Prime Minister Erna Solberg and Finance Minister Siv Jensen gathered their government colleagues on Wednesday for a final round of negotiations, as they hammer out the first state budget of their new administration. Proposed tax cuts and debate over how much they should tap from the state’s burgeoning oil fund are among discussion topics that were high on the agenda.
Solberg told reporters before the ministers disappeared into their budget conference that they had “a good foundation” for their talks from their main conference in March. “But it’s always demanding in the final rounds to unite on all the good wishes,” she said.
Even having plenty of money to work with, it seems, can pose major political conflicts. Norway’s huge oil fund is spilling over with money, an embarrassment of riches that will test Jensen’s ability to balance much-desired and needed ways of spending it with economic prudence. Meanwhile, Norway’s social democrats oppose tax cuts that may benefit the wealthy at the expense of those with lower- and middle-incomes.
Jensen has been under the most pressure lately regarding both the tax cuts her Progress Party promised during last year’s election campaign and the use of oil fund reserves. Her party colleagues are demanding solid tax relief and more use of the fund where the country’s oil revenues are stored and saved for future generations. Oil fund resources are mainly supposed to be used to cover pensions in the future and maintain Norway’s welfare state when or if the country’s oil fields eventually run dry, but governments are generally allowed to augment their state budgets with as much as 4 percent of the fund’s total assets.
Jensen and her party have long called for tapping more heavily into Norway’s oil revenues, to invest in needed infrastructure improvements at home in addition to the foreign stock markets and real estate abroad where the oil fund currently invests. Now the fund has grown so large, though, that economists and more restrictive Norwegian politicians in opposition warn against even using the full 4 percent that’s been considered acceptable, for fear of overheating the national economy.
NOK 20 billion more
Newspaper Dagens Næringsliv (DN) has reported that Jensen seems likely to propose using an additional NOK 20 billion (USD 3.2 billion) of the state’s oil revenues in her new budget. That would mean a state budget fueled with a total of NOK 160 billion of oil money, compared to NOK 140 billion this year, a solid increase that would allow Jensen to claim that she’s keeping her promise to spend more of Norway’s oil money.
The NOK 160 billion, however, only amounts to 2.8 percent of the ever-growing fund’s total assets, the same percentage amount used this year, because the fund has gotten so big. DN reported that finance ministry experts predict the oil fund itself, by New Year’s Eve, will be several hundred billion kroner bigger than the government expected it to be as late as May. Jensen’s party colleagues want her use more than 2.8 percent, with her predecessor as party leader, Carl I Hagen, calling for 3.7 percent. That’s still under the 4 percent limit but would pump a total of NOK 210 billion into the budget that could be spent on important projects such as new roads and train lines, health care and nursing homes.
“If it’s true that only 2.8 percent of the oil fund is going to be used, then I think the Progress Party’s national convention will demand a very good clarification,” Hagen told DN on Wednesday.
Keeping other supporters happy
Jensen, though, also needs to appease the two small “support parties” that give the Solberg-Jensen government a majority in Parliament. They’re demanding “careful” use of oil money to avoid overheating the economy. “We can’t risk hurting the Norwegian economy by using too much oil money,” Hans Olav Syversen of the Christian Democrats, one of the government’s support parties, told newspaper Dagsavisen on Tuesday. Syversen also leads the finance committee in Parliament. The Liberals, the government’s other support party, also advocates restrictive use of oil money, “not just because of professional financial evaluations but also out of solidarity with future generations,” claimed Terje Breivik of the Liberals, who also sits on the finance committee.
In short, the Christian Democrats, the Liberals and other opposition parties in Parliament prefer higher taxes to more use of Norway’s oil revenues. They also stand to oppose any major tax cuts including the “tax relief” Jensen also needs to offer to appease her own voters. Solberg’s Conservatives also campaigned for tax relief, and have proposed cutting the country’s controversial tax on net worth among other measures. They eliminated inheritance tax earlier this year.
The Conservatives and Jensen of the Progress Party still promise a state budget that will provide funding for major infrastructure improvements, tax relief for the majority and improve competitiveness for Norwegian business. “The most important thing for us is to deliver what we promised voters, well-known issues like improving competitiveness, making sure fewer fall outside of the working world, better schools, infrastructure, welfare and that we can treat more people at our hospitals,” Solberg said Wednesday morning. “That’s our priority.”
The budget itself will be released on October 8, after Parliament reconvenes for the new term.