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Economic measures in Norway in response to Covid-19

The Covid-19 outbreak is a serious threat to life and health. The worldwide outbreak has led to a severe economic decline and substantial uncertainty regarding future developments.

The Norwegian Government has introduced significant measures to secure jobs, help businesses and people, and strengthen health services. The Parliament (Stortinget) has previously approved several extensive economic packages (March 13March 20March 27, April 3)  to address the crisis. New measures were proposed with the May 12 Revised National Budget 2020, and lastly, on May 29.

The previous measures have focused on limiting negative consequences for businesses and households that were severely affected by the virus outbreak and the related infection control measures. The May 29 proposals initiate a new policy phase, where control measures are scaled back and economic measures are revised to increase economic activity and help unemployed return to work.

Appropriations for fiscal measures (excluding loans and guarantees) add up to NOK 162 billion (table 1 below). Reduced tax revenues and higher expenses due to the economic downturn (automatic stabilizers) weaken the budget further by NOK 83 billion. In total, the corona outbreak weakens the oil-adjusted budget balance in 2020 by NOK 245 billion. These estimates are based on the technical assumption that the most acute phase of the crisis lasts for three months, and that the economy recovers quickly.

New measures put forward in the May 29 proposal include:

  • A temporary subsidy scheme for companies to take back temporarily laid off workers (NOK 4 billion)
  • Measures to underpin activity in the construction sector (NOK 4 billion)
  • A green transition package (NOK 3.6 billion)
  • Purchase of air and train routes and grants for the county authorities to compensate for loss of income in public transportation (NOK 2.6 billion)
  • A compensation scheme for statutory maintenance expenses in seasonal businesses with severe income loss
  • Increased education and skills funding (NOK 1 billion).
  • Measures to strengthen integration (NOK 0.5 billion).

A brief review of economic measures adopted and proposed to mitigate economic effects of Covid-19:

Measures aimed at businesses and industries:

Budget allocations aimed at businesses and industries are estimated at NOK 98 billion in 2020. Postponed tax payments improve short-term liquidity with an estimated NOK 133 billion. New guarantee and loan schemes totaling NOK 130 billion have been introduced to facilitate companies' access to liquidity. Temporary amendments to the petroleum tax is estimated to improve the liquidity of companies by about NOK 100 billion for 2020 and 2021.

Adopted and proposed measures include:

  • A time limited (March–August) compensation scheme for otherwise sustainable businesses with at least 30 per cent (20 per cent in March) drop in revenues due to the virus outbreak. The maximal support will be gradually lowered, and depends on i.a. the size of revenue loss, the size of unavoidable fixed costs and on whether the enterprise was ordered by the government to shut down.
  • A time-limited (July–August) subsidy scheme for companies to take back temporarily laid-off workers (NOK 4 billion).
  • A green transition package (NOK 3.6 billion).
  • Employer-paid days have been reduced for several groups. For temporary laid-off the reduction is from 15 to 2 days, increasing to 10 days from September 1. For childcare-related leave the reduction from 10 to 3 days is due to the closure of schools and childcares. It was also opened up for transfer of days between co-parents. From July 1, all parents will have a quota of 10 days for the remaining six months of 2020. For corona-related sick leave the reduction in the employer paid days is from 16 to 3 days.
  • Temporary changes in tax rules, including:
    • Loss-making companies can reallocate up to NOK 30 million of their 2020-loss against taxed surplus from 2018 and 2019 and refund the tax value of this loss in 2020.
    • Postponed deadlines for payment of value added tax, employer tax, advance tax for self-employed and companies and for wealth tax.
    • Reduced employer’s tax in May and June.
    • Reduction of the low VAT rate, which includes passenger transport, accommodation and parts of the cultural sector, from 12 to 6 per cent from April 1 to October 31.
    • Suspension of the tax on air passengers from January 1 until October 31.
    • Suspension of payments of aviation charges.
    • Temporary amendments to the petroleum tax system defer tax payments and improve company liquidity by more than NOK 100 billion for 2020 and 2021.
  • Expansion of the option tax scheme for small start-up companies to include somewhat larger companies and more employees, contingent on approval by the EFTA Surveillance Authority.
  • Measures to underpin activity in the construction sector (NOK 4 billion)
  • A compensation scheme for statutory maintenance expenses in seasonal businesses with severe income loss.
  • Purchase of domestic air routes where there is no basis for commercial operations due to the crisis (NOK 1 billion).
  • A NOK 4.3 billion grant to help alleviate the financial situation in Avinor AS, which operates most of the civil airports in Norway.
  • Increased funding for Innovation Norway and the Research Council (more than NOK 3 billion), and increased investment capital in Investinor AS (NOK 1 billion).

