Finance Minister Siv Jensen presented the new conservative government’s first state budget on the floor of the Norwegian Parliament on Friday, with proposals that include elimination of inheritance taxes, reductions in fortune taxes and a slight reduction in income taxes. The proposed tax relief will largely be funded through use of more oil revenues, while staying well within current expenditure limits.
Jensen and her colleagues in the finance ministry have only had three weeks to go through and amend the massive state budget for 2014 that was presented by the former left-center government just before it had to resign after losing the September election. Jensen, a former finance spokesperson for her Progress Party, acknowledged they’d had to work hard under tight deadlines to come up with a new budget, but she clearly was excited about finally having a chance to make proposals that more closely reflect the new policies of her party and those of her government coalition partner, the Conservatives.
Taps into more oil revenues, within limits
Norwegian Broadcasting (NRK) reported that the new budget uses an additional NOK 4 billion of the country’s oil revenues to fund the various tax relief measures. All told, however, the new conservative government’s budget is still using an amount that only equates to 2.9 percent of the size of the state’s oil fund, the same as that proposed by the former left-center government, because the fund itself has continued to grow during the past three weeks. It’s generally allowed to use up to 4 percent of the fund, which means Jensen and her colleagues could have tapped into many more billions but chose not to, likely to silence critics who fear that use of more oil revenues will overheat the Norwegian economy.
Jensen claimed the budget will strengthen education, health care services, transportation and the asylum and justice sector. She said on Friday that the former government had not budgeted, for example, to house and then streamline deportation of rejected refugees, an issue very much in the news at present, but the new budget will. “Our budget is formed in a generational perspective,” she said. “We want to be able to meet economic setbacks and make sure budget policies are robust even if the returns on the oil fund are lower than expected.”
The new budget will affect household budgets in Norway, providing many with more expansiveness. While taxes paid to cover welfare expenses such as pensions (called trygdeavgiften) will increase by 0.4 percentage points, to 8.2 percent of income, the overall income tax rate will fall from 28 percent to 27 percent.
Norway’s controversial tax on net worth (formueskatt, fortune tax) will be cut to 1 percent, and the new government is retaining the former left-center government’s proposal to raise the standard exemption to the first NOK 1 million of each taxpayer’s taxable net worth. Tax will thus only be owed on net worth over NOK 1 million.
Inheritance taxes, meanwhile, look set to be eliminated. The former government eased them by raising the standard exemption to the first NOK 1 million of inherited value. Jensen proposes eliminating the unpopular inheritance tax, which has forced some families to sell property in order to pay the tax.
Changes in deductions
Jensen removed the former government’s proposed increase in the amount members of labour unions can deduct for their union dues, leaving the highest deductible amount at NOK 3,850 for the year. Young adults, however, will be able to deduct a much larger amount tied to what they save in order to buy a new home, for example, by raising the ceiling on so-called BSU accounts.
Students otherwise stand to lose the much more generous financing proposed by the former government. The new government headed by Prime Minister Erna Solberg and Jensen thought that was too expensive. University students in Norway also have no tuition fees to pay, a huge benefit that’s increasingly unique in the world.
In other budget items aimed at individuals, the new government reduced a proposed increase in the annual mandatory fee for NRK (lisensavgift) from the former governments NOK 60 to NOK 45. That means households will now need to pay NOK 2,729 per year in the NRK license fee.
For more official details of the amended state budget in English, click here (external link).
Members of Parliament immediately started debating the new budget proposals and more budget details were set to emerge through the weekend. Debate will also continue through the month, with a vote on a new state budget due later this autumn.