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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 outbreak will have a major impact on the economy and significantly weigh on economic activity. The uncertainty is huge.

The Norwegian government has introduced significant measures to support jobs, help businesses and people, and strengthen health services. Still, more may be needed in the coming weeks. The measures must be targeted, effective and reversible.

Norwegian measures have been introduced in several steps, with proposals to the parliament (Stortinget) on March 13, March 20, March 27, and, lastly, April 3. There is broad political cooperation between the Government and the other parties in Stortinget.

The fiscal measures so far add up to over NOK 139 billion (Table 1 below), corresponding to around 4.6 percent of Mainland GDP. In addition, the budget is estimated to be weakened by more than NOK 60 billion by reduced tax revenues and higher expenses due to the economic downturn (automatic stabilizers). Overall, the oil-adjusted budget balance is estimated to be weakened by NOK 201 billion in 2020.

In addition, the guarantee schemes for SMEs and the Government Bond Fund contribute with at least NOK 100 billion in loans to businesses. Reduced key interest rates also contribute to household- and corporate liquidity through lower debt servicing costs.

Measures adopted and proposed to mitigate economic effects of Covid-19 include:

Measures aimed at business and industries

  • A compensation scheme for otherwise sustainable businesses with at least 30 percent drop in revenue due to the virus outbreak. The amount of support will depend, among others, on the size of revenue loss, the size of the enterprise’s unavoidable fixed costs and whether the enterprise has been ordered by the government to close.
  • A reduction in employer-paid days from 15 to 2 for temporary lay-offs, from 10 to 3 for care-related leave and from 16 to 3 for corona-related sick leave.
  • Allowing loss-.-making companies to re-allocate up to NOK 30 million of the loss in 2020 against taxed surplus from 2018 and 2019 and refunding the tax value of this loss in 2020.
  • Postponing deadlines for payment of value added tax, employer tax, advance tax for self-employed and companies, and several exercise taxes, including CO2
  • Reduction of the low VAT rate, which includes passenger transport, accommodation and parts of the cultural sector, from 12 to 8 per cent.
  • Suspension of the tax on air passengers, for flights in the period from 1 January until 31 October 2020. Suspension of payments of aviation charges.
  • Purchase of domestic air routes where there is no basis for commercial operations due to the crisis. Budget allocation of NOK 1 billion.
  • An aviation guarantee scheme totalling NOK 6 billion, with a 90 percent government guarantee on each loan. NOK 3 billion is directed to Norwegian Air Shuttle, 1.5 billion to SAS and 1.5 billion to Widerøe and other airlines.
  • Temporary purchase of basic rail transport services (NOK 550 million)
  • Increased funding for Innovation Norway and the Research Council by a total of more than NOK 3 billion, and NOK 1 billion increased investment capital in Investinor.
  • A compensation scheme of NOK 1 billion to pre- and after school cares and day cares.
  • A compensation scheme of NOK 900 million for culture, sport and voluntary sectors.

Guarantee and loan schemes for businesses

  • A state guarantee scheme for bank loans to enterprises, with a total guarantee volume of NOK 50 billion. The state guarantees 90 per cent of each bank loan. Entered into force on March 27, after approval by the EFTA Surveillance Authority.
  • A government bond fund with an investment budget of NOK 50 billion to increase liquidity and access to capital in the Norwegian bond market.
  • Increased borrowing limit in Innovation Norway’s loans scheme by NOK 1.6 billion.

Measures aimed at persons

  • An extension of the unemployment benefit scheme by granting benefit from the first day and increasing the daily allowance. Temporary laid off persons are guaranteed 100 per cent compensation until a salary of 599 148 NOK. The schemes for temporary laid off and unemployed are also adjusted to include more people.
  • A temporary scheme to secure self-employed and freelancers who are not included in the unemployment benefit scheme and to give self-employed and freelancers sickness benefit from day four.
  • Temporary benefit for apprentices in case of unemployment or temporary layoff.
  • Skills development measures to improve the skills of unemployed and laid-off persons. 
  • A temporary benefit scheme based on social assistance rates for persons outside the EU/EEA area staying in Svalbard.
  • A doubling of the number of days parents can stay home with sick children, and allowing transfer of days between co-parents.
  • Entitle self-employed and freelancers to the same number of sick-kids days as employees, less a three-day waiting period.
  • Increase access to loans for students who have lost work income. NOK 1 billion is allocated to convert some of that supplement loan into a grant.
  • Suspension of parents’ pay for pre- and after school cares and day cares during the period they are closed. 

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

Measures for businesses

98

Mitigating income loss for businesses

30

Compensation (cash pay-out) to enterprises with severe income loss

50

Aviation sector, including loss provision to guarantee scheme

9

Loss provisioning, government guarantees for bank loans to business

10

Income protection for persons

51

Extension of income protection schemes (in isolation)

26

Additional increase in spending on unemployment benefits

20

Additional increase in spending on sickness and other social benefits

4

Other compensation schemes

4

Strengthening of critical infrastructure sectors1

9

Other measures

2

Reduced tax revenue from lower activity2

37

SUM Weakening of the budget balance

201

Of which:

 

Discretionary measures

139

Automatic stabilizers

62

Fiscal indicators:

 

Fiscal impulse3

4.6%

Spending of petroleum revenues as percent of the Government Pension Fund Global4

 

3.9%

1 In addition, health- and social services have been given permission to exceed their budgets.

2 Includes increased tax revenue due to the extensions of the unemployment benefit scheme and new income protection schemes for self-employed and freelancers.

3 Measured in percent of trend GDP for Mainland Norway

4 Structural, non-oil budget deficit measured in percent of the capital in the Government Pension Fund Global at the beginning of the year.

Source: Ministry of Finance

 

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