A budget to promote growth and structural adjustment

“Lower demand from the petroleum sector will pose challenges to the Norwegian economy. Our economic policy helps the economy meet these challenges,” says Minister of Finance Siv Jensen.

The 2015 Fiscal Budget took important steps for a new economy policy for Norway. The budget promotes growth in the Norwegian economy through targeted tax reductions, high priority on infrastructure and emphasis on other measures to stimulate productivity and competitiveness.The Revised 2015 Fiscal Budget continues along this path by, inter alia, increasing transfers to local governments and with measures to support the labour market.

The Norwegian mainland economy is forecast to grow at 1.3 per cent this year and 2.0 per cent in 2016. Growth at this rate would be below the average growth rate of the last four decades. Declines in investments in the petroleum sector and moderate growth in household consumption are expected to weigh on growth this year. On the other hand, expansionary fiscal and monetary policies, and a depreciation of the Norwegian krone, provide significant impulses to demand.

Employment growth has moderated and the unemployment rate increased in April. The registered unemployment rate currently stands at 2.9 per cent.

The Revised Fiscal Budget for 2015 forecasts a structural non-oil deficit of NOK 168.8 billion, equivalent to 2.6 per cent of the value of the Government Pension Fund Global. The Fiscal Budget presented last autumn estimated that the structural non-oil deficit would be NOK 163.7 billion and equivalent to 3.0 per cent of the Fund’s value.

The fiscal impulse, measured as the change in the structural, non-oil deficit as a share of trend GDP for mainland Norway, is estimated at ½ percentage point. The estimate is unchanged from last autumn because the deficits for 2014 and 2015 both have gone up by roughly equivalent amounts, due to a downwards revision of underlying non-oil tax receipts.

Fiscal Policy
The Government is committed to the 2001 fiscal policy guidelines. The guidelines stipulate a gradual and sustainable use of petroleum revenues over time in line with the expected real return on the Government Pension Fund Global, estimated at 4 per cent.

The Government Pension Fund Global shelters the fiscal budget from fluctuations in oil and gas revenues. The state’s net cash flow from petroleum is transferred in full to the Fund. The use of petroleum revenues, or withdrawal from the Fund, fully covers the non-oil budget in line with the fiscal guidelines. A decline in the price of oil therefore has no immediate impact on the fiscal stance, but translates into reduced fiscal space over time.

The main features of fiscal policy in 2015:

• Spending of petroleum revenues, as measured by the structural non-oil budget deficit, is estimated at NOK 168.8 billion. This is equivalent to 2.6 per cent of the value of the Government Pension Fund Global at the beginning of 2015.
• The non-oil fiscal budget deficit is estimated to be NOK 180.9 billion. This deficit is covered by a transfer from the Government Pension Fund Global.
• The real underlying growth in budget expenditure from 2014 to 2015 is estimated at 2.8 per cent. In nominal terms, expenditure is estimated to increase by 5.4 per cent, slightly above trend growth in mainland GDP.
• The market value of the Government Pension Fund Global was NOK 6 430 billion at the beginning of 2015, and is estimated to NOK 7 000 billion at year-end.

Better and more efficient tax collection
Within the confines of a stable tax system through the fiscal year, the Government proposes some minor changes to existing tax and excise rules. New proposals include changes to excises to promote the use of climate-friendly fuel.

The reform to make the tax administration better and more efficient continues. In the revised budget, the Government proposes to move the responsibility for tax collection from municipalities to the Norwegian Tax Administration, a state agency. The aim is to make tax collection simpler, more unitary and more efficient. The reform will also help reduce tax evasion.

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 must balance the need for low and stable inflation against the outlook for production and employment. The operational target is defined as an annual increase in consumer prices of close to 2.5 per cent over time. The central bank’s (Norges Bank) key policy rate is currently 1.25 per cent.

The Government Pension Fund
The purpose of the Government Pension Fund is to facilitate government saving to finance rising public pension expenditures and support long term considerations in the spending of government petroleum revenues. The capital of the Fund is invested abroad in international equities, fixed-income securities and real estate, within guidelines set by the Ministry of Finance. The investment strategy aims to achieve high financial returns subject to a moderate level of risk.

Key figures for the Norwegian economy¹

	2014 NOK billion2 3	2014	2015	2016
Private consumption	1290.7	2.1	1.8
Public consumption	688.5	2.5	2.4
Gross fixed investments	753.1	1.2	-3.3
Petroleum	219.9	0.0	-13.1
Business sector. Mainland Norway	230.8	0.3	1.1
Exports	1197.6	1.7	1.2
Crude oil and natural gas	539.7	0.9	-1.3
Traditional goods	344.0	2.7	3.8
Imports	932.1	1.6	0.3
Traditional goods	547.5	0.0	1.4
Gross domestic product	3151.5	2.2	0.8	1.5
Mainland Norway	2529.7	2.3	1.3	2.0
Consumer price inflation (CPI)		2.0	2.1
Underlying inflation (CPI-ATE)		2.4	2.6
Wage growth		3.1	2.7
Employment growth		1.1	0.6
Unemployment rate (LFS)		3.5	4.0	4.1
Crude oil per barrel. NOK3		621	480	529
Current account balance (pct. of GDP)		8,5	7.7

1) Percentage volume change from previous year.
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

	2013	2014	2015
1. Fiscal Budget
Total revenues	1291.8	1278.8	1233.1
Revenues from petroleum activities	378.7	347.0	251.6
Revenues excl. petroleum activities	913.1	931.7	981.5
Total expenditures	1063.1	1127.1	1191.4
Expenditures on petroleum activities	33.6	35.4	29.0
Expenditures excl. petroleum activities	1029.5	1091.7	1162.4
Fiscal budget surplus before transfers to the Pension Fund Global	228.7	151.7	41.7
Net revenues from petroleum activities	345.2	311.7	222.6
= Non-oil budget surplus	-116.5	-160.0	-180.9
+ Transfers from the Pension Fund Global	117.3	156.2	180.9
= Fiscal Budget surplus	0.9	-3.8	0.0
2. Government Pension Fund
Net transfer to the Pension Fund Global	227.8	155.5	41.7
+ Interest and dividends on the Pension Fund	131.1	160.1	192.9
= Surplus in the Pension Fund	358.9	315.6	234.6
3. Fiscal Budget and Government Pension Fund consolidated surplus	359.8	311.7	234.6

Sources: Statistics Norway and Ministry of Finance.

 

General government financial balance. NOK million

	2013	2014	2015
A. Central government financial balance	356 046	307 219	221 433
Fiscal Budget surplus and Surplus in Government Pension Fund	359 769	311 743	234 569
Non-oil budget surplus	-116 454	-160 008	-180 913
Net revenues from petroleum activities	345 151	311 667	222 582
Interest and dividends on the Pension Fund	131 072	160 085	192 900
Surplus in other central government and social security accounts	4 659	-4 960	-4 504
Definitional differences between Fiscal Budget and national accounts1	-8 382	435	-8 632
B. Local government financial balance	-23 538	-26 011	-22 628
C. General government financial balance (A+B)	332 508	281 208	198 805
In per cent of GDP	10.8	8.9	6.3

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.