Economic affairs and public finances
Economic prosperity rests on a successful implementation of an ambitious long term strategy for the economy. The Ministry of Finance and Economic Affairs plays a central role in the formulation and implementation of the Government's economic policy, taking into consideration both the domestic and international macroeconomic situation and developments.
The Ministry prepares economic analyses, monitors economic indicators, communicates with foreign rating agencies and participates in economic and financial cooperation through various international organisations.
An efficient domestic financial market fosters economic stability and a high standard of living. The Ministry drafts legislation in this sector, taking into account financial stability and consumer protection in financial markets. The majority of domestic financial market legislation applies the harmonised rules of the European Economic Area (EEA). These have undergone major changes by the European Union since the financial turmoil of 2008. Iceland is obliged to transpose into Icelandic law the European rules which are annexed to the EEA Agreement.
The Public Finances
The Ministry of Finance and Economic Affairs is responsible for implementing the Public Finances as a whole on the basis of the Public Finance Act. Among the focal points are working procedures in shaping public financial policy, i.e. the finances of both central and local government, through a fiscal policy statement and a fiscal strategy plan. The strategy plan covers the upcoming five-year period and is updated each spring.The Act also includes a framework for the procedure and preparation of the corresponding state budget together with annual budgets of the various ministries.
At the first meeting of the Icelandic Parliament’s autumn session the Minister of Finance and Economic Affairs submits the Government's budget for the coming calendar year. The budget seeks parliamentary approval for expenditures in a total of 34 expenditure areas, over 100 expenditure functions and any and all obligations of Group A Treasury entities. In drafting the annual budget the government is restricted to the expenditure framework approved by the Althingi in its fiscal strategy for the 34 expenditure areas.
The Central Government's revenues are comprised primarily of taxes and fees charged and collected based on various Acts. Preparing draft legislation amending such Acts to reflect the current Government's policy is another task of the Ministry, which also assesses the underlying assumptions and impact on the economy. No payments can be made from the Treasury which have not been authorised in the budget or supplementary budget.
The Althingi debates the budget bill in three readings. Parliamentarians discuss the premises for expenditures in each field, the distribution of budget allocations to individual functions and the emphases which are laid out in the budget for the activities of each function. At the same time the Althingi will debate the premises for the Government's taxation policy and income generation. Between readings the Budget Committee reviews the bill.
Allocations to institutions and projects are shown in a special appendix to the bill which will accompany the budget legislation once adopted.