The Revised National Budget 2014 - A budget for growth

- The Government took the first steps towards a change in policy direction in the amended fiscal budget for 2014. In the revised budget we continue along this path. Targeted tax reductions, high priority on infrastructure and other measures to stimulate productivity and employment, are important to stimulate growth of the Norwegian economy, says the Finance Minister Siv Jensen.

Growth slightly below trend in 2014 and 2015
The Norwegian economy is performing well. Strong growth in domestic demand, especially from the petroleum sector, contributed to a relatively fast recovery after the financial crisis. Growth slowed moderately last year, dampened by high cost level and high debt in the household sector. A somewhat weaker krone and higher international demand may support a gradual increase in mainland exports this year and the next.

The mainland economy is forecasted to grow by approximately 2 per cent both this year and the next. This is close to last year's growth rate, but slightly lower than predicted in the amended budget presented in November last year. Still, we expect continued growth in employment, and unemployment is forecasted to stay below the average of the last 25 years.

- Current economic developments do not call for major adjustments to the fiscal stance, says Finance Minister Siv Jensen. Yet, it is important how we spend the petroleum revenues. To enhance future growth we must prioritize measures that increase productivity and labour supply.

The main features of fiscal policy in 2014:
The Government adheres to the 2001 Fiscal Policy Guidelines that stipulate a gradual and sustainable increase in the use of petroleum revenues over the fiscal budget. The main features of fiscal policy in the amended budget for 2014 are:

• Spending of petroleum revenues, as measured by the structural, non-oil budget deficit is estimated to NOK 140.9 billion in 2014. The estimate is 1.9 billion NOK higher than in the adopted budget. The estimate for underlying revenues from taxes and excises is lowered by around NOK 3 billion. Other revenues are increased by NOK 2.1 billion and expenditures are increased by NOK 1.1 billion.
• The structural, non-oil deficit equals 2.8 per cent of Fund capital at the beginning of 2014.
• The change in spending of petroleum revenues from one year to the next is a simple measure of the contribution of the fiscal budget to aggregate demand. From 2013 to 2014 the spending of petroleum revenue, as measured by the structural, non-oil deficit, is estimated to increase by almost NOK 20 billion (2014-NOK). As a share of mainland trend GDP this structural deficit is estimated to increase by 0.7 percentage points, compared to 0.5 percentage points in the adopted budget. The increase is mainly due to a downward adjustment of the 2013 structural deficit. The demand effect for 2013 and 2014 seen together, are on par with the estimate given in the amended budget.
• Real, underlying expenditures increase by 3.1 per cent. Expenditure growth is higher than in the adopted budget, mainly due to lower expenditures in 2013 than envisaged. Nominal expenditure growth is estimated to be 6.2 per cent.
• General government surplus (net lending) is estimated to 10.8 per cent in 2014, down from 11.1 per cent of GDP in 2013. The surplus must be seen in light of Norway’s substantial revenues from the petroleum sector.

Minor changes in excise duties
Within the confines of a stable tax system, the Government proposes some minor changes to existing tax and excise rules. New proposals include elimination of the excise duty on engines for leisure boats and more flexibility in the duty-free quotas for tobacco and alcohol.

The current system of regionally differentiated rates in employers’ social security contributions needs to be adjusted to the new EU guidelines for regional support, taking effect from July 1 2014. There is an ongoing process within the EU on how the should be understood and applied. A clarification will probably be available by end-May. The government will then propose a new design of employers' social security contribution together with supplementary compensation measures.

 

Key figures for the Norwegian economy¹

	2013 NOK billion2)3)	2013	2014	2015
Private consumption	1233.2	2.1	2.0
Public consumption	656.6	1.6	1.9
Gross fixed investments	681.9	8.7	1.7
Petroleum	207.4	18.0	3.0
Business sector. Mainland Norway	187.2	1.0	2.0
Exports	1153.1	-3.9	1.9
Crude oil and natural gas	564.4	-7.3	1.1
Traditional goods	322.3	0.8	2.4
Imports	844.4	2.5	2.8
Traditional goods	508.2	2.5	2.3
Gross domestic product	3003.6	0.6	1.5	1.8
Mainland Norway	2318.6	2.0	1.9	2.2
Consumer price inflation (CPI)		2.1	2.0
Underlying inflation (CPI-ATE)		1.6	2.5
Wage growth		3.9	3.3
Employment growth		1.2	0.8
Unemployment rate (LFS)		3.5	3.7	3.8
Crude oil per barrel. NOK2		639	650	626
Current account balance (pct. of GDP)		10.6	11.0

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

	2012	2013	2014
1. Fiscal Budget
Total revenues	1290.7	1291.8	1306.2
Revenues from petroleum activities	421.1	378.7	364.3
Revenues excl. petroleum activities	869.6	913.1	941.9
Total expenditures	996.1	1063.1	1126.2
Expenditures on petroleum activities	25.6	33.6	38.0
Expenditures excl. petroleum activities	970.5	1029.5	1088.2
Fiscal budget surplus before transfers to the Pension Fund Global	294.6	228.7	180.0
Net revenues from petroleum activities	395.5	345.2	326.3
= Non-oil budget surplus	-100.9	-116.5	-146.3
+ Transfers from the Pension Fund Global	104.6	117.3	146.3
= Fiscal Budget surplus	3.7	0.9	0.0
2. Government Pension Fund
Net transfer to the Pension Fund Global	290.9	227.8	180.0
+ Interest and dividends on the Pension Fund	115.3	131.1	155.4
= Surplus in the Pension Fund	406.2	358.9	335.4
3. Fiscal Budget and Government Pension Fund consolidated surplus	409.9	359.8	335.4
Memorandum items:
Government Pension Fund Global1	3 825	5 032	5 476
Government Pension Fund1	3 970	5 200	5 654

1) End of year.
Source: Ministry of Finance.

 

 General government financial balance. NOK billion

	2012	2013	2014
A. Central government financial balance Fiscal Budget surplus and Surplus in Government Pension Fund	429.1 409.9	356.0 359.8	358.6 335.4
Non-oil budget surplus Net revenues from petroleum activities Interest and dividends on the Pension Fund	-100.9 395.5 115.3	-116.5 345.2 131.1	-146.3 326.3 155.4
Surplus in other central government and social security accounts	2.6	1.8	3.6
Definitional differences between Fiscal Budget and national accounts1	16.5	-5.5	19.7
B. Local government financial balance	-22.0	-23.3	-22.2
C. General government financial balance (A+B)	407.0	332.8	336.4
In per cent of GDP	14.0	11.1	10.8

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.