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(Bloomberg) — Iceland will temporarily lower taxes on gasoline to help ease inflation after the war in Iran sent prices of fossil fuels soaring.
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The government will cut the value added tax on petrol to 11% from 24% for four months starting May 1, Prime Minister Kristrun Frostadottir told reporters on Friday. Her cabinet will also work toward making the island less dependent on oil, the premier said.
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“The aim is to reduce the effects of the oil price increases on Icelandic homes and businesses,” Frostadottir said, adding that she hopes the government’s initiative will “challenge” others to lower prices this summer in order to tame consumer-price growth.
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Inflation continues to run rampant on the north Atlantic island, with the latest reading of 5.4% in March the highest since September 2024. The country’s central bank last month changed course and hiked interest rates for the first time since 2023, signaling that another increase may be expected in May.
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The government will also allocate 500 million kronur ($4 million) toward the build-up of EV charging stations to speed up the transition from fossil fuels.
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“In the long run, we need to make Iceland less dependent on oil,” Frostadottir said.
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The government simultaneously introduced its first-ever business strategy, spanning a decade to 2035. Its key focus is on strengthening and diversifying the country’s export sectors, especially those not reliant on limited natural resources.
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Tourism was the main driver for Iceland’s recovery from its economic collapse around the global financial crisis. It’s been the country’s biggest export industry for more than a decade after surpassing the traditional fisheries sector and aluminum industry in size.
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“We will look to sectors with high productivity, such as fish farming, bioscience, data centers and innovation,” the prime minister said.
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Elements of the Plan:
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- Boosting education in STEM subjects.
- Improving the framework for investment in energy projects and shortening the time it takes to obtain a license.
- Speeding up the building of energy distribution infrastructure, such as by changing the law on expropriation so landowners cannot hinder grid construction on their land.
- Bolstering foreign direct investment around the country.
- Offering a 25% reduction in income tax for foreign specialists for the first three years after hiring.
- Increasing investment in computing infrastructure and machinery for the development of artificial intelligence, in cooperation with the private sector.
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—With assistance from Ott Ummelas.
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English (US)