A budget for economic growth, job creation, and a sustainable welfare state

"The fiscal budget for 2018 is a budget that prepares us for the future. The Government focuses measures that enhance today’s welfare, create more jobs, and safeguard Norway for future generations" says Minister of Finance Siv Jensen (Progress Party).

The Norwegian economy has recovered faster than anticipated, and already this year, growth will approach thehistorical trend of about 2 percent. Growth next year is expected to be even higher.

"We have guided the Norwegian economy through challenging times. The economic activity is picking up, and unemployment is declining all over the country. Businesses report rising optimism and plans to increase investments. This suggests it is time for the government to step back a little and allow these positive developments to reverberate through the economy" says Minister of Finance Siv Jensen.

The Government proposesa neutral fiscal budget for 2018. The use of petroleum revenues is estimated to increase by NOK 6 billion in real terms. The level in 2018 is equivalent to 2.9 percent of the Government Pension Fund Global.

The Government prioritises tax reductions that will promote growth and investment, and allocatesmore resources to research and development activities, road and rail services, and health and welfare services at the local level. Norway’s defence and infrastructure will be upgraded, and we will increase investment in hospitals.

"Investment and production on the Norwegian continental shelf will decline gradually over time. We need to facilitate the transition to a more diversified economy. The Norwegian economy’s transformation and modernisation continues" says Minister of Finance Siv Jensen.

Fiscal Policy
The Norwegian fiscal policy framework insulates the budget from fluctuations in oil and gas revenues. The state’s net cash flow from petroleum activities is transferred in full to the Government Pension Fund Global, in addition to the investment returns from the Fund itself. The use of petroleum revenues, i.e. the withdrawal from the Fund, fully covers the non-oil budget deficit. In formulating fiscal policy, petroleum revenue spending is, however, measured by the structural, non-oil budget deficit. The fiscal guidelines stipulate a gradual and sustainable use of petroleum revenues over time in line with the expected real rate of return of the Government Pension Fund Global. The estimated real rate of return was reduced from 4 to 3 percent in the white paper on Long-term Perspectives on the Norwegian Economy 2017, which was published in March this year.

In any given year, the use of petroleum revenues can deviate from the 3 percent path to help stabilise economic activity and thereby support high capacity utilisation and low unemployment. In the event of large fluctuations in the Fund’s value, the implications for the use of petroleum revenues shall be phased in over several years.

The main features of the Government’s fiscal policy in 2018 are:

• Petroleum revenues spending, as measured by the structural non-oil deficit, is estimated at NOK 231.1 billion, equivalent to 7.7 percent of GDP for mainland Norway. The fiscal impulse, as measured by the change in the structural non-oil deficit in percent of mainland GDP, is less than 0.1percentage points.
• The non-oil deficit is projected at NOK 255.4 billion. This deficit is fully financed through a transfer from the Government Pension Fund Global.
• Net cash flow to the Fund from petroleum activities is estimated at NOK 183.0 billion.
• Petroleum revenues spending in 2018 corresponds to 2.9 percent of the estimated capital in the Government Pension Fund Global at the beginning of 2018. This is the same as for the current year, and below the expected real return of the Fund.
• The real, underlying growth in fiscal budget expenditure from 2017 to 2018 is estimated at 1.0 percent, well below projected real GDP growth in the mainland economy. In nominal terms, expenditure is projected to grow by 3.5 percent.
• The consolidated surplus of the Fiscal Budget and the Government Pension Fund including NOK 213.6 billion in interest and dividends, is estimated at NOK 141.3 billion.
• The general government financial balance is estimated at NOK 133.0 billion, equivalent to 3.9 percent of GDP.
• The market value of the Government Pension Fund Global is estimated at NOK 7898.5 billion at the end of 2017, and NOK 8224.1 billion at the end of 2018.

Tax policy 
"The Government is prioritising tax changes that will promote growth and create new jobs" says Minister of Finance Siv Jensen. 

