UPDATED: After weeks of debate, and concern from its own finance ministry, the Norwegian government has decided to change the rules regarding how oil companies can write off their investments. The tax relief is aimed at promoting ongoing offshore investment, to preserve and create jobs, but it’s temporary and has some strict rules.
Instead of having to spread oil project investment write-offs over six years, oil companies will now be able to take them all at once this year and next year, thereby potentially lowering their taxes considerably. Then the old system will resume, in 2022. The write-offs will also only apply to part of the oil companies’ tax obligations, not to their standard company tax of 22 percent.
The tax relief had been supported by the oil industry, Norway’s national employers’ organization NHO and key trade union federations. They all contend it will save jobs at a time of sharply rising unemployment in Norway, and merely postpone tax, not eliminate it.
Lots of opposition
It’s been firmly opposed, however, by climate and environmental organizations and the youth organizations of both the government’s own Conservative Party and Labour (AUF). Several other parties are also dubious, as was the finance ministry itself.
Opponents worry oil companies are now being given incentives to engage in risky and ultimately unprofitable offshore projects. They also argue the tax relief will slow down efforts to restructure Norway’s economy, make it less reliant on oil and gas and more environmentally friendly. AUF leader Ina Libak told newspaper Klassekampen this week that “we’ll end up using taxpayers’ money to make unprofitable investments” that also defy climate and environmental goals. “This is the opposite of what we need,” Libak said.
The finance ministry’s administrative leaders have also warned against using the tax system to stimulate projects that can be unprofitable for the oil companies. Newspaper Aftenposten, meanwhile, editorialized this week against making changes in the tax regime at all, arguing that it’s much better for Norwegian industry, and especially the oil business, to have a “predictable and stable” tax framework.
Support in Parliament
The finance ministry’s political leadership, however, went ahead and announced its tax relief proposal Thursday, and seems assured of majority support in Parliament, however, since both the Progress- and Center parties back it. The Greens, Reds and Socialist Left (SV) oppose it, while Labour will only support it if jobs will indeed be saved, revenues to the state will be secured and emissions will decline.
The government’s announcement came right after Norway’s largest bank, DNB, announced nearly NOK 3 billion of potential losses tied to the currently hard-hit offshore industry Thursday morning, and after the Oil & Energy Ministry agreed to oil production cuts Wednesday night. Finance Minister Jan Tore Sanner of the Conservative Party claimed the “temporary changes” in oil tax rules will “contribute towards generating activity and securing jobs in a difficult time.” He claimed they would enhance oil companies’ liquidity and “in practice mean that the tax bill will come later.”
Sylvi Listhaug of the Progress Party, a former oil minister who’s become a huge fan of the oil business, has claimed she had “great faith” that the oil companies will act responsibly, “invest for the future” and generate more “enormous revenues for the state treasury.” Others weren’t so sure, but Prime Minister Erna Solberg defended the tax relief package.
“We have long known that investment on the Norwegian Continental Shelf will fall,” Solberg said. “Even though we’re promoting policies to make the Norwegian economy less reliant on oil, it’s important that the (Corona) crisis we’re now caught up in won’t make the (investment) fall so steep and addep that we lose valuable competence that’s important for the green shift.” Offshore technology and innovation must be preserved, she believes, in order to launch into new areas like developing more wind energy at sea.
“The oil industry has been a motor for business and the economy in Norway for several decades,” Solberg added. “If we lose that power in this business, we’ll also lose much of the power for an economic restructuring.”
Greenpeace was among organizations rejecting Solberg’s position and even “condemning” the new tax policy, claiming that “this is not the time to further invest in oil.” Frode Pleym, head of Greenpeace Norway, added that “the Norwegian government continues to please the oil industry by announcing major tax relief, allowing the industry to make even riskier investments. The Norwegian taxpayers and the world’s climate will pay the price.”