Excerpts from the Ministry's Weekly Web Release May 30, 2002.

Excerpts from the Ministry of Finance's Weekly Web Release
May 30, 2002

The airline insurance cover extended until the end of June
The Minister of Finance, on behalf of the Treasury, has extended until the end of June the insurance of Icelandic flight operators against terrorism. This is in accordance with decisions made by governments around the world on the extension of comparable insurance cover. The European Commission, for example, agreed on May 28th to permit its member states to continue to provide emergency state insurance cover until the end of June. Governments are still waiting for a clearer outlook for the future arrangement of such insurance cover. There are two conflicting points of view regarding the insurance. On the one hand there is the point of view of flight operators who, after the terrorist attack of September 11th have argued that specific airlines should not bear the full cost of insurance against terrorism, the cost of such insurance having increased substantially due to the insurance market's revised assessment of the risk of such insurance. The airlines have, therefore, proposed a mutual insurance scheme receiving government assistance, at least initially. On the other hand, there are those who believe that this insurance should be provided commercially just like any other insurance and believe that satisfactory commercial insurance will soon be available. The EU agreement from May 28th indicated that the Commission should assist EU member states in assessing the proposal of the Association of European Airlines for a special insurance scheme, while considering the benefits of a full return to commercial insurance. Only time can tell whether it will be any clearer by the end of June which method will prevail.

The purchasing power of social insurance payments
It has been argued recently that the purchasing power of social insurance payments has not increased corresponding to the purchasing power of wages. The Ministry of Finance has calculated the purchasing power of social insurance payments from 1990 and compared it with the purchasing power of wages. According to the computations, the purchasing power of social insurance payments has been increasing ever since 1990. In 2000, the purchasing power contracted compared with 1999, due to higher inflation than anticipated. In 2001, purchasing power of the payments increased considerably when they increased by 4% at the beginning of the year and also in the wake of amendments to the Social Security Act and the Social Assistance Act that came into force on July 1st 2001. The purchasing power of wages has also increased during the period. However, purchasing power did decrease in 1993 and 1994 compared with 1990. Purchasing power on the labour market has increased steadily since 1996.

The linking of social insurance payments with weekly wages for general labour was abolished in 1996. This was done in accordance with the government policy to cut off automatic links between taxes and expenses in the event of changes that are not for the government to decide. During the budgeting process each year, the determination of payments is now based on pay rises negotiated during the budget year and the same assumptions for wage developments as in the budget proposal are used as a basis. Moreover, pensioners are guaranteed by law that the amount of the payments can never go below the point indicated by the consumer price index in case wages developed differently than prices. Pensioners are therefore guaranteed by law that their payments develop in accordance with the development of wages negotiated on the general market and they are also guaranteed purchasing power when wages rise less than prices. It is therefore not advisable to compare the purchasing power of social security payments with wages in the short term.

The extent of government wage agreements
The signing of a wage agreement by the Minister of Finance on behalf of the Treasury and by the Icelandic Medical Association earlier this month marked the end of the longest period ever of negotiations on collective agreements between the government negotiations committee and public employees trade unions. Negotiations started in the autumn of 1999 and 77 collective agreements with 136 trade unions were signed during the period. Negotiations with 27 trade unions were referred to the public conciliator and five unions took industrial action to enforce their demands. The equivalent of 236 man-years was lost due to strikes, public employees returning on average about 19,000 man-years during office hours. During the period, 839 formal meetings were held in addition to countless informal meetings about specific matters. In order to get a rough idea of the amount of work involved in the negotiations procedure, it is necessary to consider the number of participants in each meeting and the length of each meeting. Assuming that on average five representatives from each side took part in each meeting and that each meeting lasted on average six hours, the outcome is 50,340 hours or the equivalent of just under 28 man-years.

These figures alone give reason to consider how it would be possible to change the arrangement of negotiations on collective agreements between the government and their negotiating parties. The most obvious method is to reduce the number of negotiating parties, but this would concern trade unions and their structure. The Minister of Finance has said that he is in favour of starting a revision of the Public Employees Pay Contracts Act.


For comments and/or suggestions, send e-mail to:
"bolli.thor.bollason@fjr.stjr.is"
or contact the Ministry of Finance,
Weekly Web Release, Arnarhvoll, 150 Reykjavik, Iceland