A neutral fiscal stance to support stability in the Norwegian economy

Historical archive

Published under: Stoltenberg's 2nd Government

Publisher: Ministry of Finance

Press release | No: 32/2012 | Date: 08/10/2012

- Despite the challenging global economic environment, the Norwegian economy continues to perform well, and capacity utilisation is now higher than foreseen at the presentation of the Revised National Budget last May. Low interest rates, high income growth and high oil prices have fuelled the economy, says Minister of Finance Sigbjørn Johnsen.

- However, economic slowdown in Europe, as well as high wage costs and a strong krone exchange rate, has increased the pressure on industries facing international competition. In this situation the Government emphasizes the need for fiscal constraint to support continued balanced developments of the economy and to reduce the pressure on exposed industries, says Minister of Finance Sigbjørn Johnsen. Measured by its overall impact on Mainland GDP, the 2013 budget implies an approximately neutral fiscal stance.

Developments of the Norwegian economy stand in stark contrast to the developments of many of the trading partners. Growth in the Norwegian economy is expected to continue ahead, albeit at a somewhat slower pace. Mainland-GDP is forecast at 3.7 per cent in 2012 and 2.9 per cent in 2013. The labour market remains strong, with higher than expected employment growth and continued low unemployment at a rate of just over 3 per cent.

Fiscal Policy
The Government adheres to the 2001 Fiscal Policy Guidelines, which stipulate a gradual and sustainable use of petroleum revenues in step with the assumed real return of the Government Pension Fund Global, estimated at 4 per cent (the 4 per cent path). The guidelines allow automatic stabilisers to work fully over the business cycle, and additional fiscal measures can be spent to counter economic fluctuation. The government has over the years made ample use of this flexibility. In 2009 the use of petroleum revenues increased rapidly to mitigate the effects of the global recession on production and unemployment. In 2011 and 2012 the spending of petroleum revenues was again brought below the 4 per cent path.

The Government now proposes a structural non-oil deficit estimated at NOK 125.3 billion, which is NOK 26.4 billion below the 4 per cent path.

Within the confines of the proposed spending and an unchanged overall level of taxation, the Fiscal Budget allows for some important policy measures to strengthen key welfare provisions and to reduce social inequalities.

The main features of fiscal policy in 2013:

Spending of petroleum revenues, as measures by the structural non-oil budget deficit is estimated at NOK 125.3 billion in 2013. This is NOK 26.4 billion below the expected real return in the Pension Fund Global and 3.3 per cent of the capital in the Pension Fund Global.
The real underlying growth in the expenditures from 2012 to 2013 is estimated at 2.4 per cent, of which about close to half stems from growth in old age pensions.
Net cash flow from petroleum activities is estimated at about NOK 373 billion
The non-oil fiscal budget deficit is estimated at NOK 123.7 billion. The deficit is financed by a transfer from the Pension Fund Global.
The consolidated surplus on the Fiscal Budget and the Government Pension Fund, including NOK 131 billion in interest and dividends, is estimated at NOK 380 billion (equivalent to 12.7 per cent of GDP).
Unchanged level of taxation.

Monetary policy
The long term role of monetary policy is to provide the economy with a nominal anchor. In the short and medium term monetary policy shall balance the need for low and stable inflation against the outlook for production and employment. The operational target for the implementation of monetary policy is defined as an annual increase in consumer prices of close to 2.5 per cent over time. The key policy rate is currently 1.5 per cent.

Government Pension Fund
The purpose of the Government Pension Fund is to facilitate government savings to finance the rising pension expenditures and to support long term considerations in the use of petroleum income. The Fund comprises the Government Pension Fund Global (GPFG) and the Government Pension Fund Norway (GPFN). The operational management of the two parts of the Fund is delegated to Norges Bank and Folketrygdfondet, respectively, under mandates set by the Ministry of Finance.

