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Prime Minister´s Policy Address 2007


Mr. Speaker, fellow Icelanders

The new Government of the Independence Party and Social Democratic Alliance has now been in office for just over four months. The Government?s Policy Statement, which was presented and debated at the spring session of Parliament, states that the coalition parties are committed to forming a liberal, reforming Government for a dynamic economy, a robust welfare system, improved household finances and greater business competitiveness. These are noble objectives but realistic ones as well, and systematic work has already begun to achieve them during the term of office.

By most indications, the expansion that has characterised the Icelandic economy over the past two to three years is easing and a period of greater stability and better macroeconomic balance lies ahead. This is a very positive development, even if it means a temporary slowdown in the recent rate of growth.

Such an adjustment reflects the flexibility and strength of the Icelandic economy, a strength that is manifested in robust business operations, ample employment opportunities and increasing purchasing power of households ? living standards and the general quality of life in Iceland now rank with the best in the world. Reports are heard almost daily about how Icelandic businesses and entrepreneurs are expanding their activities abroad, and in several fields Icelandic companies are among the largest and most dynamic in the world.

This brings to mind the importance of creating an environment in which Icelandic businesses see benefits from being headquartered in Iceland. A favourable tax regime and general operating environment weigh heavily in this regard. But we need to remain alert, because competition for the most powerful companies and best employees is becoming increasingly tougher. This requires a continuous effort by the Icelandic authorities to seek new ways to strengthen the business operating environment and boost the living standards of wage earners.

Guided by these viewpoints, the Government aims to make further cuts in personal taxation during its term of office, including an increase in the personal tax-free allowance, as well as reviewing the tax system and social security system in order to benefit lower- and medium-income groups. Likewise, further reductions in corporate taxation are aimed for.

A solid fiscal result is the precondition for further tax cuts. The draft budget for 2008 assumes a substantial fiscal surplus, not only next year but over the next four years. This is a sharp turnaround from previous projections for a considerable Treasury deficit in the coming years. In my view this new position creates scope for further reductions in personal and corporate taxation in the years ahead, alongside a raft of improvements to the welfare system and social infrastructure.

Mr. Speaker:

The Government has not been idle over the summer. One of the first major issues was the decision by the Minster of Fisheries, with the full backing of the Government, to follow the recommendation by the Marine Research Institute and cut the cod quota by one-third from the previous fishing year. Leading experts consider this measure necessary in order to build up the cod stock for the future. In this context it is vital to ensure that those who bear the brunt of the quota reduction now will reap the benefits of the increase that will hopefully be made within the next few years.

Although the decline in the fish catch has relatively little impact on the economy as a whole ? and much less than it would have had only a few years ago ? the decision will inevitably lead to a significant loss of earnings in many coastal communities, for fishing companies, seamen, land-based workers and local authorities. The Government therefore decided on a package of specific measures to mitigate the impact.

Under these measures, around 6.5 billion krónur will be allocated over the next three years to a wide range of projects designed to boost local economies, increase education and offer greater recourses to whose employment is affected, and to accommodate fisheries sector companies and support local authorities in the face of contracting revenues. Infrastructure investment for a further 4 billion krónur will be expedited and undertaken over the next three years.

No one is claiming that these measures represent a perfect substitute for a 60 thousand-tonne cod quota. But coupled with the flexibility now offered by the banking sector and the Regional Development Institute?s greater scope for providing credit, they will leave those involved better equipped to tide themselves over until fishing quotas are increased again.


Honourable Speaker:

One of the Government?s priorities is more accessible and efficient communication between citizens and the public authorities. Reducing the number of ministries and reorganising their division of tasks is one aspect of this issue. Statistics Iceland will be converted into an agency under the Office of the Prime Minister instead of its current ministerial status, and the two ministries dealing with food will be combined into a new Ministry of Fisheries and Agriculture. The merger will increase coordination and enhance oversight at all stages of food production and also boost the nation?s competitive position and reputation in the markets.

 Furthermore, the Government has decided to restructure the health and social security system to make it more comprehensible and accessible for the public. This will be done by giving the State a coordinated and more effective role as a buyer vis-à-vis health service providers. The tasks of the Social Insurance Administration will be split up and sickness benefits will be delimited more closely within the Ministry of Health, while pension and welfare benefits will be transferred to the Ministry of Social Affairs.

 Various other responsibilities and agencies will be transferred between ministries under the reorganisation. In the next few days I shall present to Parliament a bill of legislation detailing these points, along with other bills proposing amendments to specific legislation which result from these measures. These changes are aimed to enter into force as of the beginning of next year.

The Government has decided to formulate a new strategy for the information society focusing on the modernisation of public administration, increasing its efficiency and simplifying communications between citizens and government authorities. All ministries have examined the areas of responsibility under their charge in recent months and explored ways to achieve such objectives. The Government trusts that Parliament will respond positively to these ideas and approve the necessary legislative amendments connected with these reforms. Hopefully the result will be to make Iceland a more straightforward place for its citizens and businesses.


