Policy Performance


Economic Policies

With the aftereffects of economic crisis easing, Iceland falls into the upper-middle ranks (rank 15) with regard to economic policies. Its score on this measure represents a decline of 0.3 points relative to 2014.

Capital controls imposed following the financial crisis were rescinded without serious capital outflux or depreciation. Unemployment rates have remained at quite low levels. While labor disputes have led to wage increases and fears of inflation, price increases have in fact remained under control.

Tax revenue was high in 2016 thanks to one-time stability contributions from former bank stakeholders. Tax policy has become more regressive overall. Public debt levels are falling rapidly. Financial troubles at key public institutions threaten future 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 remains in question.

Social Policies

With good general outcomes despite some lingering crisis-era concerns, Iceland falls into the top ranks (rank 6) in the area of social policies. Its score on this measure has declined by 0.1 point since 2014.

Education funding has declined steadily as a share of GDP since the crisis. The government has shortened upper-secondary education from four to three years. Universities are seriously underfunded, but a campaign to merge institutions has largely been discontinued.

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 state pension-eligibility age has been increased. Substantial increases in housing costs have put particular pressure on young people in Reykjavik.

The generally high-quality health care system has suffered from cutbacks, though public concern has led to some new funding. Paternal and maternal leave is provided, and women’s labor-market participation rates are high. Labor-market conditions for immigrants have become less favorable since the 2008 collapse.

Environmental Policies

With a relatively undeveloped environmental regime, Iceland receives comparatively low rankings (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

With considerable recent political tension, Iceland falls into the lower-middle ranks (rank 26) for the quality of its democracy. Its score on this measure has declined by 0.8 points relative to 2014.

Parties receive public and private funding. Prominent circumventions of existing party-financing rules have come to light. Referenda are called if the president refuses to sign bills. A newspaper was banned from reporting on leaked documents involving financial transactions by the prime minister, raising media-freedom questions.

A proposed new constitution and voting system were supported by strong majorities in a non-binding public referendum in 2012, but the document was not ratified. Numerous parties continue to call for its implementation. 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 17) 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 must present proposals to the cabinet before going to the parliament. Long-term strategic planning is often vague, with inconsistent follow-through.

New regulations mandate RIAs, but no official methodology has yet been developed. Consultation with labor-market associations is traditionally robust. Parliament’s continuing disregard for the results of a 2012 constitutional referendum is viewed by many as undemocratic.

The Benediktsson cabinet collapsed due to the concealment of information within government circles. Ministry monitoring is strong, but oversight of agencies is weak. 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 10) in the area of executive accountability. However, its score on this measure has declined by 0.2 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 through ordinary channels. The audit office and ombudsman are independent and well regarded, with audit-office resources now nearly restored to their pre-crash levels.

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, although recent sudden elections have forced alternative methods. Economic organizations are skilled and influential, with a small number of other sophisticated interest organizations also holding strong public profiles.
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