Krone Is Campaign Fodder for Norway’s Labor Party Seeking PowerBy
Labor Party says rising krone sends signal to be careful
Says pace of budget deficit growth is ‘unsustainable’
The strengthening krone is becoming a campaign cudgel as Norway’s Labor Party gears up to unseat the ruling Conservative-led government in September’s election.
The currency is rallying along with a recovery in oil prices, imperiling a nascent rebound of Scandinavia’s richest economy from the worst oil slump in a generation.
The Labor Party, Norway’s biggest opposition party, says the government’s big tax cuts and record oil wealth spending over the past years now leaves little room to navigate for whoever comes out on top in September.
“The most important thing is to keep our house in order and to keep spending in order,” Marianne Marthinsen, Labor’s spokeswoman on fiscal policy, said in an interview last week. “We’ve seen a strengthening of the krone after the New Year and that sends a signal that we need to be careful.”
The government needs to explain how it can reconcile its forecasts for rising spending on defense, pensions and other outlays without addressing the need to raise revenue through higher taxes, according to Marthinsen, potentially the next finance minister. Labor in its party program has proposed raising taxes by 15 billion kroner ($1.8 billion), in part to pay for more “active” labor market measures to help an economic restructuring.
The Conservative minority government, led by Prime Minister Erna Solberg, took office in 2013 and was immediately hit by an economic shock. Faced with a plummeting crude price, the government was last year forced to dip into its $890 billion wealth fund for the first time. It has increased withdrawals this year and plans to spend 226 billion kroner ($27 billion) of oil money in 2017, or almost 8 percent of the economy.
"The government budget deficit is increasing at a pace that we’ve never seen before," Marthinsen said in an interview at her office in Oslo. "This isn’t sustainable.”
Official Norway is now looking over the framework over how to spend its oil wealth in a time of diminishing returns. Current rules cap spending at 4 percent of the fund. The fund has been built up over the past 20 years, using Norway’s vast revenue from offshore oil and gas fields.
Marthinsen says that amid signs now that the wealth fund is nearing its peak in size, it’s important to realize that oil-money spending is a contract with future generations. The government and parliament are also looking into whether to increase the amount of stocks the fund can hold from the current 60 percent limit, which the fund argues would it reach its 4 percent real return target.
"No matter what rule we have, there must be flexibility so that it doesn’t become pro-cyclical," Marthinsen said. And if a decision is made to increase the equity share, politicians will need a bigger buffer in framework because of the increased volatility that will bring, according to Marthinsen.
"We don’t want the spending profile of the state budget to be governed by the fluctuations in global markets," she said.