State spending soars, along with unemployment

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Norway’s left-center government coalition unveiled a revised state budget on Friday that calls for spending more of the country’s oil income than ever before. State expenditures have exploded since the Labour Party-led government started tackling rising unemployment, which is up 88 percent from last year, but no tax relief is in sight.

Thanks to high oil prices, Norway’s current government leaders have a lot of money to spend, an estimated six times the amount that a right-center government had as late as 2001, reports newspaper Aftenposten .

Most of the revenues from the country’s offshore oil and gas resources have, since the mid-1990s, been set aside in a fund for future generations. Only 4 percent of the earnings from the so-called “oil fund” is supposed to be allocated to annual state budgets, to save for future pension liabilities and also to avoid inflation.

The global economic crisis, however, is now giving the government an excuse to use more of the huge amounts of petro-kroner that Norway’s oil and gas exports pump into the national treasury. As Aftenposten noted Friday morning, the 4 percent rule is “flexible” in times of economic downturn, and that’s convenient just four months before the next national election.

Finance Minister Kristin Halvorsen of the Socialist Left party released a revised state budget on Friday that calls for everything from more public works projects to funding for increased enrollment at colleges and universities, since many jobless Norwegians will opt to study instead of look for work in a tough market. All three government party leaders think they can afford to release funding for popular projects without raising taxes.

There was no mention, however, of any relief from the high taxes Norwegians already pay. Opposition parties quickly seized on that omission, complaining that small business owners won’t benefit much at all from the revised budget.

Halvorsen was clearly proud, though, of her budget that updates the version approved last fall and offers a fresh overview of how the Norwegian economy is expected to perform. High oil prices are expected to keep the money flowing into Norway at least through the next four-year parliamentary period, albeit in more modest amounts than recent years.

Halvorsen’s budget earmarks another NOK 9.5 billion of oil revenues, all told about NOK 130 billion, “to safeguard folks’ jobs,” she said. “We’re strengthening municipal budgets, boosting student enrollment capacity and adding more job-related measures,” she said.

The so-called “red-green government” already has allocated large funding increases for state-subsidized day care centers, environmental measures, roads and public transport and health care.

Economists warn that Norway’s still-relatively strong economy likely won’t last forever. The surge of government spending and increased use of oil revenues can trigger inflation, and cheap imports from abroad may dry up. Professor Einar Lie at the University of Oslo told Aftenposten that public spending would then need to be reduced, but that would be long after this fall’s election.

Concern remains about what Norway will do if and when its oil and gas supplies run out. Dividends and share values from the state’s large investments in such local companies as StatoilHydro and Telenor are already way down, in line with the stock market. Without the revenues pouring in from the oil, it’s estimated that Norway would log a huge state budget deficit, just like most other countries at present.