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Prime Minister's Policy Address 2005

Policy Address

by the Prime Minister of Iceland,

the Rt. Hon. Halldór Ásgrímsson

4 October 2005

Madam Speaker, fellow Icelanders,

Er brýnir þú plóg og strengir stög
og stendur í vinnuher,
þá verði þar jafnan lífs þíns lög,
sem land þitt og tunga er.
Þá finnur þú Íslands æðaslög
hið innra með sjálfum þér.

These were the words of the farmer-poet Guðmundur Ingi Kristjánsson, of Kirkjuból in the West Fjords, expressing the essence of the Icelandic character in his own inimitable way. A character which since the beginning of time has meant standing shoulder to shoulder, often to face the sudden storms of the time. The Icelandic character which refuses to be deterred by the reality of being a small nation in a big world, but instead emphasises that we are a nation among other nations, and concentrates on our strengths rather than our weaknesses.

Icelanders are a fortunate nation. According to a new survey by the United Nations, Iceland is the second-best country in the world to live in. Only a decade ago, we were in quite a different position, considerably further down the list. This is not simply the opinion of the government but rather the view of respected international economic institutions and corporations. Economic growth has far exceeded that of neighbouring countries. No country has lower unemployment. Household purchasing power has also increased much more in Iceland than in any nearby country, reflecting the tax cuts implemented by the present government, as well as wage increases.

When the Progressive and Independence parties began their coalition partnership following the parliamentary elections in 1995, the situation was quite different and much less favourable. Companies were struggling and bankruptcies were practically a daily occurrence. Unemployment was a persistent problem and household purchasing power dropped from one year to the next. The national treasury was operated at a deficit and both its domestic and foreign debts were growing.

Through a complete transformation of economic policy and effective actions, the situation has been reversed. For many years now the Treasury has reported a sizeable surplus. As a result, the government’s debts have practically been paid off, considering the foreign currency holdings of the Central Bank. Icelandic companies have been revitalised and many of them now have considerable operations abroad.

Bearing in mind this incredibly favourable, and I could even say unique, course of events, it is amazing to follow the debate on economic affairs in Iceland. At times one might think that everything had gone to rack and ruin here, that practically everything was in a mess. Yet a brief glance abroad is enough to see just how well we are situated. For many years now, most European countries have had to fight an often losing battle with enormously high unemployment, at times exceeding 10%, in France and Germany, for example. There is no need to dwell at length on the economic, not to speak of the social, consequences of such long-term unemployment. Purchasing power has either remained constant or dropped. What would our critics say if we were in this situation!

This government has made economic stability a priority, by continuing to practise restraint in public finances in 2006, for the third year in a row. This has resulted in savings in the public sector. At the same time, state undertakings have been cut back and this policy will continue next year while the power-intensive industrial developments are still in full swing.

It will shortly be possible to pay off the Treasury’s foreign debt amounting to tens of billions, as stated in the bill now under consideration, which lays out the government’s proposals for the disposal of the payment received for the sale of Iceland Telecom. The remainder will subsequently be placed on deposit with the Central Bank, where it will be kept until 2007. This will result in securing for the Treasury considerable interest income, while at the same time restraining economic expansion while the power-intensive industrial projects are at their peak.

In consideration of this, the criticism expressed concerning lack of restraint comes as a surprise. It has been confirmed by international economic institutions that the increased restraint shown by state spending since 2003 is the highest known among industrialised nations. It is also evident that the government has followed a wise course in pursuing clear long-term objectives in public finances and economic affairs in general.

Even though the increase in the consumer price index recently has been greater than expected, this is wholly due to the increase in house and oil prices. I believe, however, that one should think carefully before financing consumption with loans, as has become increasingly evident lately. Moderation is always a virtue.

Madam Speaker,

Education and knowledge will make the vital difference in the future in stiff competition between nations internationally.<0} A new OECD report states that in 2002 Iceland was the country which devoted the largest share of its GDP, 7.4%, to educational affairs. In itself it is not sufficient for us to be the nation which devotes the highest percentage of its GDP to educational affairs. We should view spending on education as an investment in the future and, just like other investors, we want to ensure that our investment gives the best possible return.

During this parliamentary session, the government intends to submit bills of legislation on compulsory, upper secondary and tertiary education. A decade has now passed since compulsory schools were transferred to the control of the local authorities. In the light of their experience during the past decade, the local authorities and their organisations have submitted a variety of comments on aspects in need of improvement. The aim is to remove such flaws.

The number of Icelandic university students has never been greater, financial allocations to universities have never been higher and the variety of study programmes offered has never been greater. A new framework legislation for higher education is intended to ensure that the quality of the education on offer here in Iceland meets international standards and that the education provided and degrees granted by Icelandic universities are fully recognised elsewhere. Furthermore, the intention is to level the playing field for state universities and those operated by other parties.

The nation stands at a major crossroads in health care. The government took the decision to allocate one-quarter of the funds received from the sale of Iceland Telecom to the construction of a new, high-tech hospital. This is yet another case of returning to the nation the value which it has created. In connection with the building of a new hospital, it is urgent to redefine all hospital services. This task is no less important than the decision on its construction and location. Recent efforts have been aimed at integrating health care institutions throughout Iceland under a single administration. Furthermore, an end is in sight to the development of primary health care services in the capital region.

