Revised Fiscal Budget 2015:

A budget to promote growth and structural adjustment

The sharp oil price decline since last year is dampening growth in the Norwegian economy. Growth in the mainland (or non-oil) economy is set to be moderate in 2015, and some competitive businesses must adapt to lower demand from the Norwegian petroleum sector. These adjustments are likely to happen earlier than previously anticipated due to the oil price decline.

“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.