Finance Minister Siv Jensen has long been a proponent of investing more of Norway’s oil wealth at home, and dipping into it in times of trouble. Now, after branding the Norwegian economy as healthy once again, even she’s warning that the government won’t literally be oiling their proposed state budget by nearly as much next year as it has in the past three.
“The period of economic downturn (set off by the oil price collapse in 2014) is over,” Jensen declared confidently this week. “That means we don’t need to step on the gas pedal anymore.”
She made the rounds of Norwegian media as speculation began to swirl around the state budget she’ll present in Parliament next week. Her message was clear: There will be much less growth in the use of oil revenues to pad the budget. After the past few years of expansionary policy to offset the contraction caused by an oil industry suddenly faced with high costs and much lower revenue, Jensen and Prime Minister Erna Solberg are letting it be known that times are changing.
Their earlier decisions to spend and invest as much as NOK 20 billion a year in extra oil revenues in Norway, to stimulate a sluggish economy, was an exception to the rule, even though they never exceeded the limit on Oil Fund withdrawals of what used to be 4 percent of its total size. They even took the initiative to reduce that limit to 3 percent, and Solberg said this week that they’ll use less than that in the state budget for 2018. Many are expecting the growth in use of oil money to fall to just NOK 3 billion. “Nor everyone will be satisfied,” Jensen told newspaper Aftenposten, without going into detail. “Some will always want more than they get.”
She stressed, though, that the reason for the more restrictive policy is based on good news: “Things are going so much better for the Norwegian economy. Unemployment is going down and employment is going up. We have succeeded with our policies for demanding times during both the oil price shock and the refugee crisis (when more than 30,000 people in need suddenly arrived in Norway in 2015).”
Now most all financial indicators are pointing in the right direction, towards better times, “and we should all be happy about that,” Jensen told Norwegian Broadcasting (NRK). Now it’s “critical,” she said, that the government doesn’t do anything that can weaken competitiveness among Norway’s export businesses. “If we step on the gas too hard, the krone can strengthen and hurt competitiveness. We must make sure that employers keep hiring. The goal is for the growth to occur in the private sector.”
While there may be new budget cutbacks in some areas, it’s widely expected that defense spending will continue to increase. So will investment in the transport sector, in the form of both new and improved highways, trains and mass transit. The government also is keen to maintain and improve health- and elder care.
Those are the areas viewed as potential winners in Jensen’s state budget proposal, which will also phase in some tax reforms. Both she and Solberg contend that other reforms, such as mergers of local governments and reorganization of the police and local hospitals, will cut state costs and save taxpayers’ money.
Øystein Dørum, chief economist for national employers’ organization NHO, said that major declines in the growth of oil revenue spending may force the government to cut some social welfare programs or even raise taxes. Jensen disagrees, arguing that a recovering economy will generate more tax revenues and reduce welfare costs.
“Things are going well in Norway, and that helps us secure the basis for the welfare system,” Jensen said. “That means something to everyone.” She’ll be presenting the budget, and what it means for government programs and taxpayers, next Thursday.