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Saturday, July 20, 2024

Norway’s state budget ‘irresponsible’

Norwegian Finance Minister Trygve Slagsvold Vedum is being accused of locking the country into an “irresponsible” boost in public spending, after his minority Labour-Center government went along with various state budget demands from the Socialist Left Party (SV) during the weekend. SV secured more state aid for students, families with young children and climate measures, but failed once again at getting the government to change its “aggressive” oil and gas policy.

Norway’s Finance Minister Trygve Slagsvold Vedum, shown here presenting his Labour-Center government’s state budget in October, ultimately had to accept around NOK 18 billion worth of changes in his budget proposal for 2024. PHOTO: Finansdepartementet/Celine Lyse Augdal

All three parties involved in the budget negotiations were predictably claiming victories, with Vedum himself repeatedly calling the budget both “safe, secure and responsible.” Labour and his Center Party needed SV’s support for the budget, though, in order to win a majority in Parliament.

Vedum also claims he was prepared for SV’s demands and was willing, for example, to boost Norway’s monthly welfare payments for all children (called barnetrygden and doled out regardless of families’ economic situation) by NOK 2,400 a year.  “We share an engagement for children,” Vedum told newspaper Aftenposten.

SV leader Kirsti Bergstø was also claiming victory in state budget negotiations on Monday. PHOTO: SV

The increased standard aid for families will cost NOK 1.9 billion, while the extension of free after-school care to third-graders will cost NOK 880 milion. Another NOK 1,250 in monthly support for college students will cost NOK 227 million. The goal, according to government and SV leader Kirsti Bergstø, is to help families and students through a time of high inflation and rising interest rates.

The problem, according to several economists and commentators, is that Vedum and his government partners from the Labour Party, are tapping into around NOK 9 billion in what was supposed to be one-time aid for businesses during the Corona crisis. The aid wasn’t needed, so now Vedum “is using the money to pay for agreement with SV,” wrote Aftenposten columnist Kjetil B Alstadheim on Monday.

“That makes the budget more irresponsible than it already was,” wrote Alstadheim, referring to the risk of whether the budget already failed to account for ongoing inflation. If prices keep rising, demands for compensation will come from the hospitals, police, defense forces and everyone else relying on state funding.

It will now also be difficult to reverse or cut the family and student aid that’s now been increased, meaning governments in the future will need to find the money from other sources when the NOK 9 billion runs out. Vedum “hasn’t generated new sources of income or made other cuts,” Alstadheim wrote. “He’s only made the burden on the future greater.”

He also notes that the EU won’t like the new state budget’s higher customs fees and import tariffs on potatoes in addition to celery, red beets and other vegetables to further protect Norwegian farmers. They come at a time when Norway is also trying to latch on to the EU’s health care preparedness measures, prompting Foreign Minister Espen Barth Eide to note that Norway can’t expect support from the EU when it also tries to block more EU exports.

Several economists have also questioned the government’s state budget. Øystein Dørum of the national employers’ organization NHO wrote earlier this fall that it was “responsible” mostly in the short-term. New revenue sources will likely be needed to fund the recurring costs of the increases now agreed.

NHO boss Ole Erik Almlid was relieved the government avoided SV’s demands for even higher taxes and fees, but claimed Norway’s annual tax on net worth “is still too high.” Other forms of tax relief proposed earlier this fall have also been reduced by around NOK 1.3 billion.

Sveinung Rotevatn of the Liberal Party (Venstre) is highly critical of Norway’s new state budget for next year. PHOTO: Venstre

A new and  highly controversial tax on fish farming was pushed through last spring, albeit at a lower rate than initially proposed, and now an increase in the amount of money employers must pay for each employee (called arbeidsgiveravgift, and meant to cover the costs of sick leave and other worker benefits) has been made permanent. That led to more criticism: “Now companies will be punished all over the country,” complained Sveining Rotevatn of the Liberal Party, noting that extra fees on higher incomes involved a total increase from NOK 8 billion this year to NOK 10 billion next year. “That’s some Christmas present from the government to employers,” Rotevatn wrote in a press release.

He and others in the opposition Conservative and Progress parties accuse the government of trying to disguise an ultimate need for more use of money from Norway’s huge sovereign wealth fund known as the Oil Fund. “This is a budget that’s bad for the future,” Rotevatn claimed, warning that it will lead to more oil fund use that in turn can overheat the economy, boost inflation and interest rates and raise taxes for employers. The Liberals, Conservatives and Progress parties were all unhappy over the use of leftover Corona compensation for funding that will be difficult if not impossible for future governments to cut.

“They’re inflating the public sector with this budget,” Rotevatn claimed.

Tonje Brenna, now deputy leader of the Labour Party, defends the new state budget as “safe and secure.” PHOTO: Arbeiderpartiet

Labour’s deputy leader Tonje Brenna, standing in for Prime Minister Jonas Gahr Støre who’s in Dubai for the UN climate summit, disagrees. “We have agreed on a state budget that ensures (financial) security for people, contributes towards controlling price hikes, and keeps employment high and unemployment low,” Brenna said at Sunday’s press conference on the budget deal. “We have a majority in favour of good social welfare solutions while at the same time ensuring responsible use of public spending.”

Defense spending remains the highest priority in next year’s budget, while money was also found for recruitment of needed health care personnel at struggling hospitals in Northern Norway. SV also secured an extra NOK 3 billion for various housing projects, including rental assistance for low-income households.

Debate over the proposed state budget continued in Parliament on Monday, even though the government has won majority support for it after negotiations with SV. The Labour Party’s finance policy spokesperson, Eigil Knutsen (right), had to defend his government’s budget in Parliament when challenged here by Tina Bru of the Conserative Party. PHOTO: Stortinget/Peter Mydske

SV had tried, once again, to curb more oil and gas exploration and production projects but Labour and Center refused to go along. SV leader Bergstø had to admit that “there was no agreement” on changes in oil and gas policy, while stressing how SV had secured nearly NOK 10 billion for other green projects. They include NOK 4 billion to fund more projects aimed at a “green restructuring” of Norway’s economy, another NOK 449 million targeted for “voluntary preservation” of forest land and NOK 1 billion more for climate and forestry preservation projects abroad.

Neither Vedum nor his Labour Party colleagues would budge on oil policy, though. Norway’s two largest non-socialist parties in Parliament, the Conservatives and Progress won’t either. They likely would have given the government the majority it needed to keep searching for and producing oil and gas, if the issue actually had come up.

Vedum acknowledged, though, that oil and gas policy was “the most difficult issue” to tackle. Asked whether it was a victory for Center that SV failed to win oil policy concessions, Vedum merely replied to Aftenposten that “I think it’s good for the country that we have stability in our oil and gas policy.” Berglund



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