Norway’s new government, formed yesterday after two weeks of talks, plans to offer tax breaks to encourage consumers to set aside savings in an effort to help the nation deal with its record household debt burden.
“I don’t think that we have too large of a private debt problem in Norway but we will create tax relief on savings,” Erna Solberg, leader of the Conservative Party and incoming prime minister after winning the Sept. 9 election, said yesterday in an interview after agreeing to form a minority coalition with the anti-tax Progress Party. “The policy will be to get more people saving for the future.”
Though Norway’s government boasts no net debt thanks to its $780 billion sovereign wealth fund, the nation’s consumers have built up record borrowings after years of low interest rates. That’s fueled asset prices in Scandinavia’s richest economy per capita, driving house prices to an all-time high and prompting warnings from regulators that the development is unsustainable.
Solberg said in an interview last month she would scale back caps on borrowing imposed under the Labor government of outgoing Prime Minister Jens Stoltenberg. The Financial Supervisory Authority sets a guideline urging banks to limit mortgage lending to 85 percent of a property’s value. Solberg’s plans to ease that cap triggered a warning from the FSA last month amid concern Norway’s housing market is still overheated.
“As long as the rest of the economy is going well private debt is not a problem,” Solberg said yesterday. “If you have rising unemployment it’s a problem. You have to tackle unemployment and business competitiveness first.”
The parties that won last month’s election, toppling Stoltenberg’s Labor-led government after eight years in office, have agreed to continue his party’s fiscal framework. The coalition of the Conservatives and Progress Party will rule with backing of the Christian Democrats and the Liberals.
The four parties agreed to keep a rule limiting spending of Norway’s oil riches to 4 percent of the sovereign wealth fund. The bloc also agreed to hold off on a feasibility study for oil exploration off the environmentally sensitive Lofoten islands in the Norwegian Sea over the next four years.
Norway’s oil industry voiced immediate dissatisfaction with the new government’s decision not to pave the way for exploration around the Lofoten islands. Solberg’s coalition has also said it plans to restrict exploration off the Jan Mayen islands, as well as in the Skagerak Sea and the Moere fields, according to the accord released yesterday.
Oil companies such as state-controlled Statoil ASA, which operates more than 70 percent of all production in Norway, have said it is urgent to open the area, which could hold 3.4 billion barrels of oil equivalent, to make up for falling production from the North Sea.
“It’s disappointing and a problem for democracy that the new government has chosen to say no to an impact study,” said Gro Braekken, head of the Norwegian Oil and Gas business group, in an e-mail yesterday.
The Progress Party, which will enter government for the first time since it was formed as an anti-tax movement in 1973, had wanted to raise oil spending and tap more of the nation’s wealth fund. The coalition, which will spending the coming days appointing ministers and designing its government program, has said it will target tax cuts and more spending on infrastructure and health care.
Norges Bank forecasts the mainland economy, which excludes oil and gas production, will grow 1.75 percent this year, after expanding 3.4 percent in 2012. The bank left its main interest rate at 1.5 percent last month, signaling faster tightening after successfully fighting back krone gains. Norway has struggled to keep its $500 billion economy balanced as record monetary easing across the globe distorts asset prices in some of the world’s richest nations.
Since Norway’s FSA introduced measures to curb bank lending, Norway’s housing market has shown signs of cooling. Annual house price gains slowed 3.9 percent in August, the smallest increase since July 2009, according to the real estate group. The number of existing homes for sale jumped from a year earlier, putting sales roughly on pace with a record in 2012, the group said.
Moody’s Investors Service said in a report today that Norway, together with the rest of the Nordic region, suffers from a “highly indebted private sector and high house prices, which could inhibit private consumption over the coming years.” The ratings company affirmed the stable Aaa credit grades of Norway, Sweden, Finland and Denmark.
Norway’s FSA, the central bank and the International Monetary Fund have all sounded the alarm on risks facing the nation’s housing market after prices doubled over the past decade and household debt swelled to 200 percent of disposable incomes. Outgoing Finance Minister Sigbjoern Johnsen, who will step down this month, has fought to prevent a re-run of the early 1990s crisis that sent real estate prices down as much as 40 percent.