Norway’s New Rulers Pledge $17 Billion Fund and Tax Cuts
Norway’s new government vowed to cut income taxes, sell state assets and establish a 100 billion-krone ($17 billion) fund to aid the construction of roads and other infrastructure in western Europe’s largest oil producer.
Erna Solberg, leader of the Conservative Party and incoming prime minister after winning the Sept. 9 election, and Progress Party leader Siv Jensen yesterday presented a 75-page platform revealing how the coalition plans to rule Scandinavia’s richest economy over the next four years.
“Infrastructure investments are as important as the fiscal rule and it’s important for the government to invest for the future and help our children to inherit a society with equal welfare,” Solberg said yesterday. “We need to strengthen our competitiveness and secure Norwegian jobs.”
The two-party coalition last week got the go ahead to form a minority government after reaching an accord with its two smaller opposition partners. The parties also promised to stick to a rule that caps oil money spending at 4 percent of the $780 billion sovereign wealth fund and to refrain from taking initial steps to open for oil exploration off the Lofoten islands over the next four years.
The yield on Norway’s government note maturing in 2015 increase one basis point to 1.72 percent as of 9:39 a.m. in Oslo. The krone strengthened 0.3 percent to 8.0816 per euro.
“The combination of spending increases and tax cuts naturally raise fears of fiscal expansion, overheating, and rising interest rates,” said Knut Anton Mork, chief economist in Oslo at Svenska Handelsbanken AB. “Although the platform is silent about compensating spending cuts, we believe those fears are exaggerated.”
The incoming government didn’t provide any specific amounts on planned tax cuts or asset sales. The infrastructure fund will be built over five years, using money from the oil fund, according to the Progress Party’s Jensen.
“The fiscal rule is quite flexible,” Jensen said in an interview yesterday. “The overall concern for the new government is to have a fiscal policy that takes into consideration all different aspects of the overall economy.”
The government said it will also evaluate developing the fund’s investment strategy and promote more investments in the developing world and renewable energy, according to the platform. The coalition will also seek to increase use of Norway’s natural gas domestically, it said.
The Conservatives were the biggest opposition winner in the Sept. 9 election, after pledging to cut income and wealth taxes, boost investments and ease mortgage lending regulations. The Progress Party, historically an outsider in Norwegian politics, is entering government for the first time since being formed as an anti-tax movement in 1973. They will be backed by the smaller Christian Democrats and Liberal parties in the parliament.
The Progress Party, which supports curbs on immigration, had campaigned on promises to spend more of Norway’s oil wealth.
The incoming government is expected to take power on Oct. 18 and will need to work within a framework set by the Labor-led government in a budget proposal on Oct. 14. Outgoing Prime Minister Jens Stoltenberg has said the government will spend about 50 billion kroner less than the 4 percent rule allows for.
“The idea behind the rule has always been to invest more in infrastructure, tax reduction and innovation,” Jensen said. “Even within the 4 percent rule it’s a huge amount of flexibility -- it depends on how you invest the money.”
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