important to constantly review the size of the foreign reserves, which are mostly borrowed.”

The government will raise the tax on bank assets to 0.145 percent, which will also be imposed on the failed banks in winding-up proceedings, increasing revenue by 13 billion kronur. Kaupthing Bank Hf, Glitnir Bank Hf and Landsbanki Islands hf all defaulted on a combined $85 billion in 2008, forcing the island to seek an economic bailout.

Iceland’s $14.1 billion economy will expand 1.9 percent this year, the Organization for Economic Cooperation and Development estimates. That compares with a 0.6 percent contraction in the 17-member euro area, according to the Paris-based group’s May forecast.

Finance Minister Bjarni Benediktsson introduced his proposed 2014 budget to parliament today.

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