Address by the Prime Minister, Mr Sigmundur Davíð Gunnlaugsson, at Iceland Investment Forum
Ladies and Gentlemen,
It is a pleasure for me to be here today, at the Iceland Investment Forum, and to have the opportunity to address this distinguished audience. Let me also thank the numerous partners that have organised this timely event.
In a few days my government will celebrate its four months anniversary. It took office in late May and was, to a large degree, elected to improve the situation of households in Iceland, and to strengthen business and industry.
In my view, these two are inextricably linked. It is difficult to strengthen business and bolster investment if the households, the families – the cornerstone of our society – are in distress. These are not two detached worlds. Those who have difficulties paying their mortgage and other dues have little money to spend in general, let alone make future investments, and thereby stimulate economic growth.
Therefore, a holistic approach is needed, which is what my government has spent the summer months preparing for. In late June, the Icelandic Parliament, Althingi, passed a parliamentary resolution that outlines a plan, which details actions that are to be taken in the coming months to address the various problems that indebted households in Iceland are confronted with. This work is well in hand as I have recently briefed members of the Althingi.
I mention this because the realisation of the action plan - assisting the households and redressing some of the negative consequences of the financial crisis - is an important part of the overall picture.
Clearly, there are other important pieces in that particular picture and, again, those are closely inter-related.
I will first mention political stability. In the last two parliamentary elections following the financial crisis in Iceland, in 2009 and 2013, we have seen enormous changes in the political system. These are, for example, manifested in radical fluctuations in public support for the traditional political parties, changes within the parties themselves, including the one I represent, and the emergence of new parties.
It takes time for any given country to resurface from political turmoil after a large scale economic crisis. Iceland is not unique in this sense – we have seen political tremors shake numerous countries in Europe and, indeed, worldwide over the last years.
However, I believe that Iceland is now at a certain turning point. The last elections resulted in a good parliamentary majority of two parties that share a clear vision on how to bolster investments in Iceland and attract investors. This centre-right coalition, these two parties, which have long co-operated in government in the past, have a good record when it comes to increasing economic growth, lowering public debt and keeping state finances in good order. Those are three very important dishes on the investor´s menu.
This takes me to my second point, which is predictability. This government understands how this audience - investors, industry and businesses - rely on stability and predictability. This applies to the macroeconomic environment, including monetary policy and taxation, but also to legislation and how we manage our main industries.
My government is unfortunately not in the luxurious position of starting its journey with a clean slate. We inherited a long record of unresolved and difficult issues. However, we have already made significant progress and I am convinced that the policy this government has put forward is a sound one and that it will bring further benefits.
Let me outline here a few milestones in our economic and financial policy, which I believe to be conducive to bolstering investment and, therefore, of particular interest to this forum.
Firstly, this government is determined to exercise discipline and balance in its fiscal policy, which hopefully will, amongst other things, bring down interest rates and lower inflation. Extensive work has taken place this summer. The budget framework is being reviewed where the most recent information on the economic situation is taken into account.
We are improving the working practices in budgeting – taking a longer term perspective to respond to the Treasury´s situation and ensure more rational utilisation of revenues. We will direct specific efforts at reducing Treasury debt relative to GDP and a task force is examining state expenditures and is mandated to propose structural changes aimed at prioritising, cutting costs and implementing smarter spending.
The budget for 2014 – the first budget of this government – is in its final stages of preparation and will be presented to the Althingi on October 1. Already there will the government demonstrate its commitment in these respects.
Secondly, the Icelandic crown will be the currency in Iceland for the foreseeable future. This has been a hotly debated issue in Iceland and the very existence of the currency has been questioned by sceptics. This government has faith in the Icelandic crown and is committed to providing sound economic management to underpin its foundations.
The fact that Iceland was able to manage its currency - to navigate through the high financial seas – has been instrumental in Iceland´s economic recovery. I am also convinced that the Icelandic crown will regain strength when various other government actions, some of which I will elaborate on later, take effect.
Also, for investors, I believe it is important to provide for this clarity and predictability. For them it is important to know that the Icelandic crown is the currency to reckon with.
Thirdly and this also relates to the currency, the government will work on removing capital controls, which were established with the emergency act of 2008.
Although necessary at the time, we fully realise that capital controls have detrimental effects. They distort asset prices, they discredit our currency, they make investments difficult and they reduce our competitiveness. It is, however, important to note that capital controls do not apply to new investments. Therefore, within the current environment, new investments can readily be made.
Nevertheless, the government fully recognises the negative aspects of capital controls and is determined to take actions to gradually lift them. Disciplined fiscal policy, which I have outlined, will assist us in this process. We are also analysing the economy and developing a programme for the removal of capital controls. In doing so, we are very mindful of the importance to secure a solid long-term framework for the foreign currency market and ensure that the settlement of debts of failed financial undertakings does not threaten economic stability.