Guarantee and loan schemes for businesses:

Guarantee and loan schemes for businesses adding up to NOK 130 billion aiming to improve liquidity include:

  • A guarantee scheme for bank loans to enterprises, with a total guarantee volume of NOK 50 billion. The Norwegian state guarantees 90 per cent of each bank loan. Entered into force on March 27, after approval by the EFTA Surveillance Authority.
  • The Government Bond Fund has been reinstated, with an investment budget of NOK 50 billion to increase liquidity and access to capital in the Norwegian bond market.
  • Increased funding for Innovation Norway’s innovation loan scheme (NOK 1.6 billion).
  • A NOK 6 billion guarantee scheme for the aviation industry.
  • A NOK 2 billion loan scheme for package tour operators. Tour operators that provide holiday packages can get a loan up to 80 per cent of their statutory reimbursement obligations for trips cancelled due to the pandemic between March 14 and June 14.
  • A guarantee scheme for reinsurance of credit insurance. The scheme will relieve risk for private credit insurance providers and covers risk of losses up to NOK 20 billion.

Measures aimed at persons:

To compensate households’ income loss due to the virus outbreak, the government has implemented extended income protection schemes estimated at NOK 27 billion. The measures include:

  • 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 from day three (after two days of employer payment) through day 20. From September 1, when the number of employer-paid days are increased to 10 (see above), the temporary 100 per cent wage compensation will be scaled back.
  • A temporary scheme to secure self-employed and freelancers who are not included in the unemployment benefit scheme.
  • A scheme to give self-employed and freelancers sickness benefit from day four.
  • Temporary benefit for apprentices in case of unemployment or temporary layoff.
  • A temporary benefit scheme based on social assistance rates for persons outside the EU/EEA area staying in Svalbard.
  • Increased number of days for parents to stay home with sick children or due to closed schools and day cares (see above).
  • Entitle self-employed and freelancers to the same number of childcare related 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 the supplement loan into a grant.

Measures aimed at critical infrastructure sectors:

Measures aimed at critical infrastructure sectors add up to an estimated NOK 23 billion, including:

  • Strengthening the financial situation in the hospital trust through increased appropriations and temporary reduced employer tax (NOK 6 billion).
  • Increased appropriations to cover expenses for necessary medicines, medical equipment and laboratory analyzes (NOK 4.8 billion).
  • The pension regulation is temporary changed to mobilize retired health professional.
  • The municipalities have been compensated for the effects of the virus outbreak, including loss of income and increased expenses (NOK 7.5 billion), including the below-mentioned compensation scheme of NOK 1 billion to pre- and after school cares and day cares.
  • Strengthening the financial situation in The Labor and Welfare Administration (NAV) (NOK 0.9 billion).

Other measures and compensation schemes:

Other measures and compensation schemes are estimated at NOK 13 billion, including:

  • A compensation scheme to compensate for canceled or deferred cultural, sports and voluntary events of (NOK 3.1 billion).
  • Compensation to media for income losses (NOK 300 million).
  • A compensation scheme for pre- and after school cares and day cares (NOK 1 billion).
  • Compensation to county authorities related to loss of revenue in public transport (NOK 3.1 billion).
  • Education and skills funding related in particular to secondary education for adults and vocational training (NOK 1 billion).
  • Measures to strengthen integration, related to language skills, prolonged integration and introduction program, and secondary education (NOK 0.5 billion).

Table 1. Estimated changes to the fiscal deficit for 2020 as a result of adopted and proposed economic measures and revised economic outlook. NOK billions.

 

2020

Measures for businesses

98.2

Mitigate income loss for businesses

44.1

Compensation (cash transfer) to businesses with large income loss

30.0

Aviation sector, including loss provision to guarantee scheme

14.1

Loss provisioning, government guarantees for bank loans to businesses

10.0

Income protection for persons

51.2

Extension of income protection schemes

27.3

Additional increase in spending on unemployment benefits

23.9

Other compensation schemes

7.2

Strengthening of critical infrastructure sectors

23.3

Other measures

6.1

Reduced tax revenue due to lower economic activity1

59.4

SUM weakening of the budget balance

245.4

Of which:

 

Discretionary measures

162.1

Automatic stabilizers

83.4

1 Tax changes and income protection for persons outside of policy measures. Includes increased tax due to the extensions in the unemployment benefit schemes and new income protection schemes for self-employed and freelancers.

Source: Ministry of Finance

Table 2. Selected key figures for the Fiscal Budget.

 

2020

Non-oil fiscal deficit, bill. NOK

484,5

Structural non-oil fiscal deficit, bill. NOK

424,6

     Per cent of capital in Government Pension Fund Global

4.2

     Per cent of mainland trend-GDP

13,3

Fiscal impulse, per cent of mainland trend-GDP1

5,3

1 Structural, non-oil fiscal deficit in per cent of mainland trend-GDP. Change from previous year in percentage point. A positive figure indicates an expansive budget effect. This indicator does not take into account the fact that different income and expenditure items may affect economic activity in different ways.

Source: Ministry of Finance

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