High electricity rates in December have resulted in huge new bills landing in Norwegians’ mailboxes this month, made worse by the state’s 25 percent tax on goods and services. Calls are going out for the government to remove the tax, at least temporarily.
“You can’t blame (Russia’s) war (on Ukraine) for the billions in extra taxes,” wrote Espen Gaarder Haug, a professor of finance at NMBU’s business school, in newspaper Aftenposten last week. He noted how Norway’s form of VAT (called MVA or “moms”) adds 25 percent to the already extraordinarily high electricity rates that Prime Minister Jonas Gahr Støre has long blamed on the war.
Støre’s government has been offering state compensation to households when rates surpass a certain level and has more recently offered disputed forms of compensation to businesses, which already can deduct MVA paid. The compensation doesn’t extend, however, to electricity bills at holiday homes or for various public service organizations. Haug argues that simply suspending the state’s own tax on electricity would also offer consumers badly needed relief at a time when inflation and higher interest rates are also causing trouble for household budgets.
“We can argue to what degree Russia’s president, Vladimir Putin is the reason for the high electricity rates,” Haug wrote in his commentary, “but what’s 100 percent certain is that Norwegian politicians decide over the VAT on electricity.” Suspending it would cut costs significantly, especially when electricity bills for even modest homes now amount to thousands of kroner. If the bill for electricity alone amounts to NOK 4,000 (USD 400), which has become common even for modest homes and cabins, customers also have to pay an additional NOK 1,000 in VAT/MVA tax, plus other various fixed rate taxes on such items as the delivery from electricity networks (nettleie).
Residents of Northern Norway have long been exempted from VAT on electricity, “but the rest of the country pays full moms on electricity,” Haug notes. “When electricity rates increase by several hundred percent (as they have over the past two years), the tax revenues to the state do, too.”
Haug reports that the state government took in “many billions of kroner extra in taxes” last year, compared to earlier years. In 2023, he contends, the state will take in “many extra billions from moms” than in what he calls a “normal” year, before the war upset energy markets all over the world.
‘Punishing’ electricity consumers
“Let’s say we buy (Prime Minister) Støre’s argument that gives Putin nearly all the blame for high electricty rates in Norway,” he wrote. “Why then will Støre on top of that punish electricity consumers in Norway by demanding a lot more in moms than in a normal year?”
He and others have argued that the taxes could be removed with a matter of weeks if the government and Parliament want to do so. He challenged opposition parties to propose suspension of the taxes until electricity rates return to “more normal, reasonable levels,” if the government doesn’t propose such a suspension itself.
The state has also been raking in billions in extra taxes on higher road tolls and, not least, from Norway’s oil and gas industry, which is profiting enormously on high prices for both oil and gas. That’s also pumped lots more money into Norway’s huge sovereign wealth fund (known as the Oil Fund), which is meant to save oil profits for future generations’ pensions.