This brings me to my fourth point, namely the necessary settlement of debts of failed financial undertakings and assets of insolvent estates. My government intends to take advantage of the leeway, which inevitably will develop in tandem with the settlement of the insolvent estates, to address the needs of borrowers and persons who placed their savings in their homes. I have described this as a win-win situation as these settlements will allow us to lift the capital controls to the benefit of the creditors and borrowers alike.
My fifth point concerns taxation, which is of fundamental importance to the business and investment environment. An assessment of the current tax system and the numerous changes to it in recent years has been commissioned. We want to see a stable and rational taxation system that encourages individuals to utilise their energy and corporations to expand, create jobs and invest. To this end, we aim to simplify the tax system, broaden tax bases and reduce income linkage and tax evasion.
We also intend to make changes to the corporate tax environment, which needs to be more predictable and encourage investment. As a first step, the government will seek to provide information on how taxes and corporate legal framework will develop in the future. The government has already taken action on taxation and decided to cancel previous plans to increase value added tax on travel services, which is one of the fastest growing industries in Iceland.
Finally, my government will make every effort to create a working environment to promote investment and create more jobs, not least in small and medium-sized companies. We intend to place special emphasis on export sector growth, innovation and utilisation of opportunities for future growth. The government has initiated a review of business regulations with the aim of simplifying it and increasing efficiency. By doing this we want to lift some regulatory burdens off the shoulders of the companies in the hope that they will spend the money and time thus freed on something more productive than filling in forms and writing reports for government agencies.
We will also be looking at the legislation to see where improvements can be made to attract businesses and investments. Here, valuable work has been put in place as last June very useful proposals were submitted by the so-called Investment Watch to the Minister of Industry and Commerce. I will not elaborate on the proposals, which are publicly available. Suffice to say that the report includes very interesting and useful recommendations, which cover not only the legal environment but various other aspects as well. These recommendations are now under consideration and seem likely to be of much help.
Ladies and Gentlemen,
I have now outlined the broad policy framework, which will surround the business and investment environment in Iceland in the coming years. As I mentioned, some of these measures have already been implemented, others are in the pipelines. I hope you will agree that this environment is becoming more conducive to investment and that investing in Iceland is becoming a very interesting option.
In addition to the actions that we are taking on the home front, and I have alluded to, this government attaches importance to the international dimension and its role in this respect - namely to open gateways and doors for investors and businesses through negotiations and ultimately international agreements, bilateral or multilateral.
Although negotiations with the European Union have been put on hold, this government places a high emphasis on keeping a close relationship with the EU. The EU countries remain Iceland´s most important economic partners and our relations with the EU have a firm basis in the EEA Agreement, which allows for full access to the single European market. I met this summer with the leaders of the EU and explained our new policy, which they understand and respect. There is even potential for working even closer together, for example in the fields of geothermal energy, fisheries and on arctic affairs.
This government is also committed to forging closer relations with the United States and earlier this month the Nordic leaders and President Obama issued a Joint Statement, in which we pledged to examine ways to bolster trade and investment between the United States and Iceland and Norway as the United States and the European Union negotiate the Transatlantic Trade and Investment Partnership.
In addition, my government has emphasised its intentions to conclude more Free Trade Agreements with other countries, either bilaterally or through the European Free Trade Association where Iceland sits along with Norway, Switzerland and Liechtenstein. Here, I could add that a parliamentary resolution on the ratification of the Free Trade Agreement between Iceland and China will be put forward in the Althingi next month.
Finally, on the international side, I would be dismissing not to mention the Arctic and the economic opportunities that are emerging as a result of the receding ice cap. The potential for extracting oil, gas and minerals in the High North is becoming real and so are alternative transportation routes, which could cut distances to Asia enormously. These developments, which are not without challenges, enhance the strategic significance of Iceland, not only in the geopolitical sense but also in the commercial sense.
Ladies and Gentlemen,
I have tried to give you a sense of how this government intends to make Iceland an attractive alternative for investors, both by taking actions on the domestic front and also by forging closer international relations east, west and up north.
I will refrain from trying to identify where the concrete opportunities for investing in Iceland lie. Typically, businesses are a lot more clever and resourceful in identifying those than politicians are. That is why businessmen conduct business and politicians engage in politics. There will be interesting presentations given here today, including case studies, which will, I am sure, shed further light on the possibilities. I know for certain that they are many and they are increasing. The role of the politician is to set the rules, establish the framework and I hope you can take from my presentation that investing in Iceland is becoming an attractive alternative.
These days mark five years since the financial crisis hit Iceland. We have come a long way since then. There are good foundations in Iceland that have helped us along; a resilient and well educated population, a young and flexible labour force, abundant resources and beautiful nature that is attracting ever more visitors from abroad than ever before. The future for my country is therefore bright.
The aim of my Government is not to take Iceland and you as interested investors back to the society we knew in the years before the crisis. Those times will not come back, nor should they necessarily. My main message to you today is this:
My government understands that vibrant business and industry is the basis of growth and welfare. We, therefore, welcome investments in Iceland and are willing to create an environment that is conducive to your needs as investors.
Thank you again for inviting me to the Iceland Investment Forum. Hope to see you (and your money!) in Iceland.