Tax reform wins cautious welcome

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The Norwegian government’s proposals for tax reform have been relatively well-received in Parliament, also by the minority government coalition’s two support parties. A spokesman for the Christian Democrats party, for example, said the reform proposals at the very least provide “a good starting point for a broad settlement” on a new Norwegian tax system.

Finance Minister Siv Jensen opened the tax directorate's new offices shortly after she took office in 2013. Now she's getting ready to overhaul the entire tax system. PHOTO: Finansdepartementet/Bård Brinchmann Løvvig

Finance Minister Siv Jensen opened the tax directorate’s new offices shortly after she took office in 2013. Now she’s getting ready to overhaul the entire tax system. PHOTO: Finansdepartementet/Bård Brinchmann Løvvig

The proposals, presented by Finance Minister Siv Jensen as she also rolled out the government’s state budget proposal for next year, follow up on those presented last winter by the so-called Scheel Commission, which had been appointed by the former left-center government led by Labour.

Jensen and her colleagues have embraced some of the commission’s tax reform ideas while rejecting others, at least so far. She did go along, for example, with reforming income tax brackets and cutting corporate and personal income tax rates (selskapsskatt) from 27- to 25 percent, and down to 22 percent by 2018. She stopped short, though, of bringing the tax down to just 20 percent, as recommended by Scheel.

Home value off limits
Jensen’s ministry also went ahead with its plans to further reduce Norway’s tax on net worth (formueskatt) even though Scheel advised against that, arguing that it didn’t have much effect on investment in Norway. Jensen also rejected recommendations to greatly increase the tax value of major assets that play into the calculation of net worth. Homes, for example, are now valued for tax purposes at around 25 percent of their market value, while the commission urged an increase to 80 percent. “For (Jensen’s) Progress Party, it’s important that people’s homes should not become a tax object,” Jensen’s party fellow and spokesman on financial issues, Hans Andreas Limi, told newspaper Dagsavisen. The Progress Party also opposes property tax.

Jensen did, however, propose raising the tax value of secondary homes from 70- to 80 percent of market value. The goal is to reduce real estate speculation and tax advantages on investment property, both of which have been blamed for overheating Norway’s real estate markets in recent years.

Jensen also rejected the commission’s recommendation to do away with special tax-free savings accounts for young people saving up to buy a home, called BSU accounts. Instead, Jensen proposed increasing the tax-exempt amount young prospective homebuyers can save, from NOK 200,000 to 300,000. All told, real estate experts predicted that many of Jensen’s tax proposals that she included in the new state budget may cool down housing prices that have become so high in many cities that affordability is a serious issue.

New taxes introduced
In other areas, new taxes are proposed on various financial services that are likely to increase the cost of everything from insurance premiums to fees charged by banks. It remains unclear how much of a VAT would be applied, but the measure is expected to draw in NOK 3.5 billion in new tax revenues that would offset tax cuts elsewhere. That prompted one local economist to comment that Jensen’s state budget proposal hands over money in one area while taking money in another, “just like a state budget is supposed to do.”

The Liberal party, another of the minority government’s support parties, was critical to the idea of imposing new taxes on financial services, because they’ll likely be immediately passed on to consumers and can affect many people. The Christian Democrats, however, support the idea, so it’s likely to pass.

Political debate on the proposed tax reform is likely to center on what deductions should be allowed, and Labour, which started the tax reform process, is expected to contribute. Jensen’s goal is to maintain a stable tax system “with improvements,” and one that’s in line with neighbouring countries deemed relevant for comparison. “If the differences between Norway and the world around us become too great, it can weaken our competitiveness and make it less profitable to invest in Norway,” she wrote in a commentary in newspaper Aftenposten earlier this week. She is, however, keen to crack down on multinational companies that actively avoid taxation by transferring profits out of Norway.

“The goal with tax reform will be to make the Norwegian economy more robust,” she wrote, as she seeks to boost growth potential. Debate on the state budget this fall will set the standards for the tax reform debate, due to begin after New Year. Berglund

  • frenk

    I’d like to know the ‘real numbers’…..what is the ‘total tax take’ from the average Norwegian? They say its around 70% in Denmark….it must surely be close to this in Norway? But I suspect you get a lot more for your money in Denmark….due to the fact it is inside the EU and there will be a competitive, market-driven economy operating….