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Tuesday, February 27, 2024

‘Expansive’ budget despite lower taxes

The Norwegian government’s new state budget proposal for 2016 was rolled out on Wednesday amidst finance ministry claims it will lower taxes for nine out of 10 Norwegians, yet generate enough growth to fund new job creation and strengthen the country’s “social security net.” Here are some of the highlights of the minority conservative coalition’s budget proposal, which amounts to 1,245 billion Norwegian kroner and now faces debate in Parliament:

Taxable net income rates will be lowered from 27 to 25 percent and the standard deduction on personal net worth, which forms the basis for Norway’s controversial formueskatt (fortune tax), will rise from NOK 1.2 million to NOK  1.4 million per taxpayer. The tax itself will decline slightly, meaning that couples should now pay 0.8 percent tax on net worth over NOK 2.8 million. The government also proposes changes in how tax is calculated, with the aim of yielding lower overall taxes for the vast majority of taxpayers at all income levels.

Corporate tax will also be lowered from 27 to 25 percent, “to encourage investment” but also make it “less beneficial to shift profits out of Norway to low-tax jurisdictions.” Multinational companies like Google, Starbucks and Microsoft have also caught criticism in Norway for moving profits to sister companies in other countries where tax rates are much lower. “To further secure the tax base, the government will also tighten the rule that limits the deductibility of interest paid to associated companies,” the Finance Ministry announced. Aided by OECD rule changes also announced this week, Finance Minister Siv Jensen thinks the proposed changes in corporate taxation “will give Norway a more robust tax system that is adapted to high international tax base mobility.” Tax on dividends will be adjusted, the ministry stated, “to keep the overall tax on distributed profits at about the same level as today.”

Tax reform measures were to be detailed later, but make up an important part of the government’s proposed budget already. Jensen said she was proposing tax reform that would yield a system with “good incentives to save, invest and work,” to ease national economic diversification and boost productivity. “In light of the economic challenges the country is now facing, 2016 is the right time to start tax reform,” she stated. All told, she claimed the budget proposal for 2016 yields overall tax relief of NOK 9.1 billion.

Local governments around Norway, charged with providing the vast amount of public services from garbage collection to running nursing homes and day care centers, will receive an increase in “real revenues” from the state of NOK 7.3 billion, more than half of which can be used as local governments see fit, instead of being earmarked for specific services.

Rising unemployment rates fueled by the dive in oil prices that’s forced downsizing at many companies in the oil industry will be tackled with the help of NOK 4 billion in a special package of funding that will be distributed to areas especially hard-hit by job cuts. That’s likely to be west coast regions around Stavanger and south to Kristiansand. Finance Minister Siv Jensen said the funding can be reversed if the business cycle improves. She noted how low interest rates, a weaker Norwegian krone and “moderation” in pay raises are expected to boost economic growth next year. Her budget is meant to help prod growth and she called it “the most expansive” since the finance crisis of 2008-2009. It wasn’t deemed so expansive, though, that it had much effect on the value of the krone Wednesday morning. It had strengthened earlier in the week, with a US dollar costing NOK 8.26 at 9:30am. At 10:30am, a half-hour into Jensen’s budget presentation, it cost NOK 8.24, thus staying relatively stable.

There were no changes in the amount of welfare payments that all parents receive on behalf of their children in Norway (called barnetrygd and equal to NOK 970 per month per child plus NOK 660 for children under age three). There will only be a slight increase (NOK 25) in the cost of the annual obligatory fee paid by all TV owners to fund state broadcaster NRK. The government’s planned investments in improving roads, public transportation, education, health care and elder care would continue. The government was also keen to boost police budgets, expand prison space and strengthen intelligence gathering efforts. Jensen claimed the government would also move forward with environmental and climate measures, including incentives for introduction of electric ferries.

For more details on the budget, click here (external link to the government’s budget information in English). Berglund



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