Sept. 6 (Bloomberg) -- Promises of more welfare for Scandinavia’s richest citizens are failing to boost Labor Prime Minister Jens Stoltenberg’s popularity.
Voters are instead poised to hand power to a Conservative-led opposition bloc that has promised tax cuts and more investments in infrastructure. Stoltenberg’s government is heading for defeat on Sept. 9, as pledges to spend more of Norway’s oil wealth on benefits fail to resonate.
“If you go back a few decades there was a need for redistribution of wealth and welfare services, but now people are pretty well off,” Johannes Bergh, an election researcher at the Institute for Social Research in Oslo, said by phone. “There isn’t a need for a big expansion of welfare policies.”
The opposition is leading in the polls by 16 percentage points after a campaign that has centered around how much of the nation’s oil and gas wealth the next government should spend on tax cuts, fixing roads, cutting waiting times for health care and other welfare services. Spending reductions haven’t featured on the agenda for the nation of 5.1 million people, who live in Europe’s richest economy per capita after Luxembourg.
Norway found oil more than 40 years ago and in 1996 started funneling revenue into a $750 billion sovereign wealth fund, now the world’s largest. Thanks to its riches, Scandinavia’s second-biggest economy now enjoys some of the developed world’s highest salaries, with Norwegians earning $80,000 a year on average.
Registered unemployment in Norway has held below 3 percent since early 2011. The country’s relative poverty rate indicates about 10.5 percent of Norwegians had low incomes in 2010, compared with a 16.9 percent average in the European Union, according to EU data. In 2011, only 2.3 percent of Norwegians were found to be missing four of nine basic necessities such as being able to pay for heating and a telephone, compared with an 8.8 percent EU average.
The Conservatives and their partners, the Progress Party, the Christian Democrats and the Liberal Party, will win 98 seats in parliament, according to a weighted average of 23 opinion polls as of Sept. 6 by the website Pollofpolls.no. The same poll average shows Stoltenberg’s three-party coalition getting 70 seats.
Norway invests most of its oil wealth abroad to avoid causing inflation at home. The Labor government has laid out rules limiting its use of the wealth fund to plug deficits to 4 percent. Still, that amount grows every year as the fund swells. It’s estimated to grow 50 percent by 2020.
“In every election since the 1990s there has been a slow, incremental movement toward the parties on the center-right side,” Bergh said.
All parties have pledged to stick to the 4 percent spending rule, except the Progress Party, which argues the country should set aside more money outside the state budget to build roads and other infrastructure.
While oil wealth helped Norway avoid the recession that gripped Europe and even hit its Nordic neighbors, the opposition has attacked the government for not doing enough to wean the nation off its energy reliance.
Exporters such as Norsk Hydro ASA have been under pressure from an appreciating krone as well as faster wage growth. The $500 billion economy grew 0.2 percent in the second quarter. Norway’s biggest bank, DNB ASA, says it will be the only European nation of the 15 it tracks whose growth won’t pick up next year. It’s still expected to outperform the rest of Europe.
The next government’s success in battling the slowdown hinges on how carefully it uses the oil wealth, said Erik Bruce, a chief analyst at Nordea Bank AB.
The Conservatives “have promised a lot of spending on everything, but when they are in government they tend to be a very responsible party,” Bruce said in a Sept. 4 interview.
Solberg, who has led the Conservatives since 2004, has promised voters more investments in roads, railways and education, laxer mortgage lending regulations, as well as cuts in income and wealth taxes.
The Conservatives are set to enter government with the anti-immigration Progress Party as the second largest group in power. The party, historically an outsider in Norwegian politics, has made investors and economists nervous with talk of scrapping the fiscal spending rule.
“A lot of foreign investors are concerned that we could see a really strong change in fiscal policy with much more expansionary policy and much more use of oil money” should the Progress Party gain influence, Bruce said.
As leader of the second largest group in government, Progress Party leader Siv Jensen could become finance minister, according to Bergh.
Stoltenberg, struggling to garner voter support, has warned that Conservative Party policies may result in krone and interest-rate volatility.
Solberg counters that lower taxes and less red tape will do more to ease the pain exporters are feeling from the strong krone than the spending measures favored by the current government.
Whatever the outcome in next week’s election, Norwegians face a government-financed boost.
“Fiscal policy is likely to turn somewhat more expansionary regardless of the election outcome,” Knut Anton Mork, chief economist at Handelsbanken, said in a note to clients yesterday.
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