Policy Performance


Economic Policies

With the aftereffects of economic crisis easing, Iceland falls into the upper-middle ranks (rank 14) with regard to economic policies. Its score on this measure represents a decline of 0.2 points relative to 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 dropped to very low levels. Labor disputes have unsettled the economy, leading to wage increases and contributing to rising inflation.

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

The government has yet to propose a plan for restructuring the banking sector. Banking oversight was toughened post-crisis, but remains passive. The irrevocability of the government’s withdrawal of Iceland’s EU application has been questioned, and some parties are seeking a national referendum on the issue.

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 have attracted well-qualified teachers back to schools. The government has shortened upper-secondary education from four to three years. Universities are seriously underfunded.

Income inequality dropped significantly in the financial crisis’ wake. Pensions and welfare benefits were cut in the crisis, increasing social-exclusion risk, and have not yet been fully restored.

The generally high-quality health care system has suffered from cutbacks. Strikes by medical personnel have 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, but the government has increased the number of refugees accepted.

Environmental Policies

With a relatively undeveloped environmental regime, Iceland falls into the lower-middle ranks internationally (rank 30) with regard to environmental policies. Its score on this measure reflects a decline of 0.3 points relative to 2014.

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

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, and signed the resulting agreement in 2016.



Quality of Democracy

Despite very open electoral procedures, Iceland falls into the lower-middle ranks (rank 26) for the quality of its democracy. Its score on this measure has declined by 0.6 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 influenced by owners’ agendas, and public-broadcasting funding has been cut.

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. The government has been secretive about releasing potentially compromising information.

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. Judicial appointment practices have been broadly criticized. Abuse of office does occur, and links between politicians and banks remain a concern.



Executive Capacity

Unsettled by political scandal, Iceland falls into the upper-middle ranks (rank 16) with respect to executive capacity. Its score on this measure has improved by 0.2 points since 2014.

The Prime Minister’s Office has relatively minimal sectoral expertise. Ministries have considerable autonomy in drafting policy, but now must present proposals to the cabinet before going to the parliament. Long-term strategic planning is often vague, with inconsistent follow-through. Large issues are often handled in informal coalition meetings.

New regulations mandate RIAs, but no official methodology has yet been developed. Consultation with labor-market associations is traditionally robust. Following wage disputes, a new tripartite contract-negotiation model has been approved.

The prime minister resigned after live-TV exposure of his offshore bank account, leading to scandals and new elections. Ministry monitoring is strong, but oversight of agencies is weak. The Gunnlaugsson government had little trouble implementing its legislative agenda. The status of the government’s official withdrawal of Iceland’s EU accession application remains unclear.

Executive Accountability

With monitoring reinforced in the post-crisis period, Iceland scores well overall (rank 9) in the area of executive accountability. However, 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, though audit-office resources have been cut.

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 typically 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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