Policy Performance


Economic Policies

With the aftereffects of economic crisis easing, Iceland falls into the upper-middle ranks (rank 18) 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Capital controls imposed following the financial crisis were rescinded without serious capital outflow or depreciation. However, public services remain underfunded. Per capita GDP has rebounded to its pre-collapse level.

The unemployment rate has fallen to just 3%. The inflation rate is already above its targeted level, and new demands for long-delayed wage increases are likely to push it higher. Tax revenues have been stable at 42% of GDP, and public debt levels have fallen to sustainable levels after ballooning during the banking crisis.

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. R&D spending is very strong, and has helped spur the creation of new biotech, pharmaceutical and high-tech firms.

Social Policies

With good general outcomes despite some lingering crisis-era concerns, Iceland scores well (rank 8) with regard to social policies. Its score on this measure has declined by 0.2 points since 2014.

After years of underfunding, universities have received several successive budgetary increases. The country’s PISA scores are the lowest in Western Europe, prompting concerns about school quality.
A recent policy change shortened upper-secondary education from four to three years.

Income inequality dropped significantly in the financial crisis’ wake. Poverty levels are low. Pensions and welfare benefits were cut in the crisis, and have not yet been fully restored. 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

Despite a new focus on the issue of environmental conservation, Iceland receives comparatively low rankings (rank 30) with regard to environmental policies. Its score on this measure is unchanged in comparison to 2014.

The government passed a new climate strategy containing an ambitious goal of making the country carbon-neutral by 2040. This focuses on phasing out fossil fuels in the transport sector, and increasing carbon sequestration through afforestation, revegetation and wetlands restoration. Significant new funding will be dedicated to climate mitigation measures.

The country is active in Arctic-region environmental affairs. Whaling and fishing practices remain sources of serious contention with the EU and other international bodies.



Quality of Democracy

With considerable recent political tension, Iceland falls into the lower-middle ranks (rank 28) for the quality of its democracy. Its score on this measure has declined by 1.0 points relative to 2014.

Parties receive public and private funding. Some circumventions of funding limitations, such as reimbursements for election-related travel costs, have come to light. Referenda are called if the president refuses to sign bills. A newspaper was recently barred from reporting on leaked documents involving financial transactions by the prime minister for more than a year, 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 has not yet been 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 robust, though illegal actions by public officials are less likely to be prosecuted than those by private individuals. Abuse of office does occur, and links between politicians and banks remain a concern.



Executive Capacity

With a period of political scandal now behind it, Iceland falls into the middle ranks (rank 22) with respect to executive capacity. Its score on this measure is unchanged relative to 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, with a methodology for assessment approved in early 2017. Consultation with employer and labor associations is traditionally robust. Parliament’s continuing disregard for the results of a 2012 constitutional referendum is viewed by many as undemocratic.

After a period of political tension marked by the concealment of information within government circles, the current cabinet’s tenure has been more stable. 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, but all three current coalition parties oppose membership.

Executive Accountability

With monitoring having become more robust in the post-crisis period, Iceland scores well overall (rank 11) 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. The audit office and ombudsman are independent and well regarded, with audit-office resources now nearly restored to their pre-crash levels. A data-protection authority deals with cases submitted either by public authorities or private individuals.

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. The government does not systematically publish information that would help citizens monitor government actions.

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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