Good fortune helped ward off cuts
October 6, 2010
Norway’s left-center coalition government could heave a huge sigh of relief when its members had finally agreed on next year’s state budget. An extra, welcome burst of revenue into state coffers combined with some lower expenditures than expected allowed Prime Minister Jens Stoltenberg and his cabinet to avoid painful budget cuts.
Stoltenberg and his finance minister from the Labour Party, Sigbjørn Johnsen, could present a budget on Wednesday that contained hardly any cuts and instead offered some solid boosts to areas most in need, like transport and health care.
Absent were the cuts that Johnsen himself had warned of after the coalition government was re-elected last fall. As late as last week, newspaper Dagsavisen had warned of major cuts in Norway’s foreign aid, for example, but they amounted to less than half of what was feared and mean Norway will still spend NOK 27 billion on foreign aid — down from NOK 27.4 billion this year, but still more than the country spends on its transport sector or higher education at home.
And the reduction in the foreign aid budget, though criticized by some, was among the few cuts made overall even though the government is tightening up its use of oil revenue.
As many analysts have noted, the government was saved by strong development of the Norwegian economy over the past year. That generated more tax revenue than expected, as consumers started shopping again and unemployment remained low. Since employers provide fully 28.7 percent of the state’s overall revenues, through the employee and pension taxes they pay, Norway’s government clearly benefits from low unemployment.
The stronger economy also generated a surge in dividend income into the state treasury, notes newspaper Aftenposten, from companies in which the government has a major stake.
At the same time, reported Aftenposten, the state’s sick pay costs declined as did the costs of processing asylum seekers, since far fewer would-be refugees arrived in Norway. It all helped ward off bigger cuts in foreign aid, and other planned cuts in benefits for seafarers, for example, and environmental programs.
All told, the state’s income was budgeted at NOK 800.1 billion while expenditures reached NOK 935.1 billion. That meant the government could still cut its use of oil revenues by NOK 18.8 billion, using NOK 135 billion to balance next year’s budget, compared to NOK 153.8 billion this year.