Revised National Budget 2013

Driven by demand from domestic sectors, including the petroleum sector, growth in the Mainland Norway economy is strong, in line with the average for the past 40 years. Nearly 75,000 more people are employed now than at the peak before the financial crises. Unemployment is significantly below the average of the past 25 years.

 
The challenge is to bolster this favourable development, says Minister of Finance Sigbjørn Johnsen.

- The Government emphasizes the need for fiscal restraint to underpin a balanced development in the economy and to reduce the pressure on trade-exposed industries. Further rise in capacity utilisation increases the risk for continued growth in wages and real estate prices, says Minister of Finance Sigbjørn Johnsen.

In the revision of the 2013 Fiscal Budget, the Government proposes a slight strengthening of the budget balance compared to the approved 2013 budget. The use of petroleum revenues, as measured by the structural, non-oil budget deficit is now estimated at NOK 124.6 billion, which is NOK 0.7 billion lower than in the approved budget. The structural deficit is NOK 28.3 billion below the expected real return of the Government Pension Fund Global.

Growth in the mainland economy is fuelled by high activity in the petroleum sector and is estimated to be on par with the average for the past 40 years this year, despite the slowdown in the euro area and the uncertain European outlook. Growth is expected to increase from 2.6 per cent in 2013 to 3.0 per cent in 2014. Adjusted for a decline in electricity production, growth in Mainland GDP in 2013 is forecast at 2.9 per cent. Unemployment is expected to remain low.

 
 
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 used to counter economic fluctuation. The government has over the years made ample use of this flexibility. In 2009 the use of petroleum revenues was increased rapidly to mitigate the effects of the global recession on production and unemployment. In 2011, 2012 and 2013 the use of petroleum revenues has again been brought below the 4 per cent path. This strategy has facilitated continued balanced developments of the Norwegian economy in a situation where the capital in the Fund is fast growing.

The 2012 structural deficit has been revised downwards, and the domestic demand stimulus of the 2013 budget is therefore somewhat stronger than in the approved budget. However, the overall impact on Mainland GDP of the 2012 and 2013 budgets combined remains roughly as estimated last autumn.

The main features of fiscal policy in 2013:
Spending of petroleum revenues, as measured by the structural non-oil budget deficit is estimated at NOK 124.6 billion in 2013. This is NOK 0.7 billion lower than in the approved budget and NOK 28.3 billion below the 4 per cent path.

• The real underlying growth in budget expenditures from 2012 to 2013 is estimated at 3.4 per cent, of which almost one third stems from growth in pensions. A higher growth rate than estimated last autumn must be seen against a downward revision of expenditures in the account figures for 2012. Measured against the total value added of the Mainland Norway economy the share of public sector expenditures are unchanged from 2012 to 2013.
• The non-oil fiscal budget deficit is estimated at NOK 122.9 billion. The deficit is covered by a transfer from the Pension Fund Global.
• Net cash flow from petroleum activities is estimated at NOK 348 billion.
• The consolidated surplus on the Fiscal Budget and the Government Pension Fund, including NOK 130 billion in interest and dividends, is estimated at NOK 355 billion (equivalent to 11.9 of GDP).
• On May 5^th the Norwegian Government proposed tax changes from 2014 to strengthen competitiveness and profitability, and stimulate investments in the mainland economy. The corporate tax rate will be lowered, the tax credit scheme for R&D will be increased and a special first year depreciation for machinery will be introduced. At the same time the Government proposed an interest deduction limitation for interest expenses paid to related parties. The overall level of taxation remains unchanged, in line with the Government's declaration to keep the overall tax level unchanged. On May 5th the Government also proposed to reduce the uplift in the petroleum tax system from 7.5 per cent to 5.5 per cent. The overall uplift is thereby reduced from 30 per cent to 22 per cent. The proposal will lead to more efficient use of resources and over time lead to increased tax revenues.

