• Norway's news in English
 

Norway oil riches raise state spending dilemma

Published: 08 Sep 2013 10:40 GMT+02:00

The Nordic country faces an embarrassment of riches as it tries to figure out how to spend its huge pile of oil money without damaging the economy in the long run.

"All countries around us are forced to reduce their spending," said Øystein Dørum, chief economist at Norway's largest bank DNB. "Our biggest challenge is that our oil wealth is so huge we run the risk of wasting it on substandard projects that are not profitable enough."

The dilemma is all the more real because the populist right gathered in the Progress Party, which wants to abandon the cautious policies espoused by other parties, is likely to form a government with the Conservatives after the election.

Since the late 1990s, the Scandinavian country has conscientiously placed its oil revenues in a fund meant to finance the generous welfare state over the long run.

The fund invests mainly in stocks, bonds and real estate, placing the money outside Norway to avoid overheating.

In the process, it has become the largest sovereign wealth fund in the world, weighing in at $750 billion, or an average 1.25 percent of the market capitalisation of each company listed in the world.

To make sure that the fund keeps growing, the government can withdraw no more than four percent a year -- the projected annual return -- in order balance its budget, which otherwise would be in the red.

"The fact that you can have dilapidated schools and broken roads at the same time as you have a huge oil fund belonging to society is testimony to the frugality and long-term perspective of Norway's leaders," said Dørum.

Launching a lone assault on this consensus, the Progress Party wants to remove the fiscal spending rule and spend more money on education, research and infrastructure, to lay the foundation for future growth that would prove profitable for the state in the medium term.

The problem is that the Conservatives, which are likely to lead a post-election coalition with the Progress Party, actually think the current arrangement is too generous, pointing out that as the fund continues to grow, the amount of petro-money available to the government expands proportionally.

"The most important point of negotiation between the Progress Party and us is on the nature of the expenses, not on whether to exceed the four percent," said the Conservative leader Erna Solberg, Norway's likely next prime minister.

"We will not," she added, "be part of a government that carries out an irresponsible economic policy."

Even though the Norwegian economy has slowed down, excessive injection of public money could be destabilising.

In a country where there is almost full employment, the booming oil sector is pulling wages higher than they otherwise would be. This even goes for traditional industries, which are in competition to attract skilled workers.

The result is that Norwegian industrial wages are about 70 percent above those of other European countries, severely undermining the competitiveness of the nation's exporters.

An influx of petrodollars could thus ultimately have catastrophic consequences for employment and public accounts.

"Everything depends on how the money is spent," said Torbjørn Eika, head of research at Statistics Norway. "If we choose to lower taxes, the negative effects on the economy are less pronounced... because it tends to stimulate savings in the short term," he said.

Labour Prime Minister Jens Stoltenberg, who looks set to lose the election, has warned that the draft 2014 budget to be presented in October -- probably his last act in government -- will limit the drain on the oil windfall to a level not much higher than three percent, compared to 3.3 percent this year.

This measure not only meets the economic recommendations of the International Monetary Fund, but will also have the political advantage of complicating the task of the likely future government, which has vowed to cut taxes while increasing spending on health and infrastructure.

Your comments about this article

Today's headlines
Norway artists’ naked art stunt backfires
Olaf Karlsen advertising his art work. Photo: Olaf Carlsen

Norway artists’ naked art stunt backfires

A Norwegian artist who called on his local village to stand naked on a beach as a ship with a TV crew onboard passed failed to draw a single participant. READ  

Mediterranean fish caught in Oslo fjord
Bonito in a fish market. Photo: Lars Dugaiczyk/Flickr

Mediterranean fish caught in Oslo fjord

During the last few days, no fewer than 17 bonito fish, which are more usually found in the Mediterranean, have been caught in the Oslo fjord. READ  

Russia's Pole claim sparks 'Arctic battle' fear
Unlike Russia, Denmark and Canada, Norway has no claims on the Pole. Photo: Jonathan Hayward/Scanpix

Russia's Pole claim sparks 'Arctic battle' fear

Norwegian commentators have expressed alarm at Russia’s renewed claim on the North Pole, with the Aftenposten newspaper predicting a "battle for the Arctic", arguing: "The only question is how dramatic it will be”. READ  

Poo problem at Norway’s Pulpit Rock
Pulpit Rock is about 25m squared and almost completely flat. Photo: amanderson2/Flickr

Poo problem at Norway’s Pulpit Rock

Norway’s most visited natural tourist attractions Pulpit Rock is faced with a delicate problem: tourists pooing in the bushes on the the way up and down. READ  

Norwegian skiers test if altitude is like doping
The skiers travel down into the valley every day by cable car. Photo: matramurena/Flickr

