According to preliminary estimates, the general government financial balance shows a surplus of 4.6 billion ISK in the first quarter of 2025. This represents 0.4% of the quarter’s gross domestic product (GDP). By comparison, the first quarter of 2024 showed a deficit of 4.3 billion ISK. Figures for 2024 are still preliminary figures and are scheduled for revision in September. This marks the first quarterly surplus for the general government since 2018.
It should be noted that this release is accompanied by a comprehensive benchmark revision of the government finance statistics time series for the years 1998-2024. Further details on the benchmark revision are available below.
Overall, general government revenues are estimated to have increased by 9.3% compared with last year’s corresponding quarter. Increase in tax revenues are significant, with revenues due to taxes on income, profits and capital gains growing by 8.7% and revenues due to taxes on goods and services growing by 11.4%.
Total expenditure is estimated to have increased by 7.4% from last year’s corresponding quarter. Expenditure due to government final consumption continued to grow, with an increase in compensation of employees by 8.2% and use of goods and services by 9.0%. Furthermore, the preliminary figures suggest an 11.7% increase in expenditure due to social benefits.
The scope of the general government sector, as according to European System of Accounts (ESA2010), include housing- and student loan funds owned by the central government. These funds have a substantial impact on interest income and interest expenditure of the general government. In a working paper published on 30 November 2020, the methodological basis for the sector classification is explained.
Benchmark revision of government finance statistics 1998-2024
In parallel with the publication of government finance statistics for the first quarter of 2025 and in line with the benchmark revision of national accounts (NA) on May 30th, Statistics Iceland is releasing the results of a comprehensive benchmark revision of the government finance statistics. This revision follows the agreed policy and guidelines set by Eurostat regarding regular benchmark revisions and their coordinated implementation across countries. These revisions are carried out at least every five years, with the aim of incorporating improved methodologies, enhanced data sources, and alignment with international statistical standards. They also enable Statistics Iceland to integrate new data and methodological changes to ensure the continued quality and relevance of national accounts and government finance statistics.
Alongside the benchmark revision of national accounts on May 30th, a working paper was published which provides detailed overview of the key changes introduced in the NA revision and their impact on GDP. Among other things, the revision of Financial Intermediation services indirectly measured (FISIM) is explained. The revised figures for FISIM do not affect the government balance, but they do increase the government final consumption expenditure and decrease the government interest expenditure recorded.
Central government capital formation has been updated due to infrastructure developments at the defense area of Keflavík Airport. Although the construction is mainly financed by the United States and the NATO Security Investment Program, the Icelandic government retains ownership of these assets. Accordingly, the associated expenditure is now classified as investment within central government and consequently capital transfers from the USA and NATO are recorded as revenues. In total, approximately ISK 17 billion at current prices has been added, spread over the years 2018 to 2024.
Following recommendations from Eurostat, the methodology used to calculate consumption of fixed capital has been revised. The updated approach is based on the findings of an expert group report commissioned by Eurostat. Asset lifetimes have been re-evaluated, and depreciation rates have been increased accordingly. Specifically, the depreciation rate for buildings has been raised from 2.5% to 4.5%, and for roads and similar infrastructure from 3% to 4.5%. This methodological revision does not affect the government financial balance, however the revision of consumption of fixed capital does significantly increase government final consumption and in turn decreases government net investment.
The classification of government revenues and expenditure by type has been revised due to more detailed data and recommendations from Eurostat. For the central government, the reclassification did not affect the central government balance. In cases where improved data resulted in a reclassification of transfers to local governments, the financial balance of local governments was affected and thus the general government balance.
As part of the comprehensive revision, efforts were made to reduce the discrepancies that have existed between the local government finance statistics as reported by Statistics Iceland and comparable figures from the municipalities annual accounts. The revision extended back to the year 2013. As a result, figures were revised for: taxes on income and property, subsidies, interest, capital formation, transfers and purchases and sales of goods and services and other revenues. The revision affected the financial balance of local governments and thus the overall general government financial balance.