 

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 is to 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 has been 1.5 per cent since March 2012. 
On March 22^nd the Ministry of Finance put forward a legislative proposal on new capital requirements for credit institutions and investment firms. Norwegian authorities have long supported the international efforts to strengthen credit institutions' capital base in general. It is proposed that the new rules come into force on 1 July 2013, and that the requirements are gradually increased. (link til engelsk pressemelding). On the same day the Ministry of Finance also issued a public consultation on draft proposals for four new sets of rules that are possible alternatives to the current backstop on the level of risk-weighted assets (the so-called Basel I floor). An important consideration is that a possible new system should not lower the sum of risk-weighted assets compared with the level following from the current rules, including the Basel I floor.

 

Government Pension Fund
The purpose of the Government Pension Fund is to aid government savings to finance the pension expenditure of the National Insurance Scheme and to support long term consideration.

The government cash flow from the petroleum activities is transferred to the Government Pension Fund Global, and over time only 4 per cent of the Funds’ capital is spent in the Fiscal Budget. The capital is invested abroad in international equities, fixed-income and real estate. The aim is to have a diversified investment mix that will give the highest possible risk-adjusted return within the guidelines set by the Ministry.

The Fund performed well in 2012. The return on the Government Pension Fund Global was 13.4 per cent and the return on the Government Pension Fund Norway was 12.2 per cent, before the deduction of management costs. The overall value of the Government Pension Fund at the end of 2012 was NOK 3 961 billion; an increase of NOK 520 billion from the beginning of the year.

A white paper report on the management of the pension fund was submitted to the Parliament on 12 April 2012, cf. Report No. 27 to the Storting.

The market value of the Government Pension Fund is now estimated at NOK 4 666 billion at the end of 2013, of which 4 511 billion in the Government Pension Fund Global.

 
Key figures for the Norwegian economy¹⁾

	2012 NOK billion2)3)	2012	2013	2014
Private consumption	1 174.9	2.9	3.4
Public consumption	625.9	2.1	2.5
Gross fixed investments	598.2	8.1	5.9
Petroleum	171.1	14.4	10.0
Business sector. Mainland Norway	180.0	2.7	1.9
Exports	1 189.1	2.2	-1.3
Crude oil and natural gas	604.4	0.9	-5.5
Traditional goods	310.3	2.6	0.5
Imports	804.1	3.3	4.7
Traditional goods	482.4	2.1	4.8
Gross domestic product	2 915.4	3.2	1.4	3.0
Mainland Norway	2 206.3	3.5	2.6	3.0
Consumer price inflation (CPI)		0.8	1.7
Underlying inflation (CPI-ATE)		1.2	1.2
Wage growth		4.0	3½
Employment growth		2.2	1.3
Unemployment rate (LFS)		3.2	3.4	3.5
Crude oil per barrel. NOK2)		649	600	587
Current account balance (pct. of GDP)		14.2	10.8

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	1 223.5	1 290.7	1 288.3
Revenues from petroleum activities	372.2	421.1	377.7
Revenues excl. petroleum activities	851.3	869.6	910.6
Total expenditures	952.1	996.1	1063.4
Expenditures on petroleum activities	21.4	25.6	30.0
Expenditures excl. petroleum activities	930.7	970.5	1 033.4
Fiscal budget surplus before transfers to the Pension Fund Global	271.4	294.6	224.8
Net revenues from petroleum activities	350.8	395.5	347.7
= Non-oil budget surplus	-79.4	-100.9	-122.9
+ Transfers from the Pension Fund Global	84.2	104.6	122.9
= Fiscal Budget surplus	4.8	3.7	0.0
2. Government Pension Fund
Net transfer to the Pension Fund Global	266.6	290.9	224.8
+ Interest and dividends on the Pension Fund	103.0	115.3	130.3
= Surplus in the Pension Fund	369.6	406.2	355.1
3. Fiscal Budget and Government Pension Fund consolidated surplus	374.4	409.9	355.1

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	397.5 374.4	438.7 409.9	348.6 352.1
Non-oil budget surplus Net revenues from petroleum activities Interest and dividends on the Pension Fund	-79.4 350.8 103.0	-100.9 395.5 115.3	-122.9 347.7 130.3
Surplus in other central government and social security accounts	2.8	2.0	3.3
Definitional differences between Fiscal Budget and national accounts1)	20.3	26.8	-9.7
B. Local government financial balance	-23.9	-21.0	-19.9
C. General government financial balance (A+B)	373.6	417.7	328.7
In per cent of GDP	13.6	14.3	11.0

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.