Krone stronger as budget takes hold
October 16, 2009
Even though it settled down a bit on Friday, Norway’s currency ended the week even stronger than it began, not least because of the government’s big spending plans. The krone was trading at 5.6 to the dollar late Friday in Oslo, as reaction to Finance Minister Kristin Halvorsen’s expansive budget kept rolling in.
Both Halvorsen and Prime Minister Jens Stoltenberg defend their spending plans (pumped up largely by Norway’s oil wealth) saying they’re necessary as Norway and the rest of the world shake off the effects of the global financial crisis.
Stoltenberg says it’s entirely possible for the government to revert to abiding by the so-called handlingsregelen , the rule that’s supposed to limit use of oil revenues. The government’s budget discards that rule, proposing nearly NOK 45 billion more in spending. All told, the government wants to spend NOK 149 billion of Norway’s oil revenues next year.
In addition to budget increases for most departments in the public sector, the government also faces much higher pension payouts and social welfare payments, not least sick leave.The krone jumped on Wednesday and again on Thursday, before dipping on Friday. Oil prices rose as well, though. With oil now selling at around USD 75 a barrel, that still means about NOK 420 a barrel at current exchange rates, more if the krone weakens against the dollar, which many hope it eventually will.
Other types of reaction continued over the budget. Many were pleased by the prospect of more money for the police, schools, nursing homes, roads, the railroad and a long list of welfare programs. Children, for example, will get an hour a day in after-school programs for free, and fathers will be able to take more paid time off for “pappa” leave.
Oil revenues provide about 25 percent of the budget, 19.5 percent comes from Norway’s 25 percent VAT and 18 percent from income and fortune taxes. The rest comes from social security tax (9.2 percent), employers’ tax (13.5 percent) and a long list of other taxes and fees like those on alcohol, tobacco, cars and gasoline.
Most of them will rise, but in line with the consumer price index and rarely more than 4 percent.
Among those complaining have been university officials, environmentalists and the court system. They don’t think they’re getting enough of the budget pot, and court officials warned of delays in getting cases to trial. Environmentalists are unhappy with allocations for windmills and that no allocation was made for carbon capture at the Kårstø gas power plant.