A responsible budget that provides security for people throughout Norway

In uncertain times with high inflation, the Norwegian economy is performing well compared to other European economies. Unemployment is still low and economic activity high, although growth has started to decelerate. At the same time, high inflation and the consequences of the war in Ukraine have led to a necessary increase in budget spending.

“Our goal is to make people’s everyday life a little better. We will ensure that the municipalities and those that run essential welfare services such as care for the elderly, schools, police and hospitals will be compensated for the increase in prices. Some social security benefits will also be adjusted. The government also intends to contribute to the stability and security of Europe by increasing support for Ukraine, and by receiving and integrating Ukrainian refugees to Norway. This is a responsible budget that will contribute to security during a difficult time”, says Minister of Finance Trygve Slagsvold Vedum (Centre Party).

Last year, employment rose by 110,000 jobs. Activity, profitability, and willingness to invest in Norwegian businesses are high. Economic growth is expected to be somewhat lower in 2023, after a strong recovery after the pandemic. Growth is expected to pick up again in 2024. Consumer price growth is projected to decelerate gradually throughout the year, without a large increase in unemployment.

 “The government will continue to strengthen incentives to work. In this budget, we intend to make everyday life a little easier for a number of employed people. We aim to facilitate job security, and that more people find employment. That is one of the most important things we can do. We must also support those who are not able to participate in the labour market”, says Minister of Finance Trygve Slagsvold Vedum (Sp).

Priorities in the budget:

• The government proposes to compensate providers of public services and others who receive money from the national budget for high growth in wages and prices.
• To contribute to security and stability in Europe, support to Ukraine has been increased through the Nansen Support Programme for Ukraine (as decided by Parliament in March).
• The government proposes an increase in allocations to Norwegian municipalities, so that they are better able to host Ukrainian refugees.
• The government proses increased spending on hospitals, the police and Norwegian municipalities, in addition to the announced compensation for high wage and price growth.
• With the government's proposal, low-income pensioners will receive a tax break of NOK 1.4 billion. The tax relief will reduce tax by up to around NOK 4,500 for those with a low pension.
• The government proposes to increase the non-taxable allowance for board (food) for commuters in portacabin accommodation, as well as long-distance drivers.
• The government will continue the temporary expansion to housing allowance in 2023, increase spending on labour market measures and increase support for energy saving measures in municipal housing.

The structural non-oil deficit will increase by NOK 56 billion. This corresponds to a withdrawal of 3.0 per cent from the Government Pension Fund Global. The increased use of petroleum revenue is mainly due to:

• Compensation for high wage and price growth. The wage and price growth mean that the budget presented by the government last autumn would have been much tighter than intended at the time. This is now being rectified and will result in increased expenditure of around NOK 27 billion, including close to an additional NOK 11 billion in social security and pension expenditure.
• A decline in revenues from electricity is now estimated to weaken the budget by around NOK 22 billion. The Government’s income is reduced by more than savings made in the energy subsidy scheme.
• Support for Ukraine through the Nansen Programme for Ukraine. The government has launched the Nansen Programme for Ukraine and increased aid to developing countries that have been severely affected by the war, with a total of over NOK 16 billion. A large majority in parliament supports the programme.
• Increased refugee-related expenditure. Norway will receive far more refugees in 2023 than was expected last autumn, leading to an expenditure increase of roughly NOK 6 billion. The Government aims to receive and integrate Ukrainian refugees effectively, including that as many as possible find employment.

The war in Ukraine is projected to lead to expenditure of over NOK 40 billion this year, and roughly the same amount next year. As such it will be necessary to postpone other initiatives outlined in the government’s political platform.

“Norwegian support for Ukraine can help ensure the stability of Europe and to aid the Ukrainian people. It is also crucial for our own security that Russia is not successful in its wars of aggression. Norway’s Nansen Programme for Ukraine enjoys broad political support in Norway. We will stand up for the Ukrainians as long as necessary”, says Minister of Finance Vedum.

Pensions will increase considerably this year, both because wage and price growth will be high this year and because adjustments take into account that wage and price growth last year was higher than expected.  As a result, pensions will increase significantly more than projected wage growth this year. Other social security benefits will also increase by more than wage growth.

“Pensioners are likely to receive an unprecedented increase in income through this year's pension adjustment. With the government's proposal, low-income pensioners will receive a tax break of NOK 1.4 billion. The tax relief will reduce tax by up to around NOK 4,500 for those with a low pension”, says Vedum.

The government believes it would be irresponsible to plan for large expenditure cuts in the revised budget to cover these expenses, as this would affect public services in an unacceptable way or lead to strong and unforeseen increases in taxes and duties.

