Iceland will impose a tax on all house owners to fund the construction of lava barriers that aim to prevent damage from volcanic eruptions.
Icelandic officials are preparing for a possible volcanic eruption following a “seismic swarm” that has seen the Reykjanes Peninsula be hit by about 1,400 earthquakes in 24 hours.
As part of the nation’s efforts to protect its infrastructure from geothermal activity, Iceland has passed a new law that establishes a tax of 0.08 per cent of a property’s fire insurance valuation on all homes for a reported duration of three years.
The bill is expected to raise almost 1bn ISK (£5.7m) in revenue, which will fund the construction of lava barriers and other protections – including dikes, embankments and canals – around Svartsengi, a geothermal power station 65km from the capital Reykjavík. The power station is the main supplier of water and electricity to the Reykjanes Peninsula – the same region that recently suffered the earthquakes.
The area surrounding Svartsengi is known for its high geothermal activity. During the weekend, Grindavík, a fishing town with 3,000 residents close to the power station, was evacuated after its roads, homes and power and water infrastructure were damaged as a result of the earthquakes.
On Monday, the Icelandic Meteorological Office said there was still a “significant likelihood” of a volcanic eruption involving the Fagradalsfjall volcano, around 40km from Reykjavík, over the coming days.
The new tax is expected to help protect the region’s infrastructure against such occurrences. However, Prime Minister Katrín Jakobsdóttir warned that preventing damage from a volcanic eruption might not always be possible, even with the proposed protective measures.
“Of course, this is complicated because we don’t know where a possible eruption can occur,” she said. “Such an action would be a preventive action, but it cannot be guaranteed that it will be successful.”
The government stressed that the new tax will have little impact on the consumer price index. The fee will is expected to amount to 4,800 ISK per year (£27.35) for an apartment with a fire compensation valuation of 60m ISK (£342,000), and 8,000 ISK per year (£45.58) for a home valued at 100m ISK (£570,000).
The tax closely resembles the flood fee that was imposed on property owners to pay for the construction of flood defences in 2009, which is still in place. The flood tax raised about 22.5bn ISK (£128.2m) over 10 years. However, local news outlets reported that only about 9.8bn ISK (£55.8m) of those funds were used to build flood prevention fortifications. The remaining 12.7bn ISK (£72.6M) – nearly 60 per cent of the funds – was said to have gone directly to the treasury.
This was not the first time the Icelandic government was accused of using tax funds for a different purpose than stated. A tax meant to improve tourist attractions and another to finance road construction were also portrayed as collections for the benefit of the country’s treasury.
In addition, some citizens have complained that many taxes that began as “temporary” responses to natural disasters were eventually made permanent. One such instance was the 2 per cent increase in the Icelandic sales tax, which followed the Heimaey eruption of 1973. The funds raised from the tax were intended to be used to rebuild in the Westman Islands, but the hike was never revoked.
