- The coming ageing of the population requires comprehensive efforts to ensure growth and welfare in Norway. Our initial position for handling these challenges is favourable compared to many other countries. Nevertheless, measures to deal with increasing expenditures, including a pension reform, are necessary, says Minister of Finance, Mr. Per-Kristian Foss.

The white paper Perspektivmeldingen 2004 analyses the development of the Norwegian economy and the challenges confronting economic policy over the next 50 years. The white paper itself does not present solutions. However, the direction of the Government’s responses can be found in its work to promote growth and Norway’s competitive position, to modernise the public sector, to strengthen labour market participation and to reform the pension system.

Over the last century, Norway has experienced a marked decrease in fertility, like most other western countries. Combined with an increase in life expectancy, this implies that the share of elderly will almost double over the next 50 years, after remaining broadly stable since the national insurance scheme was introduced in 1967.

Two important consequences of population ageing must be stressed. A smaller share of the population will participate in the labour force, and a higher share of total income will be needed to finance public expenditures. Labour marked participation is high in Norway. However, average working hours are relatively low, and measured per inhabitant hours worked are on par with that of the EU-15. In the white paper the need to maintain a high labour supply in the years to come is emphasised.

Petroleum extraction has made a significant contribution to the Norwegian economy during the last decades. Still, mainland production constitutes about 80 per cent of total value added in Norway, a share that will gradually increase as a consequence of the foreseen decline of petroleum extraction. Ensuring mainland Norway’s capacity for growth is thus vital. Economic policy, broadly speaking, must stimulate innovation, restructuring, new organizational structures and efficiency improvements both in the private and public sector. As labour skills are decisive, the educational system must meet high standards.

Over the coming decades, ageing will lead to a strong increase in public expenditures, including pensions. Based on Statistics Norway’s demographic projections, old-age pension expenditures are calculated to reach 16 per cent of mainland GDP in 2060 if the present system is maintained, compared to 6 per cent today. The need for labour in municipalities and health enterprises is estimated to increase by 75 per cent towards 2060 only to maintain the present level of welfare services.

Given reasonable estimates of oil prices, a sustainable spending of petroleum revenues can only make a modest contribution to the financing of the expected expenditure increase. To sustain today’s public services and meet future pension obligations, the public sector must deal with a gradually increasing financing gap. Compared to 2003, the financing gap is estimated to increase to around 8 per cent of Norway’s mainland GDP in 2060.

Efforts to stimulate labour supply may substantially contribute to counter these challenges. If inflow to benefit programs is simultaneously reduced, the effects will be strengthened. Labour supply may increase i.a. as a consequence of the individual employee working more hours per week, retiring later or staying on as a part-time worker after retirement. The design of the tax and pension systems are central to increase the economic rewards from working.

Economic growth increases total wealth, thus making an appropriate response to the budgetary challenges easier. However, productivity growth also contributes to increased wage costs and pension expenditures. Efforts contributing to more efficient production of publicly financed services, will more directly contribute to the development of the Norwegian welfare society.