In response to a study on the rights of the parents of chronically ill children, the government has decided to ensure financial assistance for parents should they be forced to give up paid employment or postpone their education as a result of their children being diagnosed with a chronic illness or serious disability.

The government has also decided to devote ISK 1 billion of funds from the sale of Iceland Telecom to solving housing shortages and improving services for the mentally handicapped throughout the country. The aim is to eliminate waiting lists and secure satisfactory living conditions for this group.

I announced at the end of last year that a study should be carried out on the standing of the Icelandic family. The family committee that I appointed now has this task in hand. Various exciting ideas are under review, many of them involving collaboration between the central and local authorities in providing services to the public. Among them is the question of how to meet the needs of parents of children in the nine- to eighteen-month age bracket, between the end of parental leave and the children’s admission to kindergarten, defined as the first rung of the education system. Many parents are forced to bridge this gap today by a variety of methods, often on a day-to-day basis, and I am aware that there is a strong interest in remedying this situation. The family committee has discussed various proposals for dealing with this problem and I have high hopes for the outcome of the committee’s work.

Discrimination is not to be tolerated in Iceland, whether on grounds of colour, religion or sexual orientation. For this reason a bill will shortly be introduced to advance the rights of homosexuals. I am confident that this assembly will be unanimous in facilitating the motion and putting this important legal amendment into effect as soon as possible.

Madam Speaker,

The government aims to boost the quality of life in rural areas and improve the country’s competitiveness by a proposed parliamentary resolution on a strategic regional development plan shortly to be submitted for the period 2006–2009. Three principal objectives have been defined: firstly, that regional nuclei should be strengthened and support given to those communities weakened by depopulation; secondly, that rural communities should adapt to the rapid developments in society and fast-moving changes in working methods, and, thirdly, that business and industry, education, culture and social equality should be strengthened in rural areas.

The real prosperity of any nation is determined by how well it manages to utilise and put to good use the advantages it possesses. Communications and information technology have a major role to play here. The telecommunications programme agreed by the Althingi last spring is now being put into effect. This detailed the government’s objectives for the expansion of high-speed connections and mobile-phone networks in Iceland, as well as numerous other important factors bearing on the future of this country. By establishing a telecommunications fund which will be allocated ISK 2.5 billion of proceeds from the sale of Iceland Telecom, the government has confirmed its intention to create prime conditions for utilising the resources represented by information technology, for the benefit of both individuals and the business sector.

Madam Speaker,

From 2007 to 2010, ISK 15 billion will be used for road construction, including the construction of the Sundabraut route in the capital region, and for projects on the country’s principal highways. This will more than double the funding allocations towards road construction during this period. The result will clearly be a major improvement in the communications linking distant parts of the country. It will also greatly boost our possibilities as a travel destination.

There have long been plans to renew the equipment available to the Icelandic Coastguard. Although the existing equipment has served well in protecting the safety of the Icelandic people, and employees have performed heroic acts of rescue, it is time the Coastguard had a new ship and aeroplane. The decision now taken is one of major significance for the entire nation.

On 8 October next the residents of 61 local authorities will go to the polls to vote for amalgamation proposals. The government will not be behindhand when it comes to facilitating this amalgamation. A total of ISK 2.4 billion will be allocated from the Treasury via the Local Authorities’ Equalisation Fund to support those authorities undergoing amalgamation. These allocations will be used for example to enable the newly amalgamated authorities to develop new services, such as kindergartens and compulsory schools.

The capital Reykjavík is a centre for culture, science and services. At the end of this past month, the results were announced of the design competition for an impressive new concert hall and conference centre to be built by the harbour in central Reykjavík. The advent of the concert hall will transform the music scene in Iceland, in addition to which the magnificent structure can be expected to become one of the main landmarks of both the capital and the country.

Madam Speaker,

The welfare of every society is built not least on its capacity for innovation and renewal of its economic activities. On the basis of a strategy by the Science and Technology Council the government has more than doubled the prize money at the disposal of public competition funds during the current term of office.

However, it is not enough to do well, we must do better. I believe that the future of the Icelandic nation lies in the strong promotion of education and scientific research and that these efforts will provide opportunities for progress in almost every field. I have expressed the opinion that the most sensible course of action would be to establish a special pool of contributions from the New Business Venture Fund, financial companies and pension funds to provide venture capital for investment in start-up companies and promote innovation and scientific research. The government has decided to deploy ISK 2.5 billion of the proceeds from the sale of Iceland Telecom to raising the New Business Venture Fund’s own stake. The board of the New Business Venture Fund will be authorised to spend up to ISK 1.5 billion of this money to set up a fund to invest in new business start-ups in collaboration with the pension funds and financial corporations which have expressed considerable interest in the idea. The aim is for a fund of this type to have some ISK 3–4 billion at its disposal.

The project on the increased value of seafood will enable fishery companies to increase still further the value of the catch landed in this country. Icelandic seafood must meet every imaginable criteria and standard that is currently in force or may be introduced in the future with regard to quality and content. Further research intended to secure export income will be carried out by the Fishing Industry’s Research Institute.

