Policy Performance


Economic Policies

With the aftereffects of economic crisis still palpable, Iceland falls into the upper-middle ranks (rank 17) with regard to economic policies. Its score on this measure has declined by 0.6 points since 2014.

Capital controls imposed following the financial crisis are being slowly relaxed, with creditors of failed banks allowed to withdraw some assets in return for paying an exit tax. Unemployment rates have plateaued near 5%, remaining high by domestic standards. Labor disputes have unsettled the economy, leading to wage increases and contributing to rising inflation.

Recent tax policy has become more regressive. Public debt remains very high, with future prospects clouded by unfunded public-pension obligations. Financial troubles at key public institutions threaten fiscal sustainability further.

The government did not produce a plan for restructuring the banking sector. Banking oversight was toughened post-crisis, but remains passive. The government officially withdrew Iceland’s EU application.

Social Policies

Despite the persistence of crisis-related cuts, Iceland receives a high overall score (rank 7) in the area of social policies. Its score on this measure has declined by 0.2 points since 2014.

While education funding has declined, falling private-sector salaries and the tight labor market have attracted well-qualified teachers back to schools. The government plans to shorten upper-secondary education from four to three years.

Income inequality dropped significantly in the financial crisis’ wake, but private-debt levels are high. Pensions and welfare benefits were cut in the crisis, increasing social-exclusion risk. Poverty rates remain relatively low.

The generally high-quality health care system has suffered from cutbacks. Doctor strikes resulted in higher salaries. Paternal and maternal leave is provided, and women’s labor-market participation rates are high. Anti-immigrant proposals have crept into mainstream political-party platforms.

Environmental Policies

With a relatively undeveloped environmental regime, Iceland falls into the lower-middle ranks internationally (rank 29) with regard to environmental policies. After a slight gain last year, its score now reflects a 0.1 point decline relative to 2014.

Environmental policy has not historically been treated as a high priority in Iceland. The current government worked to reverse a recent landmark environmental-protection law, leading to a negotiated compromise ratified in 2015. Soil erosion is a serious problem.

The country is active in Arctic-region environmental affairs. Whaling and fishing practices are sources of serious contention with the EU and other international bodies. The country participated in the 2015 Paris climate-change conference, but did not publish a plan for meeting its obligations under the resulting accord.



Quality of Democracy

Despite very open electoral procedures, Iceland receives a middling overall score (rank 23) for the quality of its democracy. Its score on this measure has declined by 0.4 points relative to 2014.

Parties receive public and private funding. Revisions to party-financing regulations have been underway without final agreement since 2009. Referenda are called if the president refuses to sign bills. Media content is strongly influenced by owners’ agendas, and politicians have sought to interfere with public-media reporting.

A proposed new constitution and voting system were supported by strong majorities in a non-binding public referendum in 2012, but parliament has refused to ratify the draft constitution.

Civil rights are protected. Despite robust non-discrimination laws, some gender and other discrimination persists. Legal certainty is generally high, with some concerns regarding banking practices. Abuse of office does occur, and links between politicians and banks remain a concern.



Executive Capacity

With post-crisis tensions diminishing, Iceland receives middling scores overall (rank 19) with respect to executive capacity. Its score on this measure has improved by 0.1 point since 2014.

The Prime Minister’s Office has relatively minimal sectoral expertise. Ministries have considerable autonomy in drafting policy. Long-term strategic planning is often vague, with inconsistent follow-through.

RIAs are not used. Consultation with labor-market associations is traditionally robust. Following wage disputes, a new tripartite contract-negotiation model has been approved. A crisis-era period of open disagreement within the government has receded, with the current coalition avoiding public conflict.

Ministry monitoring is strong, but oversight of agencies is weak. The current government has had little trouble implementing its legislative agenda. The government officially withdrew Iceland’s EU accession application.

Executive Accountability

With monitoring reinforced in the post-crisis period, Iceland scores well overall (rank 7) in the area of executive accountability. Its score on this measure has declined by 0.3 points since 2014.

Parliamentarians have limited resources, but sufficient oversight powers. Some documents related to pre-crash financial policy have been unavailable to legislative investigators. The audit office and ombudsman are independent and well regarded.

Despite a generally well-informed public, voter turnout has dropped significantly particularly among young people, in parallel with a decline in policy interest and trust in politicians. The media provides in-depth information on state policy, but reporting can be affected by owners’ financial interests.

Party decision-making is driven by conventions attended by local party representatives. Economic organizations are skilled and influential, with a small number of other sophisticated interest organizations also holding strong public profiles.
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