Norway to Fight Record Private Debt With Tax Goad for Savers

Norway’s new government plans to offer tax breaks to encourage consumers to set aside savings in an effort to help the nation deal with record household debt.

“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 government 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.

Business Competitiveness

“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.”

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 Warning

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.

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