1 Main tax policy features

1.1 The tax policy objectives of the Government

Taxes make it possible to finance welfare schemes, thereby enabling Norway to remain a safe and good country in which to live. Tax policy shall contribute to fair distribution and facilitate economic growth, as well as high health and environmental standards, throughout Norway.

Taxes are of importance to how Norway meets the long-term challenges described in the 2024 white paper on Long-term Perspectives on the Norwegian Economy:

• Labour force shortages. The number of caregiving tasks is increasing, but we do not have more individuals of working age to perform them. The tax system needs to support the policy drive to increase labour force participation. Taxes, social security provisions and subsidy schemes need to work well together.

• Continued fair distribution. Small differences and stable access to welfare services need to be preserved in the face of transitions, and as many people are living longer. In order to finance welfare schemes, tax bases need to be robust and broad, and the tax system needs to be adapted to social developments. The tax system is one of the tools the Government can use in its efforts to reduce the disparities between people, both socially and geographically.

• Need for adaptation. Increased global tensions, climate and environmental changes, and declining petroleum activity reinforce the need to use resources wisely and appropriately. The Government is aiming for its tax policy to provide a favourable framework for work, investment and economic growth throughout Norway. Well-designed resource rent taxes give society a share in the extraordinary return that can arise from the use of our natural resources. Environmental taxes at the right level, such as taxes on greenhouse gas emissions, are part of a cost-effective and credible climate and environmental policy and help to ensure that society’s resources are used in the best possible way.

During this parliamentary term, ordinary personal income tax has been reduced significantly, while wealth tax and resource rent taxes have been increased, along with environmental taxes and dividend tax. Such a reorientation of the tax system stimulates increased labour supply and less environmentally harmful emissions, while also making the tax system more redistributive. The corporation tax rate, which affects how profitable it is to invest in Norway, relative to other countries, has been kept unchanged at a moderate level. As announced in the Revised National Budget 2024, it is proposed that the additional employer’s contribution will be abolished from January 1, 2025. The high-price contribution on power production was already abolished on October 1, 2023. With this, both of the temporary tax increases introduced in connection with the 2023 budget have now been abolished. This is in line with the government’s promise that these tax increases were temporary. It is important to emphasize that in the special situation we were in, with increased expenses in many areas and extraordinarily high electricity prices, it was absolutely necessary to take these two temporary measures. The alternative would have been significant welfare cuts or large tax increases for households.

The Government aims to make tax rules easy for taxpayers to understand and comply with and simple for the Norwegian Tax Administration to enforce. Administrative costs for taxpayers and the public sector can be kept down by making the most of the opportunities provided by digitalisation. The Government is considering modifications to the regulations on an ongoing basis, with the aim of further simplifying these for business and industry.

1.2 Main features of the tax programme for 2025

Executive summary

The tax programme for 2025 is adapted to the economic situation described in Report No. 1 (2024–2025) to the Storting, National Budget 2025, and the long-term challenges described in the 2024 white paper on Long-term Perspectives on the Norwegian Economy. This Government is making clear political choices and is pursuing a prudent and responsible economic policy. People should and will be better off.

The Government is not proposing any major tax reform in the 2025 budget, but is continuing its efforts to make the tax system more redistributive. The total net tax and fee reductions in the government’s proposal are NOK 17.5 billion, fully phased in.

As announced in the Revised National Budget for 2024, the Government is proposing a discontinuation of the temporary additional employer’s National Insurance contributions with effect from 1 January 2025. The tax relief is estimated to be about NOK 12 billion accrued in 2025. In addition to the discontinuation of the additional employer’s National Insurance contributions, the Government is proposing net tax reductions of about NOK 5.5 billion, when the changes are fully phased in. The booked tax reductions in 2025 are estimated to be about NOK 9,3 billion; see Table 1.1.

The Government is prioritising targeted tax relief for people on low incomes. The exemption card limit (the threshold for the payment of National Insurance contributions) will be increased from NOK 70,000 to NOK 100,000, and the threshold for paying other taxes on wage income and pension income will be increased from about NOK 163,000 to about NOK 200,000. Lower National Insurance contributions on wages, benefits and self-employment income, combined with a bracket tax increase, will provide tax relief for low and medium incomes and slightly higher taxes on high incomes. The total reductions in income tax for individuals (excluding dividend tax) under this government amount to NOK 10.5 billion with the proposal for the 2025 budget.

The Government is proposing to reduce value added tax on water and sewage services from 25 per cent to 15 per cent from 1 May 2025. This will have an estimated full-year tax relief effect of NOK 4 billion and will help to reduce the cost of living for many households whose purchasing power has been reduced as a result of high inflation and increased interest rates.

The current exit tax rules do not ensure that capital gains on shares, etc., accrued while the owners are resident in Norway are taxed in Norway, and that the tax is actually paid. The Government is therefore proposing to change the exit tax to ensure that the rules work as intended and support a robust, redistributive and fair tax system. The proposed changes are more lenient than the proposal that has circulated for consultation.

