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Investment Plan for Iceland 2013-2015 – new emphases on employment

21.5.2012

The objective of the Investment Plan for Iceland (2013-2015) is to strengthen economic growth and diversity in the economy. This plan is a part of the recovery plan launched in the wake of the economic collapse and is designed to support the economic recovery  already underway. The plan rests on two pillars. The first is that the Treasury will recover a large part of the capital it provided to re-capitalize the banking system and the second pillar that, with the adoption of the new legislation on fisheries management and fishing fees, the nation will benefit from a greater share in the dividends yielded by marine resources.

The reasoning behind the Investment Plan for Iceland is that, with the current state of the economy, it is sensible to spend a substantial portion of the capital that has been tied up in the banks and a portion of resource fees on infrastructure investments in an organised and systematic fashion, in the interest of the general public. This will strengthen the foundations of economic growth and the Treasury's revenue base for the future.

The medium-term fiscal plan naturally remains a priority, as before, and the Investment Plan will not alter the objective to achieve overall fiscal balance by 2014.

The preparation of this investment plan and priority tasks was based on the Government's existing fiscal and economic policies and the Iceland 2020 Policy Statement.

Financing and provisos

The Investment Plan, directly and indirectly, results in investments of around ISK 88 billion, some ISK 39 bn. of which are expected to be financed by the Investment Plan. The financing is twofold:

  • ISK 17 billion will come from the proceeds of the special fishing fees and the rental of catch quotas and the plan is therefore contingent on the approval of the bill on fisheries management and fishing fees currently being discussed by the Althing (parliament). In total the increase in fishing fees is expected to yield between ISK 40 bn. and ISK 50 bn. over the next three years.
  • ISK 22 billion will come from the dividends and asset sales of government holdings in the banks, according to the draft strategy of the ISFI (Icelandic State Financial Investments), and this financing is therefore contingent on the implementation of that strategy. Some ISK 75 billion can be expected to come from government holdings in the banks over the next three years. The largest part of this revenue will be allocated to the financing of the Medium Term Fiscal Plan.  

Investments and projects financed by fishing catch fees

As already mentioned, part of the special fishing fees, according to the new bill proposed by the Minister of Fisheries, will be channelled into select parts of the investment plan from 2013 onwards. In 2012, the special fishing fees will be used to strengthen the Treasury's position.

As of 2013, allocations will be as follows:

  1. ISK 2,500 m. annual contribution to finance transport/tunnel projects.
  2. ISK 2,000 m. annual contribution to the Icelandic Research Fund and the Technology Development Fund.
  3. ISK 1,200 m. annual contribution for the development of employment and regional plans of action.  

Contributions to regional plans of action are expected to be financed by revenue from rented catch quotas on the Quota Exchange Market (40%). This investment plan is contingent on  the Althingi's approval of the new bill on fisheries management and fishing fees.

Investments and projects financed by dividends and asset sales

Other investment projects are proposed with the proviso that the estimated dividends and asset sales of the banks are realised.

THREE YEAR INVESTMENT PLAN  ISK billions   ISK billions   ISK billions   ISK billions
        Total years      
        2013-2015 2013 2014 2015
Financing with special fishing fees 17,100 5,700 5,700 5,700
                    Transport infrastructure 7,500 2,500 2,500 2,500
    Research Fund and Technology Development Fund   6,000 2,000 2,000 2,000
      Research Fund   750 750 750
      Technology Development Fund   750 750 750
                      Research programmes   500 500 500
    Regional plans of action 3,600 1,200 1,200 1,200
               
Financing with dividends and assets sales 22,021 10,695 6,638 4,438
                  Boosting of growth sectors, total 8,914 3,638 2,638 2,638
    Tourism services 2,250 750 750 750
      Development of tourist locations 1,500 500 500 500
      Infrastructure of protected areas 750 250 250 250
    Creative industries 2,814 938 938 938
      Film Fund 1,464 488 488 488
      Creative industries project fund 750 250 250 250
      Iceland, the e-nation   600 200 200 200
    Green economy 3,850 1,950 950 950
      Green investments 150 50 50 50
      Green investment fund 1,000 1,000    
      Greening of companies 1,500 500 500 500
      Eco- procurement 600 200 200 200
      Energy switch in ships 600 200 200 200
  Property 13,107 7,057 4,000 1,800
      Maintenance of government buildings brought forward 1,750 1,500 500 -500
      Maintenance/interest 9,250 4,000 3,000 2,000
      Rental income -7,500 -2,500 -2,500 -2,500
      Prisons 2,000 1,000 1,000  
      Herjólfur/Landeyjarhöfn harbour 2,300 1,000 1,300  
      Educational Science Building 1,300     1,300
       Icelandic Studies Building 2,400 800 800 800
      Icelandic Museum of Natural History/exhibition 500 500    
      University of Akureyri, extension 257 57 200  
      Architectural Heritage Fund   600 200 200 200
      Rental housing, contribution to equity of HFF 2,000 2,000    

The following table places the plan in context with macroeconomic aggregates and reveals additional investments connected to and stemming from the plan. 

      2013-2015 2013 2014 2015
                Investment plan, total    39,121 16,395 12,338 10,138
  GDP, at fixed prices 1,762,797 1,714,347 1,762,349 1,811,695
             
  Percentage of GDP 2.2% 0.9% 0.7% 0.6%
  Additional, private investment:        
    Housing rental investment 40,000 10,000 20,000 10.000
    Technology Development Fund, contribution of companies 3,000 1,000 1,000 1.000
    Contribution from UoI Lottery 1,000 500 250 250
    Leifstöð/Keflavík Airport 5,500 500 2,500 2.500
  Total 88,371 28,395 36,088 23,888
             
  Percentage of GDP 5.2% 1.7% 2.0% 1.3%

The impact the Investment Plan for Iceland will have on unemployment, , GDP growth and the Treasury's revenue has been estimated in a macroeconomic model. The following is an overview of the impact of key aggregates:

Compared to previous year (%) 2013 2014 2015
Statistics Iceland baseline forecast      
GDP 2.5 2.8 2.8
Investment 8.4 9.9 -1.5
Unemployment (% of labour force) 5.5 5.2 4.6
Foreign trade: Balance of goods and services, % of GDP 7.7 6.9 8.0
Deviation: Investment Plan      
GDP 3.1 3.3 2.5
Investment 18.9 12.4 -5.1
Unemployment (% of labour force) 5.1 4.6 4.2
Foreign trade: Balance of goods and services, % of GDP 6.4 5.2 6.6
Treasury's tax revenue, increase in ISK m. 3,300 6,700 6,900

It should be noted that this is a conservative estimate of the macroeconomic impact. The investment plan is expected to directly create a total of 4,000 jobs, and on the basis of general assumptions regarding the generation of indirect and derived employment, the total impact can be expected to be 11,000 jobs. Considerably more conservative assumptions are applied in the above table, however, which is based on a macroeconomic model. 

The increase in economic activity, which this plan entails, will increase tax revenue and reduce unemployment costs. The Treasury's tax revenue is estimated to increase by what could amount to ISK 17 billion over a three year period, with reduced unemployment estimated to  lower spending by an additional ISK 2-3 billion.

The ministerial committee for employment will monitor the plan in collaboration with the relevant line- ministries   The Plan will be included  in frame budgets for the next four years, the budget for 2013 and will entail additional financing for existing programmes, including the Transport Plan for 2011-2022 now being discussed in the Althing.

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