Profits from natural resources will be better distributed

Energy producers and the aquaculture industry make billions of kroner on our common resources. The Government is now proposing that more of the value created should go back to society.

On Wednesday, the government presents its plans to recover more of the value created when our common natural resources are made available. Through the introduction of resource rent tax on aquaculture and wind power, an increase in the resource rent tax on hydropower and an extraordinary tax on wind and hydropower due to the very high electricity prices, the Government will increase tax revenues by approximately NOK 33 billion annually.

“The community needs greater revenues in the years ahead so that together we can protect welfare for all. After many years of increasing inequality, it is vital that those who have the most, and in many cases have gained significantly more in recent years, contribute more. An important part of this will be to ensure that the values that come from our natural resources must be distributed more equitably than today,” says Prime Minister Jonas Gahr Støre.

In Norway, we have a long history of schemes that provide society with a share of the revenues from industries that earn very well, thanks to access to Norwegian natural resources. This has meant that revenues from hydropower, oil and gas have benefited us all. The proposals announced by the Government are based on foundations that we already have in our tax system.

“We propose long-term measures that ensure redistribution and the necessary income, both next year and in the years to come. And we propose extraordinary tax measures adapted to today's situation, where high electricity prices make it difficult for many, but give significant extra income levels for those who produce and sell the electricity,” says Støre.

In 2023, central government budget expenditure will grow significantly in important areas, and much more than the underlying growth in government revenues from the mainland economy. The gap amounts to tens of billions of kroner. At the same time, the use of oil money must be reduced. The economic situation calls for forceful measures to ensure that the discrepancy between expenditure and income does not affect welfare or basic infrastructure.

“In reality, we have two ways to close this gap: major cuts in welfare such as pensions, health, police and care for the elderly, or through tax increases. Spending cuts that provide funding of the magnitude needed now will not be compatible with the society we wish Norway to be,” says Minister of Finance Trygve Slagsvold Vedum (Centre Party).

He points out that the government will focus on national preparedness, building the whole of Norway, cutting emissions, creating jobs and ensuring that those with low and medium incomes pay less tax.

“We will keep those promises. This year's budget must be responsible and secure, while at the same time we continue to build the country we want to have. It is therefore appropriate to collect more of the profits from industries that are based on natural resources which are our common property,” says Vedum.

Local communities that make natural resources available must receive a fair share of the value created. A significant part of the income that will now be collected from aquaculture and wind power will therefore go back to the local and county authorities.

These are the proposals:

Aquaculture:

Resource rent tax 

  • Effective rate of 40 per cent.
  • Applies to the production of salmon, trout and rainbow trout.
  • A bottom limit of 4,000-5,000 tonnes ensures that only the largest players will pay the resource rent tax.
  • The effective date is 1 January 2023.
  • Tax revenues are estimated at NOK 3.65-3.8 billion annually.
  • The tax revenues are distributed equally between the central and local government sectors.
  • The proposal will be circulated for consultation today with a deadline of 3 January 2023.

Hydropower:

Higher resource rent tax 

  • Increase in effective rate from 37 to 45 per cent.
  • Effective from the 2022 financial year. Small hydropower stations do not pay resource rent tax and are therefore not affected by the proposals.
  • Tax revenues are estimated at NOK 11.2 billion annually.

Guarantees of origin

  • Revenue from the sale of guarantees of origin is included in the resource rent tax basis for hydropower from 2023.
  • Tax revenues are estimated at approximately NOK 1 billion annually.

Onshore wind power:

Resource rent tax

  • Effective rate of 40 per cent.
  • The effective date is 1 January 2023.
  • The resource rent tax obligation will apply to wind farms that are subject to licensing. That is, wind farms that have more than 5 turbines or installed capacity of 1 MW or more.
  • Tax revenues are estimated at approximately NOK 2.5 billion annually.
  • The tax revenues are distributed equally between the central and local government sectors.
  • The proposal will be sent out for consultation before the end of the year.

High-price contribution :

High-price contribution from wind and hydropower

  • 23 per cent of the part of the price that exceeds 70 øre per kWh.
  • Based on actual prices and applies to all production in the power plant.
  • Entry into force:
    • Today (28.09.2022) for hydropower that is subject to resource rent tax
      The situation regarding the Constitution's prohibition of retroactive effect has been thoroughly assessed and has been submitted to the Law Department of the Ministry of Justice.
    • 1 January 2023 for other hydropower and wind power
    • Tax revenues from the high-price contribution are estimated at approximately NOK 16 billion annually.

Fixed price agreements on electricity – the contract exception in the resource rent tax:

  • The proposal means that the resource rent tax for electricity sold through fixed-price agreements is based on the actual income of the power producers, not the spot price.
  • It is assumed that electricity suppliers are able to offer standardised fixed-price agreements for periods of 3, 5 and 7 years, with a maximum mark-up on the fixed price the suppliers pay to the power producers.
  • Tax revenues are estimated, from a very uncertain basis, at approximately NOK 1.2 billion annually.

Licence power:

Many local and county authorities now have high income from the sale of their licence power. The Government proposes a one-year deduction in the general grant, totalling NOK 3 billion in 2023, for local and county authorities with income from licence power that are located in the areas with the highest prices. In doing so, the Government intends to share some of the extraordinary income these authorities now derive from licence power with the community at large.

The market value of licence power in areas with high electricity prices (areas 1, 2 and 5) is estimated at about NOK 13 billion in 2022 and NOK 11 billion in 2023, up from NOK 4 billion in 2021.

Not all authorities sell their licence power at market price. They will therefore have until 1 December 2022 to report their use of the licence power. After this, the Government will make a final distribution of the reduction in the general grant, based on submitted information and on the basis of the volume of licence power each authority has. No local or county authorities shall face any deduction for income they cannot realise as a result of legally binding contracts entered into before this proposal was known.