Tuesday, 9 October 2012

Norwegian Government Budget 2013: Spending Spree taken to New Levels

Finance minister Sigbjorn Johnsen presented the red-green socialist coalition government's 2013 budget for Norway yesterday. The finance minister and prime minister Stoltenberg, both representing the Norwegian Labour Party, proudly declared it was a "neutral" budget that is "well adapted" to the current economic situation to "avoid putting further pressure on the Norwegian economy" and "that now is not the time to step on the accelerator" (see here, in Norwegian only). Well, either they are both lying or they are totally irresponsible, incompetent or clueless when it comes to economic matters, simply trying to buy votes for the 2013 election, or all of the above.

The proposed structural non-oil budget (which excludes income from petroleum) for 2013 represents no less than a 6.2% nominal increase on the estimated 2012 figures to a total of NOK 1,064,870 million, the highest budget ever (CPI is up only 1.2% on a 12 month basis as of August). To put this in perspective, the budgeted costs for 2013 are NOK 414,815 million, or 63.8%, higher than the current government spent in 2005. The budget represents a NOK 123,663 million structural non-oil deficit, which is financed through drawing a similar amount from the Government Pension Fund Global (GPFG), the wealth fund generated from income from Norway's petroleum activities. This deficit is also the highest ever.




The deficit represents 13.5% of total revenues, slightly worse than the figures for 2010, and a new record high deficit in percentage terms. In comparison, Spain is expecting a budget deficit of 6.3% for this year. So Spain's budget deficit in percentage terms is more than half that of Norway's!


Of the total budget only NOK 62,548 million (5.9%) is allocated to investments, of which a miserable NOK 10,560 million is allocated to building roads (and the state of the roads in Norway is not impressive). The rest of the budget is predominantly spent on increased operating costs (increased bureaucracy) and social security and a very long list of grants allocated to various purposes by the central planners. Back in 2001 a spending rule was implemented in Norway of not to spend more than 4% (the expected return) of the GPFG. For 2013 the government expect to spend 3.3% of the GPFG to finance the mainland budget deficit. This will be written more about in a later article, but basically the government is using the wealth generated by oil to grow bureaucracy and for increased social security payments, and not for investments and certainly not in reduced taxes. Norway has one of the highest overall tax burdens in the world and yet it is still dependent on its oil to make up for the huge mainland fiscal deficits. Excessive government spending is a serious fiscal problem in Norway and it is difficult to put together a less prudent budget than what the government just did. A prudent budget would budget for a structural non-oil surplus together with a reduction in taxes and then spend some of the GPFG funds on investments such as infrastructure.

Please refer to the article series named A Financial Analysis of Norway for more on the spending spree in Norway that has taken place in recent years.


Source: regjeringen.no, EcPoFi


Source: regjeringen.no, EcPoFi


 

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