Mr. Speaker:

I shall now discuss the main tasks of individual ministries as they have been decided for the coming term in accordance with the Government?s Policy Statement. Of course there are far more issues than can be mentioned here and I shall confine myself to describing only a few. Their scope is reflected in the list of bills that it is planned to present to Parliament in the coming weeks and months.

The Government agrees that particular priority should be given to building up facilities to serve the interests of children and young people over the next few years. Parliament has already approved a detailed action plan on behalf of children and young people. Development of the State Diagnostic and Counselling Centre and the Paediatric Psychiatry Ward of the National University Hospital, and other projects, have already begun as scheduled.

As outlined in the Government?s Policy Statement, systematic work has also been launched in consultation with the social partners in both the private and public sectors, to rectify gender bias in wages. A review of housing legislation has also commenced, with participation by stakeholders and experts. Particular focus will be given to first-time homebuyers and the lower-income groups.

The Ministry of Social Affairs is also preparing its first action plan for immigrants. Special attention will be devoted to the families and children of immigrants, to secure their rights in the community. Immigrants make a valuable contribution in the labour market and steps will be taken to ensure that they enjoy comparable terms and conditions to those of their Icelandic colleagues.

 The Government?s policy is for Iceland to provide healthcare services of the highest international standard. Over the past decades Iceland has built up a healthcare system on a par with the best in the other countries with which we compare ourselves. During its term of office the Government will focus on strengthening this service even further and, equally importantly, on the long-term goal of promoting public health and reducing the likelihood of certain diseases. Broadly speaking, the emphasis will be to offer a wider choice of healthcare services, by such means as tenders and service agreements, to ensure that the best possible service is delivered for the allocated funds.

 The objective is to maximise quality and efficiency of services in the interests of individuals irrespective of their means or residence. This focus will extend to all aspects of the health service. It includes measures to open the Icelandic pharmaceuticals market in order to boost competition and thereby increase the supply and lower the cost and prices of medication.

The Government?s Policy Statement underlines preventive measures in all areas. We have set ourselves the aim of promoting healthier lifestyles to enhance the quality of life and health of everyone in Iceland.

 Reforms involving senior citizens have been proposed with the aim of stepping up and improving services for this group at the same time as encouraging their independence and participation in the community. It is aimed to simplify and clarify administration to combine responsibility for providing services with the authorisation to undertake new initiatives.


Mr. Speaker:

The Minister of Education, Science and Culture will present bills to this Parliament on kindergartens, primary schools and secondary schools, and on professional accreditation of teachers and school administrators. This is the first time that legislation on these three levels of schooling is presented simultaneously, creating a comprehensive foundation for the education of children and young people from the start of their schooling until the end of the secondary level.

Educational issues are countless and projects currently in progress include promoting greater participation in the education system by children from different cultural backgrounds. Support for Icelandic lessons for adult immigrants has also been greatly stepped up.

The Government?s Policy Statement says that Iceland?s dynamic business sector will become increasingly knowledge-based and be driven by expansion abroad, and that the energy in cultural activity should be unleashed. Literature is one of the main planks of our culture. The Frankfurt Book Fair is by far the most important venue for authors to promote their works abroad and Iceland has formally requested to be its guest of honour in 2011. The Government is convinced that an important market exists in this field which could significantly boost tourism to Iceland and our export revenues, and not least enhance still further Iceland?s reputation as a literary nation.

In line with its Policy Statement, the Government is engaged in boosting business innovation and promoting improved financial conditions for seed companies. It is aimed to double the contribution to the Icelandic Centre for Research and the Technology Development Fund, with the first steps taken in 2008. The Icelandic Centre for Innovation began operation on August 1 with the merger of the Institute for Industrial Technology and Building Research Institute. Priority will be given to dynamic cooperation by the Centre for Innovation with universities in Iceland, the business service infrastructure, entrepreneurs and companies all over the country.

Widespread interest has been shown in establishing power-intensive industries in Iceland and is no longer confined to aluminium companies. One reason is that we can supply environment-friendly, renewable energy at competitive prices. While this is a gratifying development, we must also ensure that our limited energy resources are prudently utilised and that scope is available for new industries in order to diversify the economy even further. Foreign companies are likely to establish data centres in Iceland soon when a new submarine cable is laid. Icelandic expertise in various energy segments is a valuable resource and it is gratifying to see Icelandic energy companies gaining a foothold internationally.

Numerous projects lie ahead in communications and transport. Road development plans will be expedited at eleven sites in all regions of the country over the next three years and substantial funds will be allocated for this purpose. Private sector investment is considered an attractive option for three pending projects: the building of a dual carriageway on the main South Iceland road, bridging of the bay north of Reykjavík and construction of tunnel through Vaðlaheiði in North Iceland. It is also planned to increase surveillance, awareness and campaigning against driving under the influence of drugs or alcohol, speeding and driving without seat belts. Highway code instruction in schools will be greatly stepped up as well.

