Excerpts from the Ministry's Weekly Web Release October 18, 2001.

Uncertain Factors in Economic Projections
Economic projections are subject to considerable uncertainty, not only regarding the future but also the evaluation of the recent past. This should be kept in mind in the discussion about the economic assumptions of the 2002 Fiscal Budget and deviations from the projections of the National Economic Institute (NEI).

The NEI's projection for 2000, set forth in October 1999, projected economic growth of 2S%, a 2S% increase in national expenditure and a current account deficit equalling 4% of GDP. Now, two years later, comparable figures show economic growth of 5%, a 6% increase in national expenditure and a current account deficit equalling 10% of GDP. The purpose of the comparison is not to discredit the Natinal Economic Institute, but to emphasise that such projections are subject to uncertainty. They depend on specific assumptions about the development of the economy, not on facts.

Furthermore, changes in specific projections for 2001 show that economic growth can remain more or less unchanged, even though certain economic factors change dramatically from the original projections. In October 2000, the NEI projected a 2S% increase in private consumption, compared to the present projection of a 1% decline. Nonetheless, the projection for economic growth remains almost unchanged and even a little higher, or just under 2% compared to 1% before. The explanation is, among other things, that the production of marine products in 2001 is believed to decline by only 1% compared to the previous projection of a 7% decline. Furthermore, general import is expected to decline by 8S%, whereas it was expected to rise by almost 1% in the original projection. Both factors serve to increase economic growth.

These examples demonstrate that all projections should be regarded with caution. It is also important to appreciate fully the margin of error in such projections. These uncertain factors should, no doubt, be emphasised further and the transparency of the projections increased.

Airport Taxes within the European Economic Area
A ruling by the European Court of Justice on June 26th in the so-called "Portuguese airport-tax case" prohibits the application of airport taxes, which make the provision of air transport services between EU member states more difficult than the provision of services purely within one member state. In effect, the ruling defines all air transport within the EEA as domestic.

As the airport tax on domestic services in Portugal was lower than that on cross-border services, the differentiation was believed to violate Art. 49 of the Rome Convention and be unjustified. This is not to say that airport taxes within the EEA must constitute the same figure, regardless of the route, but that there may be objective justification for different amounts of the tax, as long as it is applied objectively and without discrimination. In the wake of the ruling, a task force from the Ministries of Communications, Finance and Foreign Affairs has reviewed domestic legislation and spoken to representatives of the EFTA Surveillance Authority about the difference between domestic and international airport taxes in this country.

Nordic Collaboration in the field of Public Administration
Iceland has recently become a member of RAKO, a formal public administration collaboration of the Nordic countries. Representatives are usually from the ministries of finance or administration of each member country. The purpose of the collaboration is to introduce innovations in public administration and discuss the pros and cons of various management theories and methods.

Two main topics, strategic management and management of change, were discussed at a meeting in Denmark at the end of August. Many interesting points were made that could prove useful to the Ministry of Finance in further developing public administration in this country. Among other things, the meeting tried to pinpoint the operational characteristics of those institutions that seem to excel. Three key points were made. Firstly, the role and main objectives were very clear and the staff well informed about them. Secondly, the morale was very good and reflected the trust between senior and junior staff. Finally, diverse methods were used to solve problems, i.e. people were not afraid to experiment with new methods.

Furthermore, the experience gained by the Finnish Ministry of Finance by using the methods of strategic management in order to integrate political orientation into traditional projects of the Ministry was presented. According to Ministry staff, the methods have proved highly successful, especially in order to combine the vision of politicians with what is needed to achieve it. The method has also resulted in a clearer prioritisation of projects.



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"bolli.thor.bollason@fjr.stjr.is"
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Weekly Web Release, Arnarhvoll, 150 Reykjavik, Iceland