Sigrún Davíðsdóttir's Icelog

Going on the fourth day since prime minister Sigmundur Davíð Gunnlaugsson announced stability tax, minister of finance Bjarni Benediktsson has not yet said a word on the announcement. Arriving from two weeks holiday in Florida Monday morning he did not attend the first meeting of Alþingi after the Easter break, nor did Gunnlaugsson. The two ministers are said to have spent the afternoon in meetings with Már Guðmundsson governor of the Central Bank, CBI.

My hunch is that Gunnlaugsson did not discuss his statement with Benediktsson before making the speech. The preparations of the capital controls plan-to-be have been carried out in utmost secrecy, drafts not sent in emails etc. and it certainly was not anticipated that one of the insiders, the prime minister, would then go out and announce it at a time that suited him and his party politics. Hardly a statesman-like behavior to use a party conference to make a prime-ministerial announcement of this kind. But with the prime minister getting some numbers wrong it seems he did not have the best advisers at his side in preparing for the speech.

It is also clear that the Bill Gunnlaugsson announced had not been presented earlier because the government leaders had not been able to come to an agreement on the final version. By saying that a stability tax bringing billions to the state will be presented before the end of this Alþingi Gunnlaugsson has put pressure on Benediktsson. It seems like a retaliation for the pressure Benediktsson tried to put on Gunnlaugsson last year when Benediktsson kept announcing that a liberalisation plan would be presented last year – only a much harder pressure because Gunnlaugsson did not just announce the plan but also what it actually should contain.

Vilhjálmur Bjarnason MP for Independence party said in Morgunblaðið yesterday that a tax on estates was far from international practice, would be contested in court, leading to years of court wrangling during which time the controls could not be lifted. Hörður Ægisson journalist at DV said in an interview with the webzine Eyjan that using the lifting of capital controls to make money for the state ran counter to earlier statements. Anything except dealing with foreign-owned ISK was unacceptable, according to Ægisson.

Gunnlaugsson then went a step further over the weekend when he said, in an interview to Morgunblaðið, that the billions from the stability tax would not be used but set aside, on which he and Benediktsson were in total agreement – another poisoned arrow.

So what is all this about? First of all, the stability tax is nothing like the previously discussed exit tax. An exit tax taxes capital movements. The stability tax is indeed a form of asset tax, i.e. will be levied on assets according to certain criteria. One theory is that it will be levied on assets in order to prepare for or at the time of composition of the banks’ estate. And it is to be a double digit tax.

That the advisory committee has been split on how to proceed on the tax, i.a. how to use the billions, echoes in Gunnlaugsson’s words. Of course, parking the billions goes counter to what Gunnlaugsson has been announcing. For Gunnlaugsson to claim that the two agreed on this seems like an attempt to making peace with Benediktsson after his major faux-pas in his speech.

Benediktsson was unavailable for comments yesterday. Gunnlaugsson did not want to be interviewed on Rúv. What happens now is anybody’s guess – some say this is the end of the government but as I have pointed out earlier Benediktsson is in a difficult situation. Should he swallow this or try to act? In theory, he could  turn to the opposition and see if he can find some common ground there to form a new government. That would though crave a heroic force and spirit, non of which Benediktsson has shown so far. In addition, the opposition parties have been fairly lame, difficult to gauge there the energy needed for some political fireworks.

According to a Sunday Times article by Philip Aldrick there are some meetings going on between government representatives and creditors. I have not been able to ascertain that this is indeed the case but I believe that yes, there have been some meetings, even as late as last week. The winding-up boards do not seem to be involved and only a few large creditors. It may well be that there are some parties involved trying to map some common ground where negotiations could start from. So far, the government’s official line has been not to negotiate although that seems the most sensible approach for a speedy and efficient end to the misery of capital controls. Remains to be seen.

And it also remains to be seen what comes out of Gunnlaugsson’s statement and how the government will proceed. Benediktsson has been badly treated by Gunnlaugsson who, though most likely not seeing any fault with his behaviour, has not only breached the trust of his coalition party but also ventured into Benediktsson’s territory, quite apart from the substance, i.e. that the Bill had not been presented yet because there was, as yet, no final agreement on the coming plan.

Why Gunnlaugsson chose to make his announcement? Well, this was panic politics in practice: he was standing in front of a party he led to almost 25% of votes, but now standing at ca. 10% in the polls.

– – –

Gunnlaugsson speech is now available online, in Icelandic. I.a. he claims the numbers at stake for creditors in Iceland are high in international context as can be seen from Hollywood films, where $10m are a high number. An interesting insight into an apparently quite parochial mind who likes Hollywood films.

Follow me on Twitter for running updates.