The Ministry of Justice and Ecclesiastical Affairs has contracted for the construction of a new patrol vessel and the purchase of a new aircraft for the Coast Guard. Helicopters have also been leased to ensure that the Coast Guard maintains a strong presence while the purchase of new helicopters is in preparation. Close cooperation will be emphasised with North Atlantic search and rescue agencies, especially with Denmark, which handles patrolling off the Faroe Islands and Greenland. Contact with the US Coast Guard has increased over the past year since new security arrangements were negotiated with Washington.

In accordance with the Government?s declaration on the withdrawal of the US military in autumn 2006, the Ministry of Justice and Ecclesiastical Affairs plans to propose bills to Parliament on civil defence and other issues. Work is in progress on organising a new Police and Security College with the aim of ensuring as effectively as possible that capable staff are available for these important jobs, with qualifications that meet the requirements of our day and age.


Mr. Speaker:

According to the recent report on climate change by the UN Scientific Committee, which was published this year, the scientific certainty of manmade atmospheric warming has increased. Iceland is one of the nations that wants immediate, extensive discussions on a new global agreement to take effect when the Kyoto protocol expires in 2012. The Government intends to boost work on climate issues in the near future and produce a plan outlining the most effective and feasible way for Iceland to fulfil its future obligations. In this context it should not be forgotten that the challenge of addressing climate change presents major opportunities for innovation. Icelandic expertise in geothermal harnessing and other climate-friendly technology sectors is a priceless asset in a world which is still largely powered by coal and oil.

 International development aid has a growing profile in Iceland?s foreign policy and is now the single largest expenditure item at the Ministry for Foreign Affairs. With increased outlays and more active participation on these issues at an international level, Iceland is systematically working towards fulfilling its obligations within the community of nations. In light of this, the Ministry for Foreign Affairs is currently reorganising the structure and implementation of official development aid, with the aim of designing systematic strategies and improving the effectiveness of their implementation, as well as stepping up monitoring and assessment of their results.

The growing importance of the northern regions in international affairs needs to be addressed in pace with increased exploitation of their resources and associated traffic. We need to take advantage of the opportunities created by the opening of the Arctic Ocean in the wake of global warming and new technology that facilitates navigation through sea ice. It is crucial for states with vested interests to reach agreement on the sustainable utilisation of resources and security of communications and transport in the northern regions. Iceland pioneered legislation on the Law of the Sea and has underlined that agreements must be reached with neighbouring states on the fair division of North Atlantic oceanic regions. In this spirit, priority will be given to achieving a satisfactory conclusion in discussions on jurisdiction over the Hatton-Rockall Basin.

A whole year has now elapsed since the withdrawal of the US-manned Iceland Defence Force. This event not only changed Iceland?s defence and security arrangements, but also presented a new scenario for the Keflavík Airport site and the Defence Force?s designated zone. The Keflavík Airport Development Corporation was established with the participation of local authorities in southwest Iceland. KADECO has been systematically engaged in realising feasible civilian applications for the area. Hundreds of apartments have been rented to students and a wide range of educational activities has begun there. The sale of other buildings that are currently unused is now under way.

Strong interest has emerged among companies in sectors such as technology, partly due to its proximity to Iceland?s international airport. It is clear that this area, which was once designated for defence requirements, offers massive growth potential. In consultation with local authorities in Southwest Iceland, a strategy for the entire area is now being drawn up, in which airport operations will of course play a key role.

 After the withdrawal of the US military, the Ministry for Foreign Affairs has been taking over operation of the Icelandic air defence system and related activities at the designated security zone at Keflavík Airport. Preparations are also being made for the transfer of management of general airport operations from the Ministry for Foreign Affairs to the Ministry of Communications.

The Minister of Commerce has decided to launch a comprehensive consumer strategy. The first stage involves an extensive survey of consumer effectiveness and attitudes in Iceland and a comparison with the situation in other countries. Legislation will subsequently be updated to bring Iceland into line with international best consumer practice. The Minister of Commerce has also appointed a working group to study the legal environment governing transactions between consumers and banks, in particular with respect to financial companies? charges for their services and electronic payment systems.

In a small economy such as Iceland where oligopoly prevails in many markets, a strong competition authority is necessary. During this autumn?s parliamentary session, the Minister of Commerce plans to present a bill amending provisions for supervision of mergers, reflecting the experience of recent years and developments in European law in this field.

 Iceland?s financial sector has expanded and strengthened substantially in recent years. In economic terms it is becoming ever more important. The share of financial companies in GDP is estimated at 10% at the end of last year. Everything suggests that Icelandic financial companies will go on expanding their activities, both in Iceland and abroad. This has had, and will continue to have, a substantial impact on the activities of the Financial Supervisory Authority, which is being subjected to increasingly stringent demands domestically and at an international level.


Mr. Speaker:

Enormous opportunities await Iceland. In particular they involve human resources, which will be strengthened even further in the coming years by such means as a focus on more and better education. These opportunities are based on the solid foundation that has been laid in the past few years, which I outlined at the beginning of my speech. Last but not least, cooperation between Iceland?s two largest political parties will enable obstacles to be removed and energy to be unleashed that will benefit the nation. I hope that Parliament will debate these issues purposefully this winter, to produce good and sold legislation that will serve the interests of everyone in this country.



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