The Government has delivered on its plan to increase climate taxes. The tax proposal for 2025 entails additional steps in the same direction, including a further linear increase in climate taxes on non-ETS emissions to NOK 2,000 per tonne of CO₂ at 2020 prices in 2030 (equivalent to NOK 2,400 at 2025 prices). The green transition envisaged by the Government needs to also take into account the increased cost of living experienced by large groups over several years. The Government is therefore proposing to return the increased climate tax revenues from road traffic by reducing road usage tax and traffic insurance tax. Climate policy also needs to be considered in the context of other proposals with favourable distributional effects.

Selected tax system thresholds that have been frozen for many years will be increased. In addition, the Government has proposed travel allowance relief, along with relaxation of the two-year rule for commuters. The Government is also proposing more favourable and simpler taxation of the sale of surplus electricity in private homes by introducing a tax-free threshold of NOK 15,000 for such income. The Government proposes to eliminate the remaining overpricing of fee-financed services in 2025. For 2025, this means reductions in the Brønnøysund Register Centre fees, road user and vehicle fees at the Norwegian Public Roads Administration, as well as the lien fee. It will benefit both individuals and businesses that public service fees are thereby aligned with actual costs. With this budget, the overpricing elimination effort has been completed.

Other proposed tax changes

The Government is also proposing other changes to the tax system with effect from 2025:

• The introduction benefit is taxed as wage income.

• The threshold for tax-free employee discounts is increased to NOK 10,000.

• The general threshold for wage income reporting is increased to NOK 2,000.

• The threshold for tax-free sales of berries and garden products, etc., is increased to NOK 10,000.

• The threshold for tax-free letting of own holiday property and short-term letting of own home is increased to NOK 15,000.

• The residence rule for expatriated employees, etc., is amended, with such employees being considered resident in Norway for tax purposes.

• Some income tax and wealth tax thresholds are kept unchanged in nominal terms.

• The Global Minimum Tax Act is amended to introduce the Undertaxed Profits Rule (UTPR) and the associated transitional UTPR Safe Harbour.

• The natural resource tax on hydropower plants is increased to NOK 0.0021 per kWh for counties and NOK 0.0113 per kWh for municipalities.

• The contract exemption for fixed-price agreements under the resource rent taxes on hydropower and wind power is continued without any time limit.

• The emission factor for the waste tax is modified.

• A CO₂ tax is introduced on fishing in distant waters at 25 per cent of the full rate.

• A CO₂ tax is introduced on international shipping.

• The reduced tax rate on mineral oil is increased to comply with the minimum rate under the Energy Taxation Directive.

• The tax rate on shipping emissions subject to ETS is reduced.

• The air passenger tax is reduced.

• The threshold for what is considered to be de minimis value in the value added tax regulations is circulated for consultation with a view to changing it with effect from 1 January 2025.

• The sectoral taxes under the Norwegian Water Resources and Energy Directorate (NVE) and the Norwegian Communications Authority are increased, while new sectoral taxes are introduced under the Norwegian Ocean Industry Authority and the Norwegian Offshore Directorate.

Several of the proposals serve to simplify the tax system, particularly within personal taxation. These include the proposals to increase the exemption card limit and to simplify the rules on taxation of the sale of surplus electricity in private homes. Simpler rules on the taxation of expatriate foreign service employees are also proposed, along with taxation of the introductory benefit as wage income. In addition, a noticeable increase in various minimum thresholds will mean simplification.

1.3 Revenue effects of the proposed tax changes

Table 1.1 provides an overview of the revenue effects of the Government’s proposal. Accrued effects are changes in payment obligations for the 2025 income year as a result of the Government’s proposal, while booked effects are changes in payments in the same year. Payment routines may lead to discrepancies between accrued and booked effects. For example, companies pay income tax in subsequent years, and not all changes can be fully taken into account in the withholding tax. Proposals may have an accrued effect in years beyond the budget year, for example when the effective date is not 1 January of the budget year.

The revenue effects of the tax programme have been calculated in relation to a benchmark system for 2025. The benchmark system is based on the 2024 rules, adjusted upwards primarily by projected price, wage and wealth growth. Allowances and thresholds, etc., in the standard rate structure of personal taxation have been adjusted to 2025 levels based on projected wage growth of 4.5 per cent in the benchmark system. Special allowances and other thresholds under personal taxation have primarily been adjusted by projected consumer price inflation of 3.0 per cent from 2024 to 2025. A taxpayer who only has ordinary allowances and whose ordinary income and personal income both increase by 4.5 per cent will on average pay approximately the same amount of income tax under the benchmark system for 2025 as in 2024. In the benchmark system, all per unit taxes (for instance taxes per kg or litre) have been adjusted by the projected growth in consumer prices from 2024 to 2025. In real terms, the benchmark system thus results in unchanged tax levels from 2024 to 2025.

Table 1.2 presents estimated booked tax revenues for 2025, as well as estimates for 2024 and accounting figures for 2023, specified by chapter and item.

Table 1.3 presents booked effects of proposed new rule changes in 2025, specified by chapter and item.