The Government is implementing the parliamentary agreement on tax reform. The tax rate on ordinary income for individuals and corporations is reduced from 24 to 23 percent, and the valuation discount for shares and operating assets in the net wealth tax is increased from 10 to 20 percent. In addition, the Government proposes to exempt machinery and equipment from property tax. The Government`s tax proposals make it more profitable to invest and create new jobs in Norway.

The Government is proposing a number of changes to improve the climate and environmental impetus of the tax system. Several of the proposals of the Green Tax Commission are being implemented, such as proposals to improve the pricing of environmental damage. The Government proposes, inter alia, that the CO₂ tax be made more cost effective by abolishing exemptions and low rates.

Key figures for the Norwegian economy¹

	NOK billion2 3
	2016	2016	2017	2018	2019
Private consumption	1 418.7	1.5	2.3	3.2	3.2
Public consumption	757.6	2.1	1.7	1.2	-
Gross fixed investment	750.5	-0.2	3.9	2.5	3.0
Petroleum	164.9	-16.9	-6.5	2.2	7.7
Business sector. Mainland Norway	237.9	4.1	4.9	5.6	5.6
Exports	1 064.1	-1.8	1.1	0.9	1.9
Crude oil and natural gas	373.4	4.3	0.9	-4.8	-2.4
Traditional goods	355.7	-8.2	1.7	3.8	5.0
Imports	1 037.1	2.3	3.2	3.3	3.6
Gross domestic product	3 117.0	1.1	1.9	1.5	1.9
Mainland Norway	2 717.3	1.0	2.0	2.5	2.6
Employment growth		0.3	0.7	1.1	1.1
Unemployment rate (LFS)		4.7	4.3	4.0	3.8
Wage growth		1.7	2.4	3.0	3.0
Consumer price inflation (CPI)		3.6	1.9	1.6	1.7
Underlying inflation (CPI-JAE)		3.0	1.6	1.8	1.9
Crude oil per barrel. NOK3		379	438	438	441

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

	2016	2017	2018
1. Fiscal Budget
Total revenues	1 162.5	1 229.4	1 252.9
Revenues from petroleum activities	152.6	202.4	208.0
Revenues excl. petroleum activities	1 009.9	1 027.0	1 044.9
Total expenditures	1 246.1	1 286.3	1 325.2
Expenditures on petroleum activities	27.8	27.0	25.0
Expenditures excl. petroleum activities	1 218.3	1 259.3	1 300.2
Fiscal budget surplus before transfers from the Pension Fund Global	-83.6	-57.0	-72.3
Net revenues from petroleum activities	124.8	175.4	183.0
= Non-oil budget surplus	-208.4	-232.4	-255.4
+ Transfers from the Pension Fund Global	212.5	232.4	255.4
= Fiscal Budget surplus	4.1	0.0	0.0
2. Government Pension Fund
Net transfer to the Pension Fund Global	-87.7	-57.0	-72.3
+  Interest and dividends on the Pension Fund	196.6	206.8	213.6
3. Fiscal Budget and Government Pension Fund consolidated surplus	113.0	149.8	141.3

Source: Ministry of Finance.

 

 

General government financial balance. NOK million

	2016	2017	2018
Central government financial balance	137 675	172 775	148 153
Fiscal Budget surplus and Surplus in Government Pension Fund	113 020	149 800	141 283
Non-oil budget surplus	-208 388	-232 373	-255 366
Net revenues from petroleum activities	124 779	175 373	183 049
Interest and dividends on the Pension Fund	196 629	206 800	213 600
Surplus in other central government and social security accounts	1 468	1 177	1 175
Definitional differences between Fiscal Budget and national accounts1	23 188	21 798	5 695
+ Local government financial balance	-11 573	-8 268	-15 145
= General government financial balance	126 102	164 507	133 007
In per cent of GDP	4.0	5.0	3.9

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.

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Read more:

• The National Budget 2018 - A Summary
• Main tax policy features: Chapter 1 of the bill and draft resolution on taxes