The government cash flow from the petroleum activities is transferred to the GPFG. The use of petroleum revenues should over time be in line with the expected real return on the Fund, estimated at 4 per cent. The Fund capital is invested abroad in international equities, bonds and real estate. The Fund is managed with a view to achieving the highest possible return over time, subject to a moderate level of risk. The time horizon of the Fund investments is very long.

The market value of the Government Pension Fund is estimated at NOK 4425 billion at the end of 2013, of which NOK 4280 billion in the global fund (GPFG).

Key figures for the Norwegian economy¹

	2011 NOK billion^2,3	2011	2012	2013
Private consumption	1128.6	2.4	3.7	4.0
Public consumption	585.8	1.5	1.9	2.2
Gross fixed investments	549.9	6.4	7.7	5.8
Petroleum	144.6	13.4	15.0	7.0
Business sector. Mainland Norway	179.7	2.6	4.9	5.1
Exports	1145.2	-1.4	1.6	1.4
Crude oil and natural gas	562.4	-6.2	1.0	-0.1
Traditional goods	316.4	-0.4	1.3	2.2
Imports	769.8	3.5	4.2	5.4
Traditional goods	470.1	5.3	4.3	5.6
Gross domestic product	2720.5	1.4	3.1	2.5
Mainland Norway	2 085.0	2.4	3.7	2.9
Consumer price inflation (CPI)		1.2	0.8	1.9
Underlying inflation (CPI-ATE)		0.9	1.3	1.7
Wage growth		4.2	4.1	4.0
Employment growth		1.4	2.1	1.3
Unemployment rate (LFS)		3.3	3.1	3.2
Crude oil per barrel. NOK³		621	637	625
Current account balance (pct. of GDP)		2 768	2 904	3 036

1) Percentage volume change from the year before
2) Preliminary national account figures
3) Current prices
Sources: Statistics Norway and Ministry of Finance.

Key figures for the Fiscal Budget and Government Pension Fund. NOK billion

	2011	2012	2013
1. Fiscal Budget
Total revenues	1223.5	1278.0	1314.4
Revenues from petroleum activities	372.2	412.8	401.2
Revenues excl. petroleum activities	851.3	865.2	913.2
Total expenditures	952.1	1002.6	1064.9
Expenditures on petroleum activities	21.4	26.0	28.0
Expenditures excl. petroleum activities	930.7	976.6	1036.9
Fiscal budget surplus before transfers to the Pension Fund Global	271.4	275.4	249.5
Net revenues from petroleum activities	350.8	386.8	373.2
= Non-oil budget surplus	-79.4	-111.3	-123.7
+ Transfers from the Pension Fund – Global	84.2	111.3	123.7
= Fiscal Budget surplus	4.8	0.0	0.0
2. Government Pension Fund
Net transfer to the Pension Fund – Global	266.6	275.4	249.5
+ Interest and dividends on the Pension Fund	103.0	108.8	130.6
= Surplus in the Pension Fund	369.6	384.2	380.1
3. Fiscal Budget and Government Pension Fund consolidated surplus	374.4	384.2	380.1

Source: Ministry of Finance.

General government financial balance. NOK billion

	2011	2012	2013
A. Central government financial balance Fiscal Budget surplus and Surplus in Government Pension Fund	408.8 374.4	423.4 384.2	381.2 380.1
Non-oil budget surplus Net revenues from petroleum activities Interest and dividends on the Pension Fund	-79.4 350.8 103.0	-111.4 386.8 108.8	-123.7 373.2 130.6
Surplus in other central government and social security accounts	-0.8	-1.0	-0.0
Definitional differences between Fiscal Budget and national accounts ¹⁾	35.3	40.2	1.1
B. Local government financial balance	-22.2	-24.3	-23.5

C. General government financial balance (A+B)	386.6	399.1	357.7
In per cent of GDP	14.2	13.9	12.0

1) Includes central government accrued, but not recorded taxes. Direct investments in state enterprises, including government petroleum activities, is defined as financial investments in the national accounts.
Sources: Statistics Norway and Ministry of Finance.