Norwegian skiers test if altitude is like doping

Eleven Norwegian downhill skiers are spending a month living at 2,200m while training deep in a valley to test whether high altitude training has a similar effect on performance to doping. READ  

Norway starts school for Vikings
A Viking longship burning at the end of Edinburgh's Torchlight Procession. Photo: viking2

Norway starts school for Vikings

A Norwegian further education college is starting a programme for want-to-be Vikings where students will learn essential Viking crafts, such as sword forging, jewellery making, and roof thatching. READ  

Svalbard brews world's most northerly beer
The beer will be most packaged in cans so it can be carried by locals ad tourists on Polar excursions. Photo: Svalbard Bryggeri AS

Svalbard brews world's most northerly beer

A pioneering beer maker on the Arctic island of Svalbard has started producing what will be the world’s most northerly brewed beer, after local authorities removed an 80-year brewing ban. READ  

Norway's Søl beer in war with Mexican giant
Senja Øl Bryggeri's Søl label net to the Mexican beer. Photo: Senja Øl Bryggeri

Norway's Søl beer in war with Mexican giant

A tiny microbrewery in far northern Norway has entered a trademark war with global brewing company Heineken, because its name and logo Søl is too close to that of its Mexican beer brand Sol. READ  

Norwegian mental patient held in French jail
The Charles III prison in Nancy (not where the Norwegian mental patient is imprisoned). Photo: alainalele/Flickr

Norwegian mental patient held in French jail

A mentally ill Norwegian man has been held in a French prison for six months awaiting extradition to Norway due to grindingly slow French bureaucracy. READ  

Remorseful wedding thief confesses to police
The community of Bryggja, where the fateful wedding took place. Photo: Bryggja.no

Remorseful wedding thief confesses to police

One of the gang which raided the gift table at a wedding in northern Norway last Saturday became so overcome with remorse after his crime was reported that he has handed himself in to the local police. READ  

RECEIVE OUR NEWSLETTER AND ALERTS
Sport
Sepp Blatter should win Nobel Peace Prize: Putin
National
The oddest TripAdvisor comments about Norway
National
Experts baffled by freak downpour in Norway
National
Dude, where's my house? Avalanche smashes Norway farmhouse
Culture
VIDEO: Norway artist's naked tree stunt goes awry
Health
Norway scientists find secret behind gluten intolerance
National
VIDEO: Have you seen this jet ski blunder at a Malmö hotel opening?
National
Oslo is the crystal meth capital of Europe
Sport
VIDEO: Man in Norway catches fish too big for boat
International
'Snowden could come to Norway to collect prize'
Technology
Oslo builds world's first bumblebee highway
Culture
World’s biggest elk statue arrives in Oslo
Norway's men soon to be among Europe's fattest
National
Muslims form 'ring of peace' at synagogue
Business & Money
Schumacher's Norway retreat sold for $3m
National
King Harald visits Antarctic namesake
Culture
Norwegians streak the streets of Berlin
Culture
Norway couple find love on word game app
International
Norwegian chef wins world's top food prize
Politics
Solberg: The fight for freedom isn't won
National
Gaza doc named Norway's person of year
National
Norway extends Russian military freeze
National
Kjell Inge Røkke tops Norway's Rich List
International
Surprise! Norway priciest for home comforts
National
Norway terror attacks to become TV drama
International
Malala: Youngest ever Nobel Peace Laureate
National
Norway celebrates 25 years of Sami politics
Business & Money
CurrencyFair: Why it pays when making overseas transfers
International
Norway best country for older people
National
Muslim centre wanted on site of Munch Museum
International
Norway to send military staff in fight against IS
National
Father warns Breivik 'more extreme than ever'
National
Four-year-old Norway girl sleepwalks 4km
Travel
Cruise line offers Northern Lights promise
National
10-tonne shark found dead off Norway coast
International
'If Snowden wins Nobel Prize, arrest him!': MP
Culture
VIDEO: Swim ace does 'Pool Rubik's Challenge'
National
Norwegian man in 7,000 litre 'Ice Truck Challenge'
Latest news from The Local in Austria

More news from Austria at thelocal.at

Latest news from The Local in Switzerland

More news from Switzerland at thelocal.ch

Latest news from The Local in Germany

More news from Germany at thelocal.de

Latest news from The Local in Denmark

More news from Denmark at thelocal.dk

Latest news from The Local in Spain

More news from Spain at thelocal.es

Latest news from The Local in France

More news from France at thelocal.fr

Latest news from The Local in Italy

More news from Italy at thelocal.it

Latest news from The Local in Sweden

More news from Sweden at thelocal.se

2,227
jobs available