1 Main features of the tax policy

1.1 The Norwegian government’s tax policy objectives

Taxes make it possible to finance universal public services and decent welfare schemes, which are crucial in ensuring that Norway is a safe and good country in which to live. It is also the desire of the government for the tax policy to contribute to fair distribution, growth and value creation. These value-based goals serve as guidelines for the government’s work, and are particularly important during these uncertain times. As a supplement to universal public services and good welfare schemes, the tax system is one of the tools the government can use in its efforts to reduce the disparities between people, both socially and geographically.

The government’s goal is for the tax policy to provide good framework conditions for work and value creation throughout the entire country and for investments in climate-friendly technology and industry. Business and industry shall have stable and competitive framework conditions relating to taxation. The fight against tax evasion will be intensified. A broad and solid tax base is necessary to safeguard future tax revenues and makes it possible to keep relatively low rates, thus limiting the socio-economic costs of taxation.

We have a high level of publicly funded welfare benefits here in Norway. This requires the tax system to generate significant revenues. In the 2022 budget, taxes were increased by approximately NOK 8.7 billion (NOK 2022 prices). At the same time, work began on strengthening the tax system’s direct contribution to redistribution by shifting the tax burden to high incomes and large fortunes. A broad tax base is necessary for the tax system to have the intended distributional effect.

The government’s goal is for the tax rules to be simple for taxpayers to comply with and simple for the tax authorities to enforce. The administrative costs for taxpayers and the public sector can be kept down by utilising the opportunities provided by digitalisation. The government will review the regulations extensively, with the aim of further simplifications for business and industry.

1.2 Main features of the government’s tax programme for 2023

The tax programme for 2023 needs to be adapted to the difficult financial situation that we are currently facing. The war in Ukraine has had the most serious impact on those who are directly affected, however this conflict is also impacting us in Norway by it having contributed to a sharp rise in prices for a number of necessary goods such as energy and food. In this situation, it is important to use Norway’s collective funds in a responsible manner to ensure that interest rates on, among other things, home loans, which make up an important part of expenses for ordinary people, do not increase faster and more than necessary. It is also important that those who have the most vulnerable finances for tolerating the increases in cost of living expenses are given priority at a time when petroleum revenue spending needs to be restricted.

The economic realities described in Report No. 1 to the Storting (2022–2023), National Budget for 2023, entail that there will be limited room to manoeuvre on the expenditure side of the 2023 budget, and most probably also in the coming years. The tax programme for 2023 makes a significant contribution to net financing in the 2023 budget, while also laying the foundation for a sound and stable tax base in the years ahead.

A clear shift in tax policy was already demonstrated with the adjustments to the tax programme for 2022 in Prop. 1 LS Addendum 1 (2021–2022). Perhaps the clearest change is that the tax burden will be reduced for those with incomes of less than NOK 750,000 and increased for those with the highest incomes and wealth. In the 2023 budget, the government proposes net tax increases of NOK 44.8 billion accrued and fully implemented. Of this, NOK 31.2 billion is from industries with extraordinary high profits. As a group, households are protected by taxes on current income and consumption being reduced by around NOK 2.5 billion. Tax increases amount to NOK 46.1 billion booked revenue in 2023. This also includes the effect of an increased resource rent tax rate on hydropower from 2022.

The government is seriously addressing the challenges ordinary people face in their everyday lives, such as the rapidly increasing prices on a variety of necessities. We propose several measures both on the income and expenditure sides of the budget that will improve the living conditions for ordinary people. In terms of tax for individuals, we have prioritised net tax cuts for groups with incomes of less than NOK 750,000. A principal measure is the proposal to increase the personal allowance by NOK 14,850 from 2022, which is an increase of around a 25 per cent. This will provide broad income tax relief for those with low incomes. In addition, the government proposes to reduce National Insurance contributions on wages/benefits and self-employed income, which will help to reduce the marginal tax on work and thereby stimulate employment. Other elements of the government’s cost-of-living package to support households also include a cut in the road usage duty to reduce overall fuel taxes, and a reduced base tax on mineral oils, which will lower the prices of fuel in construction and agriculture. The electricity support scheme for households will also be continued in 2023. Single providers with incomes that are too low to benefit from deductions in the tax base will receive an income boost of about NOK 11,500 (year-round effect) with the proposal to transfer the special allowance for this group to the child benefit. There are also a number of proposals on the expenditure side of the national budget that apply to people’s everyday finances, including the continuation of the electricity subsidy scheme for households, reduced maximum prices in kindergartens and reduced ferry fares.

