Norway Wealth Fund Surge Spurs Record Spending Amid ReviewSaleha Mohsin and Mikael Holter
Norway unveiled plans to spend a record amount of its oil revenue to cover budget needs and pay for tax cuts as the government said it will explore ways to cap future expenditure.
The minority coalition proposed spending a record 164 billion kroner ($25 billion) of oil revenue in 2015, up from 140.9 billion kroner this year. That represents 3 percent of its wealth fund, the world’s biggest. Though well within a 4 percent spending limit, growth in the $850 billion fund means the cap represents a rising cash mound.
The government today appointed a committee to review how the spending rule works amid calls to further limit the use of oil money as the petroleum industry risks crowding out other areas of the $500 billion economy. Oil wealth expenditure in 2015 will reach a record 6.4 percent of Norway’s mainland economy, versus 5.8 percent in 2014.
“The strong growth in the wealth fund gives Norway opportunities few other countries have,” Finance Minister Siv Jensen said in parliament today. “But it has also made management of fiscal policy more difficult.”
The government needs the backing of the Liberal Party and Christian Democrats to pass the budget in parliament. Both have said Norway needs to rein in spending. The central bank said last week it will for the first time start buying kroner with its foreign currency oil revenue to cover budget needs. DNB ASA estimated today that the krone buying could reach 59 billion kroner next year to cover the extra spending.
Norges Bank Governor Oeystein Olsen, who helped design the spending rule last decade, has also argued the cap should be lowered to prevent Scandinavia’s richest economy from overheating.
Labor, Norway’s biggest party in opposition, is “positive” toward the government’s decision to examine the rule, said Torstein Tvedt Solberg, who represents the party on the parliamentary finance committee.
“More knowledge is good,” he said. “It’s a new approach from the Progress Party if the intention is to spend less.”
Norway, western Europe’s biggest oil exporter, puts most of the income from its offshore fields into a fund that invests abroad to avoid stoking inflation and pushing up interest rates and the krone.
Norway’s mainland economy, which excludes oil and gas output, will grow 2.2 percent this year and 2 percent next year, according to the government. That compares to May forecasts of 1.9 percent for this year and 2.2 percent in 2015. Unemployment will be 3.4 percent this year and 3.6 percent in 2015, the government said today.
The raised oil money spending is a “reasonable estimate” based “on the situation in the Norwegian economy, not least the situation in the international economy,” Hans Olav Syversen, head of parliament’s finance committee and a member of the Christian Democrats, said in an interview. “The oil industry in Norway has a somewhat weakening curve. The pressure in the Norwegian economy is decreasing, because the oil industry isn’t drawing in as many engineers, for example.”
The expansion of western Europe’s largest oil and gas economy is slowing as companies including Statoil ASA and Aibel AS have said they may cut as many as 5,000 jobs. Norway has come to rely on its oil wealth after a decade-long boom stoked growth, driving registered unemployment down below 3 percent when other parts of Europe suffered double-digit joblessness.
To boost other parts of the economy, the government today said it will lower taxes by about 8.3 billion kroner next year, including cuts to the wealth tax.
The government’s policy is taking oil money and “putting it in people’s pockets,” said Rasmus Hansson, a lawmaker for the opposition Green Party. It’s “making us more dependent on oil, not less, and that means that they are building up the conflict around the oil and gas industry.”
The Liberal Party said today it will need to go over the budget to see if it can reduce the amount of oil money spending.
“It’s clear that we need to use oil money to support the economy but the level used in the government’s proposal is at the top of what we see as the limit of using the oil fund -- 3 percent,” said Terje Breivik, a Liberal Party member of parliament. “This is something that we need to have a closer look at before we start negotiations. Because of this and some other more domestic issues, negotiations will be tough.”