Three years ago the government adopted a policy of sustainable development entitled Welfare for the Future. This autumn an environmental conference will be held to debate the success of this policy and announce priorities for the coming years. It is vital for the Icelandic nation to utilise its natural resources in a sensible and sustainable manner, whether it is the living resources of the sea, renewable energy resources or the unique natural phenomena which attract tourists to these shores.

Important milestones have been reached in recent years in improving conditions for both farmers and consumers. Among these is the agreement on working conditions for market gardeners, which has resulted in lower prices for consumers. Mergers have led to dairies and abattoirs becoming larger and more specialised, which in turn has enhanced cost-efficiency. For this reason the wholesale price of milk and dairy products has remained constant for three years. Great innovations have also taken place in the country’s rural areas. Most striking among these is the proliferation of tourist services and forestry initiatives around the country, involving some 800 farmers.

During the past three years the country’s main power companies in collaboration with the National Energy Authority have been preparing and carrying out preliminary studies on the Iceland deep drilling project. This will seek to establish the actual extent of the country’s energy resources. Preliminary studies in recent years have indicated that Iceland’s utilisable high-temperature resource base may have been hugely underestimated.

Madam Speaker,

One of the most important summit meetings in the history of the United Nations took place recently. There the international community agreed to wide-ranging reforms of the operations and structure of the organisation even though some hoped for even further progress, on for example human rights issues and the reform of the Security Council. In my speech I referred to Iceland’s candidacy for a non-permanent seat on the UN Security Council, a decision which was taken in 1998 and enjoyed general support in the Althingi. There is a consensus in the government that we will proceed with the candidacy for a seat on the council for the period 2009 to 2010.

The UN summit meeting also restated the international community’s intention to achieve a substantial reduction in poverty and suffering in the world by greatly increasing contributions to developmental matters. In 2004 the Icelandic government decided at my instigation that official development aid as a percentage of national income should be raised from 0.19% in 2004 to 0.35% in 2009. When this goal is achieved Iceland’s contribution to cooperation on development will have risen fourfold in exactly a decade, which is a huge growth, fully consistent with Iceland’s increased interest in developmental matters and desire to do some good in the world.

Madam Speaker,

One of the most important tasks for the Althingi and the nation as a whole during the remainder of this term of office is the revision of the constitution. The committee I appointed at the beginning of the year to guide the work of revision, chaired by the Minister of Health and Social Security, has already gained a reputation for its painstaking and democratic working methods. A strong consensus is a necessary prerequisite for constitutional change, a greater consensus than is generally required for amendments to legislation. There is a strong demand among the people of this country for the holders of state power to perform their duties responsibly with the public good as their guide and that high standards should be achieved in administration, legislation and justice. There is a general demand for a renewal of representative democracy to enable the public to play an active role in decision-making on issues of common interest, not only in parliamentary elections at four-year intervals but also in the interim, for example by national referenda. In connection with this we must examine the experience of other countries where the overuse of referenda has had the counterproductive effect of diminishing public interest in politics. It is my hope that we will eventually be able to look back and pride ourselves on the fact that by means of transparent and careful working methods during the revision of the constitution we have provided new support for democracy in Iceland.

It was recently reported that the Icelandic administration is the third most efficient in the world. Nevertheless, there is much room for improvement and I have set in motion an initiative aimed at simplifying the administration and making it more effective and more in tune with the times. This means for example the revision of laws and rules relating to the Icelandic cabinet. I also regard it as essential that parliament and ministries consider ways of improving the process of legislation so that the resulting laws are as clear and simple as possible. We must consider the public and businesses of this country, which have to adapt their activities and conduct to fit in with laws adopted by the mighty Althingi. The government has therefore decided to put into effect a special initiative entitled Simpler Iceland. Each ministry will be expected to review the laws and regulations that come under its auspices with the goal of simplifying the regulatory framework, diminishing paperwork and increasing efficiency.

Madam Speaker,

The policy of the governing parties has always been to create conditions in this country for economic stability and increased GDP growth, both of which are preconditions for a strong business and industrial base and improved standard of living. In recent years the major development of power-intensive industry has led to an upswing in the economy and the outlook is for more of the same next year. However, unless anything changes, the prospect is for a considerable slowdown in the economy after this time.

In response to this prospect the government has put forward detailed proposals for how funds from the sale of Iceland Telecom should best be deployed. Furthermore, the government has prioritised strengthening the foundations of economic activity by a substantial increase in financial allocations to research and innovation. At the same time it is important to look into the further utilisation of our considerable energy resources while giving full consideration to environmental issues.

I am convinced that all these factors will serve to enhance the diversification of the Icelandic economy at the same time as providing a more solid basis for the lasting creation of value. This will create conditions for still further tax cuts, both for businesses and individuals, while providing opportunities for the continued development of the welfare and education systems.

Distinguished Speaker,

The heartbeat of the nation is strong. The politician’s role is to listen and interpret this heartbeat and to clear the way to harness this power.

This, I consider to be my main objective.



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