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Economic measures in Norway in response to COVID-19

The outbreak of Covid-19 is serious for life and health. To counter the outbreak, strong measures have been taken in Norway as well as in other parts of the world. The event will have a major impact on the economy and significantly weigh on economic activity in the short term. The uncertainty about the impact is huge.

To mitigate the negative economic effects, the Norwegian government has introduced measures in several steps. And more may be needed in the coming weeks. The measures are designed to be targeted, effective and reversible.

On 13 March, the Government proposed a set of immediate measures to support jobs, help businesses in a very difficult liquidity situation and strengthen health services. These measures are estimated to weaken the budget balance by more the NOK 6 billion. On 15 March, the Government announced two new loan and guarantee schemes with a combined volume of NOK 100 billion. On 16 March, the Government and the opposition in the Parliament agreed on a framework for even stronger measures based one the proposals put forward on 13 March, including support to self-employed and further deferral of tax payments. These changes are estimated to add about NOK 30 billon to the weakening of the budget. On 19 March, all parties in the Parliament agreed on further expansion of Government support, including temporary reduction of the employers’ social security contribution and compensation for losses in the culture and sports sectors, further weakening the budget by some NOK 14 billion.

On 20 March, the Government put forward two parliamentary propositions covering all economic corona-measures agreed between the parties in Parliament so far, and proposing a few additional measures, including a state guarantee scheme for airlines important for the Norwegian transport system.

The total increase in budget outlays from the economic measures are estimated to exceed NOK 65 billion (Table 1 below). This includes a loss provision of NOK 10 billion for the new loan scheme in private banks with a state guarantee and of NOK 6 billion for the aviation guarantee scheme. In addition, the budget is weakened by more than NOK 45 billion by reduced tax revenues due to lower activity in the economy and higher expenses due to a sharp increase in the number of registered unemployed and sick pay recipients (automatic stabilizers). Overall, the oil-adjusted budget balance is weakened by more than NOK 110 billion.  

Liquidity in companies and households will improve by NOK 230 billion. In addition, the loan guarantee scheme for loans to small and medium-sized companies of NOK 50 billion will improve the liquidity of the companies. In total, this will be NOK 280 billion. In comparison, the quarterly value creation in the mainland companies before the outbreak of the virus was around NOK 500 billion.

Overview of measures to mitigate effects of Covid-19:

  • Measures in the health care system to handle the acute crisis. This include securing necessary equipment and personnel.
  • Reduce the number of days that employers are obliged to pay salary to workers at temporary lay-offs, from 15 to 2 days.
  • Remove the three waiting days between the period when employers have to provide salary to workers in temporary layoffs and the period when the workers are entitled to daily unemployment benefits.
  • Change corporate tax regulations so that companies that are lossmaking can re-allocate their loss towards previous years’ taxed surplus.
  • Change the tax regulations so that owners of lossmaking companies can postpone payments of wealth tax.
  • Suspend the tax on air passengers for flights in the period from 1 January until 31 October 2020.
  • Suspend payments of aviation charges until 31 June 2020.
  • Reduce the low rate of VAT, which includes passenger transport, accommodation and parts of the cultural sector, from 12 to 8 per cent in the period from March 20 to October 31, 2020.
  • Defer the deadline for payment of the first VAT period from 14 April to 10 June 2020.
  • Postpone the deadline for payment of the second tax installment for companies from 15 April to 1 September 2020.
  • Postpone the deadline for payment of employers' contributions from 15 May to 15 August 2020.
  • Introduce a state guarantee scheme for new bank loans to small and medium-sized enterprises suffering losses because of the extraordinary situation arising from the Civit-10 pandemic. The initial package of NOK 50 billion will be increased if needed.
  • Reinstate the Government Bond Fund to increase liquidity and access to capital in the Norwegian bond market, where larger companies typically raise their funding. The Fund will provide up to NOK 50 billion, to be invested in bonds issued by Norwegian companies.
  • Purchase of home transport by air of Norwegians on travel and special shipping, NOK 100 million.
  • Purchase of domestic air routes where there is no basis for commercial operations, NOK 1,000 million.
  • Aviation guarantee scheme totaling NOK 6 billion, with a 90 percent government guarantee on each loan. Of these, NOK 3 billion is directed to Norwegian Air Shuttle, 1.5 billion to SAS and the remaining 1.5 billion to Widerøe and other airlines.

Table 1. Estimated changes in non-oil Fiscal Budget deficit for 2020 as a result of economic measures and changed outlook for the economy. Billion NOK.

 

2020

Mitigating income loss for businesses

24.5

Mitigating income loss for persons

18.1

Strengthening the health sector, municipalities and social security

0.6

Other compensation schemes

4.6

Aviation sector, including loss provision to guarantee scheme

8.7

Loss provisioning

10.0

SUM Discretionary measures

66,6

Automatic stabilizers

45.0

  Reduced tax revenue

24.0

  Increased expenditure on unemployment benefits

16.0

  Increased sickness allowance

5.0

SUM Weakening of the budget balance

111.2

Source: Ministry of Finance

 

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