Finance Minister Siv Jensen has had to fend off lots of criticism since unveiling Norway’s revised state budget for this year. Her decision to dip NOK 7 billion deeper into the country’s huge Oil Fund fueled claims that interest rates are now more likely to rise for a third time later this year, but Jensen disagreed, arguing that her budget will prod more economic growth.
“It’s natural to look at 2018 and 2019 together, and then our budget policy is still neutral,” Jensen said at Tuesday’s press conference just after the revised budget was released. She stressed that the government ended up spending less oil money than planned last year. It was the first time since 2011 that a Norwegian government spent less oil money than it did during the prior year.
It was also during her period as finance minister, which began in 2013, that the conservative coalition further restricted the amount of oil revenues that can be pumped into the state budget. Previous governments were allowed to spend 4 percent of the value of the fund itself. Jensen can now spend just 3 percent. Withdrawing another NOK 7 billion (USD 804 million) from the fund brings her revised budget’s use of oil money to 2.9 percent, up from 2.7 percent when she first presented the 2019 budget last fall. Despite the increase, no one can argue that Jensen is breaking any spending rules.
‘Raiding the piggy bank’
The Oil Fund is where the Norwegian finance ministry saves the vast majority of revenues from the country’s oil industry, to help ensure pensions for future generations when the oil runs out, or is no longer in demand because of climate concerns. Dipping into the fund is always controversial because Norway’s welfare state is supposed to be funded mostly by taxes, not its oil wealth.
Instead of investing the Oil Fund’s enormous amount of money mostly in the international stock market or high-end real estate in London and Paris, Jensen’s conservative Progress Party has always advocated investing more of it at home, especially in needed infrastructure. The Reds Party, at the opposite end of the political spectrum, has also recently called for spending more Oil Fund money in Norway, while the Labour Party and most other politicians in Parliament continue to call for strict limits on Oil Fund use. The fund is widely viewed as Norway’s “piggy bank” for the future, and many economists warn that spending too much of the country’s oil money could overheat the economy.
Strong economic growth
Norway’s economy, meanwhile, continues to improve after the oil price collapse of 2014. Jensen could proudly note that unemployment is even lower than last year, far more people have joined the workforce, and investment in mainland (as opposed to offshore) ventures hasn’t been stronger since the boom times of 10 years ago. Norway’s mainland economic growth is likely to rise from 2.2 percent to 2.7 percent this year, while oil investments are rising by 13 percent but likely to fall next year. Jensen could also boast that 109,000 people have found jobs since 2016, and three out of four new jobs have been created in the private sector.
The good economic news indicates Jensen has been doing a good job as finance minister, but critics claim it’s exactly why she should not have added NOK 7 billion to the budget (largely to offset a revenue shortfall resulting from a decline in taxes and fees paid on new vehicles, because most Norwegians are now buying tax-free electric cars). Norwegian media outlets were giving broad coverage to the criticism from the chief economist at Norway’s biggest bank, DNB, which is run by Labour Party veteran Rune Bjerke. DNB’s Kjersti Haugland claimed she was “surprised and disappointed” that Jensen was pumping more oil money into the state budget. Some economics professors lamented, meanwhile, that the government continues to boost spending. The government coalition now includes four political parties, and all of them are demanding money for projects aimed at pleasing voters.
Haugland also told newspaper Dagens Næringsliv (DN) that Jensen’s justification based on less oil spending last year was “a poor excuse.” Haugland also warned that further stimulating the Norwegian economy with oil money could force Norway’s central bank to boost interest rates again in September, to rein it in. Rates are still extraordinarily low, with the key policy rate at just 1 percent, but that’s after a quarter-point rise earlier this year and another widely predicted rise due in June. Banks are quick to raise mortgage rates after any central bank increase, so borrowers face higher monthly payments.
The government will now spend NOK 238 billion of the Oil Fund this year, up by NOK 24.3 billion from last year in actual kroner. Political critics claim the government should have reduced spending instead. “The time is right for stepping on the brakes, not the gas pedal,” wrote commentator Arne Strand in newspaper Dagsavisen on Tuesday. Member of Parliament Rigmor Aasrud, finance policy spokesperson for the Labour Party, agreed: “It’s our future youth who’ll pay for the additional spending in this budget.”
At the same time, Norwegians routinely complain when budgets are cut “in the world’s richest country.” The government also faces some unexpected expenses, not least the collision and sinking of the frigate Helge Ingstad, that’s already cost around NOK 700 million to salvage and will cost several billion more to replace. The government also must move forward with the rebuilding of its headquarters in downtown Oslo that were bombed by a right-wing extremist in 2011, but proposals to directly finance either with Oil Fund money were later dropped.
The revised state budget also adds more money for education, better sick pay for sole proprietors, NOK 1.5 billion for 900 more nursing home beds and better elder care, NOK 430 million for climate measures including subsidies for electric ferries and improvements to the heavily used commuter line from Asker to Lillestrøm in the Oslo area.
Henrik Asheim, finance policy spokesman for the Conservatives, defended his government colleague’s budget. Using an additional NOK 7 billion in oil money “is really not irresponsible. It’s a completely natural consequence of spending NOK 7 billion less than planned for in 2018. Then you can adjust a bit, and the finance minister will make it very clear why this is being done.”