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Saturday, June 15, 2024

Johnsen ‘must’ stem flow of oil money

Norwegian Finance Minister Sigbjørn Johnsen has a problem that many of his colleagues in other countries would love to have: Norway now has so much oil money that the country can’t use all it could even under its own strict guidelines. Economists warn that pumping just 4 percent of Norway’s bulging oil fund into the state budget for next year would overheat the economy.

Finance Minister Sigbjørn has been putting the finishing touches on the government's state budget proposal, which will be presented to parliament in early October. PHOTO: Arbeiderpartiet

Newspaper Aftenposten reported Monday that Johnsen, when he formally presents the government’s proposed state budget for 2013 next month, probably won’t be tapping all the oil revenues he could under what the Norwegians call handlingsregelen. That’s the rule, in force since 2001, that guides how much of Norway’s oil revenues can be spent each year. It’s set at 4 percent, believed to be the average long-term gain on the fund over time.The rest of the money stays in the so-called “Oil Fund” to cover future pension and welfare needs.

Johnsen will present the state budget at 10 am on October 8, and it’s sure to set off opposition. At a time when hospital budgets are being slashed, when Norwegians are still clamouring for better roads and train service and schools, and when many municipal governments need more money for nursing homes and other social welfare services, Johnsen and his Labour Party-led left-center coalition government are expected to cut back on use of oil revenues and rely more heavily on the tax base instead.

Johnsen, staying mum on the budget proposals until their former release, has repeatedly cautioned against using too much oil money. The government boosted usage in the years right after the finance crisis first hit in 2008. Now, argue disciplined economists, it’s time to cut back.

“Using 4 percent of the fund the next few years would lead to a strong rise in demand in the economy,” Hans Henrik Scheel, managing director of state statistics bureau SSB, told Aftenposten. “That would, among other things, put more pressure on wage growth and further weaken the competitiveness of companies. We’d be left with less oil money to use when needs are greater.”

He and his colleagues at SSB think Johnsen will use as little as 2.5 percent of the oil fund until 2015. The actual amount in kroner would dip from the amount tapped in 2011, but then rise slightly every year.

Economists at Norway’s central bank (Norges Bank) also predict use of less oil money than the rule would allow, but not as little as SSB advises. It predicts use of 3.5 percent, tapering off a bit from 2015.

The “luxury problem” for Johnsen is an oil fund bulging from still-high oil prices and production, although reduced demand from countries in economic crisis is resulting in lower sales. Meanwhile, more new oil discoveries have been made on the Norwegian continental shelf, with the pace of exploration brisk, so there’s no immediate danger that the flow of the oil itself will taper off.

Johnsen, an affable Labour Party veteran, will likely once again fend off criticism coming from opposition parties that want to use more oil money to invest in badly needed infrastructure. With elections looming next year and Labour keen to win a third term, though, Johnsen is also under pressure to provide some “goodies” in the budget in the hopes of attracting voters. Budget debate will continue through the autumn, but the government is likely to get what it wants since it still has a majority in parliament.

Views and News from Norway/Nina Berglund

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