Iceland's Ministry of Finance and Economic Affairs outlines Parliament-approved 2026 budget targeting a 0.5% of GDP deficit under the new stability rule

Iceland's Ministry of Finance and Economic Affairs announced that Parliament has approved the 2026 state budget, framing it as a tighter fiscal stance that prioritises core public services and infrastructure while keeping expenditure growth within the new stability rule and supporting the government’s stated aim of a balanced budget in 2027. The budget projects an overall deficit of just over ISK 28bn in 2026, equivalent to 0.5% of gross domestic product (GDP), compared with a planned ISK 63bn deficit (1.3% of GDP) in the 2025 budget. The plan sits within the approved 2026–2030 fiscal strategy, including a 0.5% of GDP ceiling for the 2026 deficit; real expenditure growth from the 2025 budget, adjusted for revenue measures and excluded items, is kept below 2.0% in line with the stability rule under the Public Finances Act. The primary balance is forecast at a surplus of ISK 67bn (1.3% of GDP), with a negative interest balance of just over ISK 95bn (1.8% of GDP), and central government debt is projected to be broadly unchanged as a share of GDP at 37.4% at end-2026. Spending restraint and efficiency measures include postponing or cancelling projects, revisiting funding assumptions and operational reforms such as merging agencies, creating room for priority allocations across healthcare (including nursing homes and mental health and addiction services), social security and pensions (including a new disability pension system and higher earnings disregard for old-age pensioners), transport and hospital infrastructure, and security and defence (including support for the Coast Guard, cybersecurity, additional police roles and a new prison).