2 0

0 4

The 2004 Fiscal Budget1 October 2003

2 0

0 4Treasury revenue balance for 2004

estimated to be ISK 6.4 billionor ¾% of GDP

Highlights

Net Treasury financing balance for 2004 estimated to be ISK 13.7 billion

2 0

0 4

Public Finances 2002-2004

ISK billions, current prices2002

Accounts2003

Budget2003

Estimate2004

Budget

Revenue ......................................... 259.21 274.2 277.18 279.42

Expenditure ................................... 267.33 264.8 271.0 273.03

Revenue balance ......................... -8.12 9.4 6.2 6.4

Net financing balance ................ -3.8 19.8 17.6 13.7

2 0

0 4

Revenue surplus excluding irregular items

Revenue in excess of expenditure -8.1 9.4 6.2 6.4

Irregular expenditure ......................... 26.3 8.5 8.5 8.7

Irregular revenue ................................ 11.7 12.9 13.0 0.5

Rev. surplus excl. irregular items 6.5 5.0 1.7 14.6

2 0

0 4

Treasury balance shows a year-on-year improvement of ISK 13 billion, reflecting greatly increased restraint in public finances

2 0

0 4

Medium-term Public Finance Programme 2005-2007

• National public works cut by ISK 5 billion over the next two years, then increased by the same amount 2007-2008

• Treasury surplus of at least 1¾% of GDP in 2005 and 1% in 2006

• Growth of public consumption slowed Annual growth max. 2% in real terms

2 0

0 4• Moderate growth in transfer payments

Annual rise in transfer expenditure no more than 2½% in real terms

• Tax cuts of approx. ISK 20 billion2005-2007

Medium-term Public Finance Programme 2005-2007

• Neither the Norðurál enlargement nor income from sale of assets are included in budget premises

2 0

0 4

Medium-term Public FinanceProgramme 2005-2007

ISK billions, current prices2004

Budget2005

Estimate2006

Estimate2007

Estimate

Revenue ......................................... 279.4 300.0 312.8 319.7

Expenditure ................................... 273.0 284.7 303.2 325.4

Revenue balance ......................... 6.4 15.4 9.6 -5.7

Net financing balance ................ 13.7 7.2 8.5 -7.4

2 0

0 4

Economic assumptions

2 0

0 4

-1

0

1

2

3

4

5

6

%

New period of growth

2 0

0 4

Price levels remain steady

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

9,0

10,0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%

2 0

0 4

Purchasing power grows

-10,0

-8,0

-6,0

-4,0

-2,0

0,0

2,0

4,0

6,0

8,0

10,0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%

2 0

0 4

Low level of unemployment

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

9,0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%

OECD

Iceland

2 0

0 4

Temporary rise in current account deficit

-12

-10

-8

-6

-4

-2

0

2% of GDP

2 0

0 4

Main assumptions for 2004

• Economic growth 3½%

• Purchasing power increase 2½%

• Price level rise 2½%

• Unemployment 2½%

• Current account deficit 3¼% of GDP

• ISK Index 125

2 0

0 4

Budget facts and figures

2 0

0 430.7

32.2

31.0

29.529.130.0

25

26

27

28

29

30

31

32

33

1999 2000 2001 2002 2003 2004

% af VLF

Treasury expenditure drops in real terms*

* Excl. irregular items

2 0

0 4

29.329.2

28.328.4

30.330.9

25

26

27

28

29

30

31

32

1999 2000 2001 2002 2003 2004

% af VLF

Treasury tax revenue almost unchanged

2 0

0 4

Priority areas

• Allocations to seniors’ pensions increase by 17%

• Increased allocations to education, esp. to universities, upper secondary schools, research and Students’ Loan Fund

• Health care allocations increase by 8%

• Restructuring of research with expansion of research and technology funds

2 0

0 4

Special measures concerning income and expenditure

• ISK 1500 million reduction in transfer payments

• Operating expenditure reduced by ISK 700 million

• New investment reduced by ISK 1500 million

• Additional revenue of approx. ISK 1000 million

2 0

0 4

What has been accomplished?

2 0

0 4

Treasury debt

0

10

20

30

40

50

60

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

% of GDP

Total debt

Net debt

2 0

0 4

Reduced interest expenditure

-0.6 -0.9

-3.4-4.7

-6.2-7.7

-0.1

-10,0

-5,0

0,0

5,0

10,0

1998 1999 2000 2001 2002 2003 2004

ISK billions

2 0

0 4

Additional contribution to Civil Servants’ Pension Fund, with interest

65.3

55.0

45.2

34.0

17.3

7.90.0

0

10

20

30

40

50

60

70

1998 1999 2000 2001 2002 2003 2004

ISK billions

Imputed 5% interest 2003 and 2004

2 0

0 4

In summary

• Debt and debt service burden reduced

• Public finances applied to counter inflationary effects of heavy industrial projects

• Opening up possibilities for tax cuts 2005-2007

• Ensuring stability

2 0

0 4

The Budget itself and accompanying documentation is available on the Ministry’s

website: www.ministryoffinance.is