Transport, defense, health and education emerged as the winners in what commentators described as the government’s “neutral” state budget for 2018. Finance Minister Siv Jensen, confident after helping to steer Norway through its biggest economic crisis in years, described it as a “secure and future-oriented” budget that will prod more economic growth.
“The government has guided Norway safely through a demanding time,” Jensen declared from the podium in Parliament on Thursday, as she formally presented how the government wants to spend taxpayers’ money next year. “We have managed the biggest migration crisis since World War II and we have been affected by the most serious oil price fall in 30 years. One of our most important industries was hard hit … let there be no doubt that this shock strongly affected the Norwegian economy.”
She could go on to claim that her government’s policies for tackling the economic downturn worked, with growth returning and unemployment declining, “but the job isn’t finished.” She noted how Norway’s population is ageing and how the oil industry, while still important “for many years ahead,” can no longer be relied upon as the driving force it’s been for the country’s economy. That, she said, is what lies behind the budget she was putting forth.
Many of the posts in Norway’s state budget, such as pension obligations, represent fixed costs and can’t be changed much no matter which political parties hold government power. There are many, though, where politicians can make their mark, and Jensen quickly zeroed in on them. The priorities of her conservative Progress Party are topped by ongoing investment in transport and infrastructure, tax relief, health care and controlling immigration, while Progress’ senior government partner, the Conservatives, is also keen on health care and defense.
The massive state budget, which involves NOK 1,325 billion of spending, spans a broad spectrum but among the highlights of Jensen’s proposals were funding increases of NOK 4.1 billion for the transport sector, NOK 9.2 billion for research and innovation programs and NOK 1.5 billion for hospitals. The “neutrality” of the budget emerged in its lack of more radical changes. Many taxes, fees and programs were kept at current levels, or adjusted only modestly.
Tourism ‘tax shock’
There were exceptions. While Jensen is keen on more tax relief, equivalent to around NOK 3 billion, the government “shocked” the tourism industry by proposing to boost the rate for VAT (called MVA or moms in Norwegian) on transport, museum tickets and hotels from 10 percent to 12 percent. The increase will provide an extra NOK 530 million in tax revenues to the state, but it won’t come without a fight. “The increase comes as a shock for the travel industry,” claimed Kristin Krohn Devold, head of tourism employers’ organization NHO Reiseliv and herself a former politician for the Conservatives. “The government is punishing an industry that has created jobs.” She argued that the higher tax will make hotel rooms more expensive and weaken the competitiveness of tourism in Norway.
At the same time, though, Jensen announced what was quickly branded as an “Airbnb tax.” She proposed removing the current tax exemption on short-term rentals in private homes of less than 30 days, meaning homeowners renting out rooms or entire homes and apartments for overnight or short-term stays will now need to pay tax on their income that they’ll likely need to collect from their tenants. Jensen said that would help hotels that have complained that Airbnb operators had unfair tax advantages.
Less oil money oiling the budget
There were no changes in child welfare payments to parents and Jensen followed through on earlier claims that the government would reduce its use of oil revenues to pad the budget. They’ll be held to 2.9 percent of the size of Norway’s Oil Fund, as the government shifts to less expansionary budget policy.
The budget will now become the subject of political debate through the fall, as other parties try to win more funding for their priorities and change the government’s. Complaints were flowing in even as Jensen spoke, with Labour Party leader Jonas Gahr Støre claiming that “this is not a budget that addresses the big obligations.” The Center Party, meanwhile, was far from satisfied with an increase of NOK 3.8 billion in funds distributed to local governments.
Jensen also confirmed a contested proposal to impose a new one-time tax on the purchase of electric cars that weigh more than 2 tons. It’s already been dubbed as a “Tesla tax” because it will especially apply to expensive Tesla models, not least the SUV Tesla X, which stands to become as much as NOK 96,000 more expensive than it is today. Debate looms.