Treasury

The Treasury Accounts for 2000. News Release. September 4, 2001

9/4/2001

Ministry of Finance

News Release
Iceland
September 4, 2001

The Treasury accounts for the year 2000 show a deficit on the revenue balance of 4.3 billion krónur, a result well below the projection in the 2000 budget which called for a revenue surplus of 16.7 billion krónur. The shortfall is entirely due to irregular expenditure items which affect the expenditure outturn for the year; without these the revenue surplus would have amounted to 22 billion krónur.

On the other hand, the cash surplus from operations amounted to 17 billion krónur, a slightly better result than projected in the budget and a smiliar amount as in 1999. This cash surplus indicates the amount at hand to repay Treasury debt or improve its position in other ways. Of this amount, close to 9 billion krónur were used to prepay future pension commitments of the Treasury to the Government Employees Pension Fund and 8 billion krónur were used to repay Treasury debt in excess of new borrowing.


The largest item amongst irregular expenditures is the expenditure entry of 17 billion krónur of future pension commitments in excess of budget projections. This is mainly the result of pay agreements concluded with school teachers. These agreements are the last in a series of so-called adjustment agreements where basic pay as a proportion of total emoluments is being increased. Such a shift in the pay structure means that pension rights are increased with a commensurate increase in Treasury pension commitments. In addition, tax claims amounting to 7 billion krónur in excess of budget projections were written off as uncollectable. The Treasury has installed new software to track revenue collections and thus improved its overview of outstanding tax claims and its assessment thereof. A critical review of outstanding tax claims has revealed that they were overassessed in the Treasury accounts of previous years. It was therefore decided to make a substantial reassessment of such claims at this time. This reassessment is being continued in 2001.

The revenue balance in 2000 is less favourable than in 1999 when there was a revenue surplus of 23 billion krónur. In addition to the items noted above, the less favourable result is due to fluctations in revenue from asset sales. Current revenue from such sales amounted to 11 billion krónur in 1999 whereas it turned out to be insignificant in 2000.

Treasury revenue amounted to 224.7 billion krónur in 2000, equivalent to 33.6 per cent of GDP for the year. By comparison, 1999 revenue amounted to 222.6 billion krónur or 35.7 per cent of GDP. The increase in revenue amounted to only 2.1 billion krónur, indicating a decline in real terms of 3.9 per cent.

About one-fourth of Treasury revenue comes from personal and corporate taxes on income and profit, amounting to 59.6 billion krónur compared to 53 billion krónur in 1999, an increase of 12.5 per cent. Social security taxes yielded 19.7 billion krónur, compared with 17.8 billion krónur a year earlier and net wealth taxes yielded 9.9 billion krónur, compared with 8.4 billion krónur in 1999. The value added tax represents the the largest revenue item of the Treasury; it yielded 71.9 billion krónur, increasing by only 1.9 billion or 2.7 per cent from a year earlier. VAT income from imports increased considerably whereas income from sales of goods and services declined. VAT refunds increased by 1.5 billion krónur, two-thirds of which went to public entities. Excise taxes and other specific taxes on turnover amounted to 39.6 billion krónur, about one-fifth of total revenue. This compares to 38.5 billion krónur the year before, the increase thus being insignificant. Other current revenue, which includes income from dividends, interest and various other imposts, amounted to 19 billion krónur compared with 17.5 billion krónur a year yearlier. Most of the increase come from increasing interest income. Miscellaneous revenue amounted to 5 billion krónur. The largest items thereunder stem from the reassessment of the Treasury stake in the Westfjord Power Company and the Leif Ericsson Airport Terminal, amounting to a total of 3.2 billion krónur. Other current revenue amounted to 17.4 billion krónur in 1999, thus declining by 12.4 billion krónur in 2000. Most of the decline is due to the fact that current revenue from asset sales amounted to 11.1 billion krónur in 1999 and only to 0.7 billion krónur in 2000.

Treasury expenditure amounted to a total of 229.0 billion krónur, equivalent to 34.2 per cent of GDP, compared to a total expenditure of 199.0 billion krónur in 1999, 31.9 per cent of GDP. Two-thirds of the 30 billion krónur increase is attributable to irregular items, i.e. pension fund commitments and tax claims written off, as noted earlier. Of the remainder, 7 billion went to social expenditures, particularly to health and social security, 2 billion to communications and 2.6 billion to administrative expenditures. The summary of the accounts shows the breakdown of expenditure by ministry as well as by expenditure category. The latter gives a clearer picture since tasks are sometimes transferred between ministries, which complicates a comparison on a ministry basis. As in earlier years, social expenditure is the largest category, with a total of 120.0 billion krónur or 52.4 per cent of total expenditure. Within this category, health expenditure amounts to 51.4 billion krónur, social security to 36.1 billion krónur and education and culture to 25.4 billion krónur. Social expenditure amounted to 112.8 billion in 1999, thus increasing by 7.2 billion. Expenditure on economic affairs amounted to 31 billion, 13.5 per cent of the total. The largest item thereunder is expenditure on communications, 13.4 billion and on agriculture and forestry, 9.1 billion. The increase in expenditure on economic affairs between the years amounted to 2 billion, mostly due to communications. Administrative expenditure amounted to 22.8 billion krónur or 10 per cent of the total. This category includes justice and law enforcement. Other expenditure amounted to 55.1 billion krónur, 24.1 per cent of the total. This category includes interest expenditure, 15.2 billion krónur, and pension fund commitments, 24.9 billion krónur, compared with 12.9 billion krónur a year earlier. Tax claims written off amounted to 11.4 billion krónur, increasing by 6.8 billion krónur from the previous year, as noted earlier.

The financial balance. The Treasury yielded a financial surplus for the fourth year in succession, which reflects its ability to repay outstanding debt or improve its position in other ways. The financial surplus amounted to 9.5 billion krónur for the year, in addition to a payment of 8.8 billion krónur to the Government Employees Pension Fund in order to reduce the future commitments of the Treasury to the Fund. The cumulative financial surplus for the past three years amounted to 45 billion krónur, most of which has been used to repay domestic Treasury debt, in addition to 17 billion krónur to the Government Employees Pension Fund.

The book value of government assets amounted to a total of 214.8 billion krónur, compared with 212.2 billion krónur the year before. The Treasury stake in government enterprises has a book value of 75 billion krónur and outstanding credits amount to 71 billion krónur. Treasury claims, mainly taxes due, amounted to 52 billion krónur and liquid funds at hand at the end of the year amounted to 17 billion krónur. Total Treasury debt amounted to 412.9 billion krónur, compared with 383.8 billion krónur a year earlier. The bulk of the increase is due to higher pension commitments; they amounted to 163 billion krónur at the end of the year. Total Treasury borrowing amounted to 228.5 billion krónur, 89 billion of which was domestic and 139 billion foreign. Repayment of debt in excess of new borrowing amounted to 14 billion during the year, which is counterbalanced by an increase in foreign debt due to the decline in the króna exchange rate.