Table 1: Key figures for the Norwegian economy. Percentage volume change from previous year, unless otherwise stated

	NOK billion1
	2022	2022	2023	2024
Private consumption	1 805.0	6.8	-0.4	0.7
Public consumption	1 036.1	0.1	1.4	..
Gross fixed investments	1 096.2	4.4	-0.2	0.4
Of which:  Petroleum extraction and pipeline transportation	177.9	-5.5	3.0	4.0
Businesses in mainland Norway	448.4	14.5	0.6	2.0
Housing	232.1	-1.4	-5.3	-2.1
Public sector	237.1	0.9	1.2	..
Mainland Norway demand2	3 758.6	4.8	0.0	0.5
Exports	3 100.6	5.9	4.1	3.0
Of which:  Crude oil and natural gas	1 972.9	0.3	3.1	4.0
Goods and services, excl. oil and gas	947.0	9.4	5.6	3.9
Imports	1 521.8	9.3	1.1	1.5
Gross domestic product	5 569.2	3.3	1.3	1.2
Of which: Mainland Norway	3 569.3	3.8	1.0	1.0
Other key figures:
Employment, persons		3.9	0.8	0.2
Unemployment rate, LFS (level)		3.2	3.6	3.7
Unemployment rate, registered (level)		1.8	1.8	2.0
Annual wage growth		4.3	5 ¼	..
Consumer price inflation (CPI)		5.8	5.4	3.7
Underlying inflation (CPI-ATE)		3.9	5.8	3.8
Crude oil prices, USD per barrel (current prices)		99	75	71
Gas prices, USD per MMBTU (current prices)		31.6	17.0	20.8
Three-month money market rate, pct.3		2.1	3.9	3.5
Import-weighted exchange rate (I-44), annual changes in pct.4		1.2	8.2	0.9

¹ Provisional national account figures at current prices.

² Excluding inventory changes.

³ Assumption used in calculations based on forward rates.

⁴ Positive figures indicate a depreciation of the NOK.

Sources: Statistics Norway, OECD, national sources, Norges Bank, the Norwegian Labour and Welfare Administration, Thomson Reuters and the Ministry of Finance.

Table 2 Key figures for the fiscal budget and the Government Pension Fund. NOK billion

	2021	2022	2023
Total revenues	1 502.7	2 668.4	2 503.7
1 Revenues from petroleum activities	312.2	1 313.6	1 042.5
1.1 Taxes and duties	91.8	720.9	660.1
1.2 Other petroleum revenues	220.4	592.7	382.4
2 Non-petroleum revenues	1 190.5	1 354.8	1 461.2
2.1 Mainland Norway taxes	1 099.5	1 240.7	1 334.9
2.2 Other revenues	91.0	114.2	126.4
Total expenditure	1 584.2	1 665.9	1 789.3
1 Expenditure on petroleum activities	24.7	28.4	27.0
2 Non-petroleum expenditure	1 559.4	1 637.6	1 762.3
Fiscal budget surplus before transfers to the Government Pension Fund Global	-81.5	1 002.5	714.4
-  Net cash flow from petroleum revenues	287.5	1 285.2	1 015.5
= Non-oil fiscal surplus	-369.0	-282.7	-301.1
+ Transfer from the Government Pension Fund Global	390.1	309.9	301.1
= Fiscal budget surplus	21.1	27.1	0.0
+ Net transfer to the Government Pension Fund Global	-102.6	975.3	714.4
+ Interest and dividends, etc., on the Government Pension Fund1	223.7	279.3	336.0
= Fiscal budget and Government Pension Fund consolidated surplus1	142.2	1 281.8	1 050.4
Memo:
Market value of the Government Pension Fund Global2	10 907	12 355	12 413
Market value of the Government Pension Fund2	11 199	12 688	12 731
Structural non-oil fiscal deficit, NOK billion	358.6	339.4	372.6
Percentage of the fund capital	3.3	2.7	3.0
Percentage of mainland Norway trend GDP	10.6	9.5	10.0
Budget indicator, percentage points4	-1.0	-1.0	0.4
Of which:
Nansen Support Programme for Ukraine			0.3
Increased aid to developing countries that have been severely affected by the war			0.1
Real underlying expenditure growth, pct.	-1.3	1.1	1.5
Memo:
Estimated contribution of fiscal policy to growth in GDP for mainland Norway4			0.3-0.4

¹ Including Government Pension Fund Norway and Government Pension Fund Global. Not including securities gains or losses.

² At the beginning of the year. The values differ from the ones reported in the annual reports from Norges Bank Investment Management. The market value in this table is adjusted for accrued, but not paid, management costs and claims the government has against the fund. 

³ Positive numbers indicate an expansionary fiscal stance. The indicator does not take into consideration that different revenues and expenditure items may differ in their impact on economic activity.

⁴ Based on model calculations, using the macro models KVARTS (0.4 pct.) and NORA (0.3 pct.). The models take into account that different revenues and expenditure items may differ in their impact on economic activity. The assessment is based accrued (primary) figures for the general government, i.e. including the local government in addition to the central government. Corresponding figures in the National Budget was 0.1 pct. in KVARTS and 0.0 pct. in NORA.

Sources: Ministry of Finance and Statistics Norway.