Budget restrains use of oil money

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Finance Minister Sigbjørn Johnsen called the Norwegian government’s proposed budget for 2012 “tight, good and balanced,” noting that it’s fueled with more oil money than last year but less than what’s allowed by the state’s own guidelines. Continued restraint, Johnsen implied, will be healthy for Norway in the long run.

Finance Minister Sigbjørn Johnsen said his "neutral" budget is aimed to deal with international financial turbulence. Norwegian Broadcasting (NRK) aired his budget presentation live from the Parliament and noted in its subtitle here that NRK itself will be allowed to raise its annual license fee by NOK 95 (USD 16). PHOTO: NRK/Views and News

Norway’s philosophic finance minister from the Labour Party is known for reciting poetry at budget seminars and singing at other official gatherings. He was true to form during his formal presentation of the left-center government’s budget to Parliament on Thursday, citing both folk songs and poetry about the need to “look towards the north” and preserve core Norwegian values during times of international turbulence.

“In uncertain times we must take good care of our values,” Johnsen implored, calling the budget hammered out during the most challenging of circumstances, the aftermath of the July 22 terrorist attacks, “a budget for work, value creation and welfare.”

Norway, he repeated, can be hit hard as well by the turbulence in the world’s financial markets and the heavy debts piled up by other countries. As both he and Prime Minister Jens Stoltenberg have warned, it’s not just banks that can go under now but countries themselves. That’s why they think it’s more important than ever for Norway to show restraint and discipline even when it’s awash in oil revenues.

The rule that limits use of oil revenues to 4 percent of the size of the country’s oil fund, where revenues are stashed away for future generations, is not only being met this year but the government plans to spend NOK 2.4 billion less than the 4 percent rule called handlingsregelen would allow. All told, the budget includes use of NOK 122.2 billion of the state’s oil revenues, up NOK 10 billion from last year.

Norway, ruled by the current left-center coalition government for the past six years, remains in a very strong economic position with low unemployment, low inflation and another large budget surplus. Johnsen downplayed the role oil plays, though, by not only refusing to spend more of it but also because the value of the country’s workforce accounts for “85 percent of our common fortunes, oil only 7 percent.” He stressed that “we live off of each other’s work,” saying that the budget was structured to protect jobs and fuel job creation as much as possible.

It’s a budget, Johnsen claimed, also designed to limit further upward pressure on the value of the Norwegian currency, the krone, which has been very strong against other currencies. That makes Norwegian goods and services expensive in relation to other countries and threatens exports, a major reason why the central bank refused to raise interest rates last month despite a need to slow down borrowing.

Johnsen said his budget, much of it fine-tuned in makeshift offices after the Finance Ministry itself was damaged in the terrorist bombing of government headquarters, aims to  offer “a secure framework” for Norwegians’ household budgets. Taxes and fees are mostly being kept at current levels, with the exception an increase in the tax on food from 14 to 15 percent. Taxpayers will see some relief from the controversial fortune tax, with its exemption level raised from NOK 700,000 to NOK 750,000.

Johnsen called it a “neutral” budget, with real growth of just 2.1 percent, while some economists and banks called it “more expansive” than they’d expected.

Views and News from Norway/Nina Berglund
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