Tuesday, 31 July 2012

A Financial Analysis of Norway, Part III cont.: Central government fiscal accounts - Revenues & Deficits

Introduction

In this article we continue the analysis of the Norwegian central government fiscal accounts. In the previous article in this series the focus was on expenditures. In this article revenues and deficits for mainland Norway which excludes revenues from oil and gas (petroleum) is discussed and analysed. Repayments/loan transactions (a financial item) has also been removed as this is a balance sheet item so the results for the central government for mainland Norway can be analysed on an "operating basis". Please refer to previous articles in this series for background information.


Central government revenues for mainland Norway (oil and gas revenues excluded)

In 1997, Total Revenues for the Norwegian central government was NOK 370.365 billion. By 2011, this had grown to NOK 851.283 billion, a total growth of NOK 480.918 billion or 130% (6.12% geometric average per year). Inflation during this period was an average of 2.08% so the real (inflation adjusted) growth was 3.97% a year (1,0612/1,0208-1).






Growth in revenues came to a halt following both the dot.com bubble and financial crisis of 2007/2008. On a per capita basis, the nominal increase in Total Revenues for the period (1997-2011) was 5.27% per year, increasing from NOK 84,313 (USD 13,822) in 1997 to NOK 173,014 (USD 28,363) in 2011.



The table below shows the percentage change in revenues per item for the 1997 to 2011 period.


In percentage terms, dividends (excluding Statoil, the partly state owned public company) from state owned companies increased the most with an average yearly increase (geometric average) of 10.92%, followed by "Other duties" (9.81% increase) and "Taxes on wealth and income" (9.22%).

The next table is an overview of where the government generated their revenues from in 2011 and how much this represented per capita in both NOK and USD. According to Statistics Norway, the population of Norway was 4,920,305 in 2011.



"Employers' contributions National Insurance Scheme" was the biggest revenue generator for the central government in 2011 making up 28.3% of total revenues (NOK 48,976/USD 8,029 per capita). In second place is "Taxes on wealth and income" (26,9% of total and NOK 46,624 per capita) followed by "Value Added Tax" (25% basic rate) generating 24.5% of total revenues (NOK 42,426 per capita). Combining all items labelled "Duties" and adding "Income from customs" results in total revenues of NOK 132.537 billion (15.6% of total, NOK 26,937/USD 4,416 per capita).

Mainland Norway central government fiscal account deficit

Subtracting the expenditures discussed in the previous article in this series from the revenues above yields the central government fiscal account surplus or deficit for mainland Norway. As will become evident, the Norwegian central government delivered, with two exceptions, a deficit every year during the period analysed. The Norwegian Ministry of Finance refer to this deficit figure as the "structural, non-oil deficit" (in effect the "operating result" for mainland Norway). The chart below depicts these results for the period 1998 to 2011.




Except for 2000 and 2007, the central government delivered significant fiscal deficits (losses) every year during the period as expenditures were higher than revenues. The deficit reached NOK 104.070 billion (USD 17.061 billion) in 2010 and was NOK 79.398 billion in 2011. For the last three years the cumulative deficit add up to NOK 282.191 billion (NOK 94.064 billion on average per year). The cumulative deficit since 1998 is as of 2011 NOK 604.129 billion or NOK 122,783 per capita (USD 99.038 billion or USD 20,128 per capita).



On average, the deficit percentage (deficit divided by total revenues) averaged -7.3% for the period (1998-2011) and averaged -11.9% for the last three years (2009-2011).


Conclusion on Norwegian central government fiscal account deficits

As the charts, tables and analysis above demonstrated, the Norwegian central government generated significant deficits in 12 of the 14 years analysed for mainland Norway. The three largest deficits during the period was generated during the last three years (2009, 2010, 2011). These deficits were generated even though the tax burden in Norway is amongst the highest in the world. These deficits were generated due to excessive and irresponsible government spending (see the previous article on expenditures). Although these deficits were more than covered by revenues from petroleum (as an example, revenues from oil and gas amounted to NOK 372.242 billion (USD 61.023 billion) in 2011), it nonetheless means that Norway is actually spending oil money to keep growing an already over-sized central government. 

If the government was responsible (and competent) it ought to make sure that the central government delivered surpluses for mainland Norway (a structural, non-oil surplus) and at the same time reduced the tax burden significantly. Instead what has been happening for many years now is that the central government continues to expand significantly and loots the country's oil money to finance this expansion at the expense of private sector tax payers (which already pay high taxes) leading to a reduction in the country's wealth. This is a very serious matter indeed and the electorate in Norway needs to wake up to this ongoing gross mismanagement of the country's wealth and financial resources. Being responsible for many of these deficits (prime minister 2000-2001 and since 2005), prime minister Stoltenberg claims he has demonstrated "responsible use of money". The revised budget for 2012 expects yet another structural, non-oil deficit, this time for the grand total amount of NOK 111.7 billion, a new all-time high deficit. The oil money could be spent on much better purposes than financing government expansion, such as building roads. But that's a different discussion.

More to follow in upcoming articles in this series.