1.4 Social and geographical profile of the tax programme

1.4.1 Social distributional effects

The tax policy of the Government is characterised by social and geographical redistribution. This profile is maintained in the 2025 budget, with the Government proposing moderate modifications with redistributional effect. Taxpayers on very low incomes will experience the greatest tax reliefs. Figure 1.1 illustrates how an increased exemption card limit and increased personal allowance, combined with a reduced basic allowance, provide targeted relief at the lower end of the income distribution.

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Sources: Ministry of Finance.

To measure the short-term impact of income tax changes on different income groups, the proposals are compared with the 2024 rules applied to 2025 (the benchmark system); see Table 1.4. The estimates include changes in rates, allowances and thresholds under personal income taxation. The isolated, net income tax reduction resulting from the changes included in the calculations is estimated at about NOK 1,235 million accrued.

It is estimated that more than 85 per cent of taxpayers will pay less or the same amount of income tax. The increase in the exemption card limit and the switch from basic allowance to personal allowance mean that the greatest reductions will be experienced by taxpayers on the lowest incomes.

The most important income tax changes for which it is not possible to calculate distributional effects in the Statistics Norway tax model are the proposals to tax the introductory benefit as wage income, to abolish the two-year time limit on commuter allowance for construction workers, and to amend the exit tax rules.

The Hurdal Platform sets out the Government’s intention to keep the overall level of taxes and levies on people’s incomes and consumption unchanged. This is based on the assumptions that dividend tax and wealth tax are excluded and that households’ share of tax changes is included. With the Government's proposal for the 2025-budget, the tax relief for households according to this definition adds up to NOK 10.9 billion under this government; see Table 1.5.

Over time, the Government has prioritised tax relief for people on low and medium incomes. Table 1.6 presents estimates of distributional effects of adopted income tax changes from previous budgets. People are arranged by gross income and divided into ten equally sized groups for each year (deciles). Each group includes around 450,000 people. Table 1.7 presents corresponding estimates for annual changes in wealth tax specified by estimated net wealth.

It should be noted that the columns cannot be added up directly. Firstly, the same person may be in different deciles in different years. Secondly, the estimates in the table have been calculated on the data basis and with the wage and price growth estimates, etc., that underpinned each budget. Updated estimates will give different results. Furthermore, the estimates only include tax changes that can be calculated in the Statistics Norway tax model; LOTTE-Skatt. Nevertheless, the tables provide a clear illustration of the distributional profile of the income tax programme for individuals for the various years.

During the period, broad income tax relief has been granted, partly financed by tax increases for people on the highest incomes. Over time, the Government has prioritised a sharp increase in the personal allowance, and the threshold for paying tax on ordinary income in the form of wage income and pension income has been more than doubled in nominal terms, from about NOK 97,000 in 2021 to about NOK 200,000 under the proposal for 2025. Personal National Insurance contributions on wage income and pension income have been reduced from 8.2 per cent 2021 to 7.7 per cent in the proposal for 2025. For high incomes, the National Insurance contribution increase is offset by a bracket tax increase. The tax increases for top earners are primarily a result of increased dividend tax in 2022 and 2023. The change in the Revised National Budget for 2023 only applies to pension tax, for which relief was granted in respect of relatively low pensions.

Changes to wealth tax in the 2022 and 2023 budgets made wealth tax more progressive, thus implying that those with the highest wealth pay somewhat more. Valuations have been increased for several assets (shares, primary dwelling value in excess of NOK 10 million and secondary dwellings), and a new tax bracket has been introduced for net wealth over NOK 20 million, for which the rate is 1.1%. At the same time, the standard allowance has been increased. There are no major changes to wealth tax in the 2024 budget and in the proposed 2025 budget.

1.4.2 Geographical distributional effects

The geographical distributional effects of the proposed income tax programme for 2025 are minor. Table 1.8 presents the estimated average tax change from the Government’s proposed income tax changes for people in six centrality zones. Zone 1 is the most central and includes Oslo and some neighbouring municipalities, while zone 6 is the least central. The table shows that the estimated tax changes are evenly distributed across Norway when rounded to the nearest NOK 200.

1.5 Tax rates and thresholds

Table 1.9 presents key tax rates, allowances and thresholds in 2024 and the Government’s proposal for 2025. After adjustment for projected growth in wages, pensions or prices, etc., from 2024 to 2025, the general allowances and thresholds have been rounded off. The upward adjustment may therefore deviate somewhat from the level indicated by the various growth projections. Wage growth is estimated at 4.5 per cent, consumer price inflation at 3.0 per cent and pension growth at 3.65 per cent. Reference is also made to the proposed tax decision in this proposition and to the overview of allowances and thresholds on the Ministry’s website.

Table 1.10 presents the current rates for value added tax and excise duties, as well as the proposed rates for 2025. All excise duties have been generally adjusted upwards by 3.0 per cent to take into account anticipated inflation. Minor deviations may be due to rounding of the rates. Reference is also made to the decision on indirect taxes proposed in this proposition.

1.6 Distribution of public tax revenues

Table 1.11 provides a general overview of the main groups of taxes and the parts of the public sector that receive revenues from each main group. Total tax revenues are estimated at NOK 2,084 billion in 2024. Of this amount, about 86 per cent will accrue to central government, 12 per cent to local government and 2 per cent to regional government.