Police, elderly, roads and trains are biggest budget winners

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Norway’s re-elected left-center government put forth a surprisingly expansive budget proposal on Tuesday that earmarks billions more in funding for the police, nursing homes, road building and maintenance and the train system. Cultural programs and foreign aid are also set for increases. Many Norwegians, though, may face higher taxes on the value of their homes.

Finance Minister Kristin Halvorsen said early Tuesday morning, before addressing Parliament, that she faced bigger challenges with this budget proposal than those tackled in budgets prepared over the past four years. The state will likely have less oil revenue to work with, and economic development remains uncertain.

While unemployment is expected to remain low (currently just 2.7 percent) in Norway, the country may suffer some after-effects of the global finance crisis that haven’t materialized as yet. Norway has done well during the crisis, the worst of which may now be over, but few new orders have come in to Norwegian shipyards, for example, and problems may crop up in a year or two.

Halvorsen and the rest of Norway’s coalition government nonetheless proposed using record amounts of oil and gas money, nearly NOK 45 billion more than the amount normally allowed (4 percent of the earnings on the state’s so-called “Oil Fund.”) That means the state won’t save much at all of the oil revenue due to be pumped into the fund in the next year. The left-center government prefers to spend rather than save, on the grounds that the finance crisis, in their minds, isn’t over yet.They’re proposing a budget that allocates NOK 1.3 billion (around USD 224 million) in additional funding for more nursing home rooms and elder care, and roughly the same for the police. The goal is to get 2,500 more nursing home beds by 2015, more capacity at the police academy to train more police officers and more police on the streets.

Renewable energy programs are also due for more funding, as are private day care centers. Municipal governments stand to receive NOK 8 billion in additional funding, up from the NOK 6 billion earlier predicted. More funds are also targeted for road building and maintenance, schools and academic research, the railroad and cultural programs.

Halvorsen said her budget proposal was “well-suited” to the current economic situation in Norway, and that it was “absolutely necessary” to boost spending in crisis times, as a form of government stimulus.

Swift reaction, not least

over real estate taxation

The budget will now be debated in Parliament and reaction was already pouring in by noon Tuesday. The deans of the universities in both Oslo and Bergen, for example, said they were “worried and surprised” by a budget that doesn’t allocate more to research, capacity for more students and improved quality of programs. The head of Norway’s employers’ organization worried the budget would further strengthen the Norwegian currency (krone) and make life harder for the export industry.

All three parties making up the government (Labour, the Socialist Left and the Center Party) have said they’d hold the line on taxes. Norwegians woke up to news Tuesday morning, however, that there’s likely to be a recalculation of tax liability on the value of their homes.

The government wants to make around 25 percent of the market value of homes subject to tax, to make it less of a tax advantage to invest in real estate. The idea is to dampen the recent rapid rises in housing prices and real estate speculation.

One side-effect, bound to set off debate in Parliament, is that residents of Norway’s cities likely will face bigger tax bills than those in outlying areas, because of higher housing prices.

Halvorsen, however, downplayed the effect, contending that most people will see no rise in Norway’s much-debated “fortune tax” (formue skatt), which is imposed year after year on taxpayers’ net worth. The value of housing has traditionally had an artificially low tax value, not directly tied to market value. Economists have argued in favor of the type of change now proposed by Halvorsen, who also noted that the standard deduction for all taxpayers will increase.