Opening address of Icelandic Minister of Welfare,  Mr. Guðbjartur Hannesson, at the meeting of the OECD ministers of social welfare in Paris, May 2nd and 3rd 2011

Madame President, dear colleagues.

Let me first say that I find our meeting today and tomorrow most timely. Many of our nations are still suffering from the deepest recession since the Great Depression of the nineteen-thirties. At present, however, things are moving in the right direction but the recovery is slow and its impact on unemployment so far is too small.

For us, the ministers of social welfare, the main task is to look after the well-being of individuals and families that have suffered most from the recession. Our worries are particularly directed at the longer-term social consequences of the recession and determine what measures are most appropriate to minimise the damage. In my opinion, the most pressing tasks at hand are the preservation and strengthening of the welfare system, namely:

• To counter long-term unemployment and its adverse effects.
• To provide secure housing in spite of difficult financial circumstances.
• To fight poverty.
• To reduce inequality.

Let me now turn to the Icelandic case. The bank collapse in Iceland in 2008 has no equal and the consequences were profound for society as a whole. Let me mention a few facts to illustrate this:

The bank collapse in October 2008 was followed by a wave of company bankruptcies. Inflation soared, peaking at 19%, and public debt tripled – from close to 30% to nearly 100% of GDP. Unemployment increased rapidly, from nearly nothing to 9% at its peak in 2009.

Prior to the bank collapse and in its wake the exchange rate fell by about 50%, despite strict foreign exchange restrictions, without which the fall would have been far greater.

Iceland has pursued an owner-occupied housing policy for many years with more than 84% of the population being home-owners. The bank collapse had inevitably a profound effect on home-owners. The principal of outstanding loans rose rapidly due to sharp inflation, and individuals with debts in foreign currencies saw them double at the same time as purchasing power deteriorated and many people lost their jobs. In these difficult circumstances, the Government has taken special care to protect the social welfare system. This is reflected in the fact that cuts in government expenditures on health, education and welfare have averaged 3-5% whereas other government spending has been cut by 9-10%.

Let me now briefly outline the main social welfare measures and points of emphasis of the Icelandic authorities after the economic collapse. First, let me comment on the restructuring of household debt, second, measures taken to counter unemployment, and third measures to reduce poverty.

The restructuring of household debt

The first task after the collapse was to restructure household debt. An act on payment distribution was passed to adjust the payment burden to the people's ability to pay. A second measure was passed into law covering the restructuring of personal debt. The debtor was assured of a minimum level of income, while any surplus in excess thereof would go to the creditor who in turn would downsize its claims to a certain extent. Measures were negotiated with creditors on the resolution for over-mortgaged households, reducing mortgages to 110% of assessed property value. These measures were followed by setting up an office of an Ombudsman for debtors who acts as a spokesman for individuals in financial distress, provides advice and protects their interests. These measures have helped a large number of persons to avoid bankruptcy.

A new housing policy is being formulated for the future. Instead of the previous emphasis on owner-occupied housing, a wider variety of choices will be offered through an effective rental market and an increased supply of long-term tenancy housing. The public support for housing will be reviewed with regard to the goals of social welfare.

Measures to reduce unemployment

Measures to reduce unemployment are constantly being implemented in order to counter the serious effects of long-term unemployment. An act of law was passed that ensured the right of workers that were being reduced to part-time work to receive unemployment compensation. This made it easier for employers to respond to a downturn by placing workers on a part-time basis rather than firing them altogether. Special measures have been implemented where unemployment benefits have been used to pay a part of the wage cost of workers against a counter-payment of employers. The same method has been used to create summer jobs for students and other persons looking for work. The state and local governments have actively participated in this effort.

Unemployment is highest amongst young people; more than 70 per cent of young people looking for work have little or no education beyond compulsory school. More than 30 per cent of people without work for six months are below the age of thirty. The authorities have developed a long-term policy on the structure of society where the main opportunities for advancement have been analysed. Our goal is that by year 2020 more than 90 per cent of Icelanders of working age will have a formal secondary education, as against 70 per cent today. An emphasis will be placed on the access of people to an appropriate education with a wide range of educational opportunities that suit the needs of individuals, the community and the economy.

Furthermore, the Government has decided to open the secondary schools for people under the age of 25 years as of next autumn, along with a special effort to greatly increase access of people looking for work to educational opportunities, with a special emphasis on work skills. The Government and the labour market partners are jointly engaged in this special effort and will over the next three years spend 7 billion Icelandic krónur on this project, equivalent to about a third of estimated total unemployment benefits in 2011.

Measures to reduce poverty

The Icelandic system of social welfare is quite strong, based on two principal foundations, the pension fund system – where workers pay premiums into pension funds and accumulate pension rights – and the social security system, financed out of taxes, which provides a minimum income for those who have accumulated limited or no rights in pension funds.

Although Iceland is among those countries where poverty is lowest, we aim to reduce poverty even further. In Iceland like in other countries, the minimum subsistence amounts are subject to constant controversy and this applies also to the minimum wage, unemployment benefits and the welfare assistance of local governments. Last year, the Ministry of Welfare developed benchmark consumption standards for Icelandic households that recently have been published. They threw light upon the consumption patterns of typical Icelandic families and also set standards on the minimum needs of people to survive. These standards will prove useful for people that are organising their finances and they will also be used by the authorities and the partners of the labour market to determine wages and minimum social benefits. Also, the Icelandic social security system is being reviewed with an emphasis upon ensuring the position of those with the lowest incomes. Let me also mention that Iceland actively participated in the European year against poverty and social isolation in 2010. I think it is important for society to recognise poverty as a fact so as to be able to fight and hopefully eliminate it altogether.

Conclusion

Madame President. Dear colleagues.

As I mentioned at the beginning, this ministerial meeting is both timely and necessary in light of the present circumstances. I welcome that the attention is drawn to the importance of public housing policies which have always been an important part of social protection. It has become even more important today to find ways to support households affected by unemployment and income losses and prevent social exclusion.  I strongly support that we we call on the OECD to start new work to assess the effectiveness and efficiency of different approaches to social housing, including the impact of housing policies on labour market mobility and the integration and co-location of service delivery combining housing and other social policy supports.

I have great hopes that our meeting will be fruitful and I am certain that it will yield important lessons for our nations.