Iceland Unitary state

Reforms

In spite of the crisis which has shaken up Iceland since 2008, the recovery process has led to reforms increasing the autonomy of local governments.

Once the most critical moments of the economic and financial crisis in Iceland were past, a New Local Government Act entered into force in January 2012 and new legislation on transfer from the national government to the 74 municipalities of specialised services to disabled people was implemented. For the first time, the new Local Government Act contains a reference to the European Charter of Local Self Government. A new paragraph states that intervention by other government authorities in the affairs of the municipalities shall at all times take account of the municipalities´autonomy under the Constitution and the European Charter. New rules in the act regarding moral standards in politics and ethics can be seen as a direct consequence of the economic collapse which created mistrust between the general public and government institutions.

It is worthwhile noting that the process of adoption of these reforms was based on an extensive partnership between the state and the municipalities. Furthermore, changes in financial mechanisms have accompanied the reforms concerning transfers of tax revenues from the state to the municipalities or their cooperation units through the Municipal Equalisation Fund, in order to accompany to finance services to the disabled.

Other financial provisions aimed at municipalities were introduced after the crisis. The rules relating to indebtedness have become stricter. Inter-municipal cooperation is also the order of the day and compulsory for municipalities with less than 8 000 inhabitants for delivery of services for the disabled.

Local self-government in Iceland:

Local self-government and local democracy seem to have been deemed a priority by the authorities in Iceland in reaction to the economic and financial crisis. The coordination between the central state and the national association of local governments is, for that matter, considered satisfactory and the new Local Government Act contains a reference to the European Charter of Local Self Government.

KEY REFORMS

• 2012: New Local Government Act: greater powers for municipalities in the wake of the 2007 financial crisis.
• More recent reforms:
  • new ethics and local democracy rules
  • new municipal powers on services for people with disabilities
  • compulsory inter-municipal cooperation on services for people with disabilities for municipalities with fewer than 8,000 inhabitants
  • new local finance and debt rules