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Norway's government boosts use of oil money in 'responsible' budget

Richard Orange
Richard Orange - [email protected]
Norway's government boosts use of oil money in 'responsible' budget
Norway's finance minister, Trygve Slagsvold Vedum at a press conference in March. Photo: Finance Department/Flickr

Norway's government has announced plans to spend 410bn kroner from the country's oil fund and to bring in a small cut for those on low and medium incomes, in a budget Finance Minister Trygve Slagsvold Vedum described as "responsible".

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The amount of money from the oil fund used in the budget will rise by 37.5 billion kroner on last year, a move some economists have warned risks fuelling inflation. But at 2.7 per cent of the total fund, the extra spending remains ​​well below the 3 per cent target set in the country's financial frameworks. 

"The most important thing for people's wallets is still to reduce price inflation and ensure that people have a job to go to," Finance Minister Trygve Slagsvold Vedum said in his speech announcing the budget. 

In a press release, he said that the government had "managed to find room for the necessary expenses that result from the extraordinary situation we now find ourselves in within an overall responsible framework." 

In its statement, the government estimated that the impact of the extra spending on economic activity would be "approximately neutral", meaning it was unlikely to push up inflation. 

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Economists in Norway agreed that the budget was not inflationary, meaning it wlil not affect the already high chance of a further interest rate from hike Norway's central bank later this year.

"Even though the use of oil money increases by almost 40 billion, the arrangement is such that it makes a fairly neutral contribution to the Norwegian economy," said Kjetil Olsen, chief economist at Nordea Bank, adding that the government's spending plans were "pretty much as expected". 

"The budget will neither slow down nor boost the Norwegian economy," agreed Kjersti Haugland, chief economist at DNB. "The central bank is not getting any help [in reducing inflation], but it is also not the case that fiscal policy is tripping them up. This makes a neutral contribution." 

The budget includes tax relief of between 200 kroner and 600 kroner a year for people on salaries of up to 800,000 kroner a year, and a corresponding tax increase of about 800 kroner a year for those who earn over 1 million kroner. 

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The government is also cutting the rate of social security tax on salary and social security to 7.8 per cent and on business income to 11 per cent, with the rate for pensions remaining 5.1 per cent.

Ukraine is receiving some 15 billion kroner, half of which will go to supporting the Ukrainian military and half of which will go to supporting civilians. 

"By supporting Ukraine's defense against Russian invasion forces, we are investing in our own security at the same time," Vedum said, justifying the heavy spending. 

In total, the government expects the war in Ukraine to mean extra spending of some 44 billion kroner, slightly up from the 42.6 billion it spent as a result of the war in 2023. 

The government is extending the electricity subsidy, promising to compensate people for high power prices throughout 2024. It is reducing the maximum fee for sending a child to kindergarten from 3,000 kroner to 2,000 kroner a month. It is increasing tax on petrol by 15 øre per litre while reducing traffic insurance tax by 400 kroner a year, a measure the government claimed would make it cheaper for the vast majority of people to drive.

The Socialist Left Party, whose votes the government needs to get the budget through parliament.  complained that the budget did not do enough to help those struggling with high prices, and did not include enough measures to reduce greenhouse gas emissions. 

"We are in an expensive time. Everything is becoming more expensive. This budget does not remove food queues, and it does not help families who have received tens of thousands of kroner in increased interest. Here, stronger medicine is needed," the party's leader, Kirsti Bergstø, said. 

She also complained of a lack of ambition in cutting emissions.  

"Climate change is here. We must have policies that cut emissions. The government has been talking about large environmental projects for a long time, and we are still waiting. This cannot go on."

Hans Andreas Limi, Deputy Chair of the opposition Progress Party, attacked the government for not doing more to reduce the tax burden on Norwegians, pointing out that the tax would only reduce most people's tax bill by a few hundred kroner. 

"While more and more people are standing in the bread queue because they cannot afford to buy food, the government's answer is to give them a tax break that corresponds to just over two slices of bread a week," he complained. 

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