State budgets for better times ahead

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Finance Minister Sigbjørn Johnsen unveiled a new state budget in the Norwegian Parliament on Tuesday that contains no major cuts, a few tax hikes and less use of the oil money that keeps flowing into Norway’s treasury. It’s all based on expectations that 2011 will be a good year for the Norwegian economy.

Norway's Parliament building (Stortinget) was a busy place on Tuesday, when the Finance Ministry unveiled the new state budget for 2011. PHOTO: Views and News

Johnsen’s predecessor, Kristin Halvorsen, had boosted use of oil revenues to ward off ill effects of the global finance crisis. Norway has ridden through the crisis well, and now it’s Johnsen’s job to re-impose the so-called handlingsregelen, which limits use of oil revenues to 4 percent of the amount of the country’s huge oil fund.

Johnsen said his budget was aimed at promoting “work and welfare,” to keep unemployment low and preserve jobs, social welfare and value creation. It includes more funding for such welfare services as health care, nursing homes and elder care but no single area is getting any big increases.

Norwegian governments on both the left and right have always been known for their disciplined use of the country’s oil wealth and now the finance ministry looks likely to revert to the 4 percent rule before the end of 2012. That’s sooner than expected, and largely due to optimistic predictions for the Norwegian economy, which already is among the strongest in Europe if not the world.

Finance Minister Sigbjørn Johnsen followed up his 60th birthday celebrations last week with presentation of his government's state budget on Tuesday. PHOTO: Regjeringen,no

The jovial Johnsen, who celebrated his 60th birthday last week, could therefore present a budget with no major cuts and several increases in spending also on transportation, for example. State allocations to local governments are going up, reportedly by 4.8 percent for Oslo and around 4 percent for most other municipalities around the country.

Some taxes are also going up, with liquor and tobacco set to become even more expensive than they already are. A pack of cigarettes, for example, will soon cost nearly NOK 100 (USD 16), since the left-center coalition government’s tax and spending proposals are expected to clear the Parliament later this year. The government has the majority it needs in Parliament, although its budget is bound to be attacked by the opposition on a variety of fronts.

Among them are the higher taxes, including a 5 percent increase in alcohol tax and 10 percent for chewing tobacco (snus, popular in Norway). Norwegian Broadcasting (NRK) reported that films and DVDs purchased from abroad will also become subject to Norway’s 25 percent VAT (MVA, moms), which functions like a sales tax on most goods and services.

Another controversial proposal is likely to be permission for local governments to impose property tax on commercial real estate including shopping centers and hotels. That won’t be popular with real estate investors.

Fuel taxes will be adjusted, but owners of cars with low emissions will pay less and those with higher emissions will pay more. Affluent retirees will also face higher income tax bills, while others will pay less.

In general the government seemed to keep its promise that taxes and user fees would mostly stay at the same level as last year. Johnsen seemed to stress “stability” in his budget presentation.

NRK reported no major surprises in the new state budget, which amounts to NOK 960 billion and contains an increase of NOK 61.5 billion in expenditures. Real spending growth, however, is set at just over 2 percent.

Views and News from Norway/Nina Berglund
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