As a measure appropriate for the situation, the government proposes additional employer’s National Insurance contributions throughout the entire country for salaries in excess of NOK 750,000 in 2023. This measure will contribute to increasing the room to manoeuvre in the budget by about NOK 6.4 billion and enables stronger redistribution. The overheating labour market and the surplus of vacancies indicate that it is a good time to introduce additional employer’s National Insurance contributions.

The government proposes increasing the dividend tax by two percentage points. Income from stocks and shares is highly concentrated among those with high incomes and wealth, and an increased dividend tax will therefore contribute towards a more redistributive income tax. The wealth tax rate in bracket 1 is increased from 0.95 to 1.0 per cent. The valuation of shares and commercial property in the wealth tax is increased to 80 per cent, in line with the Government parties' Hurdal Platform. At the same time, it is proposed to shield directly owned fixed assets and reduce their valuation for wealth tax purposes to 70 per cent.

The tax programme will contribute to stronger geographical redistribution in line with the Hurdal Platform. Measures such as the increased dividend tax, the restructuring of National Insurance contributions and bracket tax, as well as the increase in the rate and valuation of shares and commercial property in the wealth tax, will particularly contribute towards geographical equalization. In addition, the change in support for single providers is particularly beneficial for those living in the action zone in Troms og Finnmark.

Power prices in parts of Southern Norway have been very high since autumn 2021. Among other things, this is due to extraordinary conditions in the European energy market as a result of the war in Ukraine (particularly when concerning increased gas prices), a stronger connection to the European energy market in southern parts of the country, and inflow developments and internal grid restrictions in Norway and the Nordic region. The high prices have resulted in unusually high revenues from the resource rent tax on hydropower in 2022, and revenues are also expected to be high in 2023. However, in the extraordinary situation that we are now finding ourselves in, the government is of the view that there is a need to redistribute more of the extraordinarily high revenues from power production. The government therefore proposes to introduce a high-price contribution for wind power and hydropower. The high-price contribution is set at 23 per cent of power revenues that exceed NOK 0.70 per kWh.

The government is also of the view that the energy situation raises the question of how much of the resource rent from hydropower production should accrue to society as a whole. The high resource rent arises as a result of exclusive access to a scarce and highly valuable natural resource that belongs to all of society. Much of the resource rent is paid by Norwegian consumers. The government considers it reasonable that a significant proportion of this resource rent is redistributed back to the citizens. Based on an overall assessment, it is therefore proposed to increase the effective tax rate in the resource rent tax on hydropower from 37 per cent to 45 per cent from 2022.

The government made it clear in the Hurdal Platform that local communities and society as a whole should receive a fair share of the value created from the utilisation of society’s natural resources. The principle that society as a whole should receive a share of the profits generated from the utilisation of society’s natural resources has served Norway well. Without this, we would not now have the Government Pension Fund. Like the petroleum and hydropower resources, aquaculture and wind power resources are tax objects that cannot be relocated, and which should be taken advantage of at a time when many tax bases are becoming more mobile. The government is now proposing the introduction of a resource rent tax on aquaculture and onshore wind power, which will enter into force from the 2023 income year. A key element of the proposal is that local communities which make natural resources available should be guaranteed a share of the resource rent.

The temporary tax rules for petroleum activities were introduced during a situation involving low oil prices and the risk of significantly lower activity on the Norwegian continental shelf. The framework conditions for these petroleum activities have changed considerably since the temporary rules were adopted. The government is of the view that the higher prices mean that there may be grounds for some tightening of these rules. The government proposes reducing the uplift rate in the temporary petroleum tax rules by 30 per cent from 2023. The government proposes to increase the duties on greenhouse gas emissions by 21 per cent, and is following up the plan to increase these duties to NOK 2,000 (NOK 2020 prices) in 2030. The government also proposes introducing a new tax on SF₆ and to differentiate the tax on waste incineration, so that facilities covered by the emissions trading system will pay less and facilities that are not covered by the emissions trading system will pay more.

The government is following up the Storting’s request to introduce value added tax on purchase amounts of more than NOK 500,000 on the sale of electric vehicles. Revenues from motor vehicle-related excise duties have fallen by more than NOK 40 billion (NOK 2023 prices) since 2007, of which NOK 30 billion is lost revenue from the one-off registration tax. In order to preserve the one-off registration tax as a source of revenue for the central government, it is proposed to introduce a new weight component that will apply for all passenger vehicles. The proposal will reverse some of the decline in revenues from the one-off registration tax. Other measures for tightening the one-off registration tax are also proposed for hybrid and fossil fuel vehicles to increase the incentives in the one-off registration tax to purchase electric vehicles, thus enabling us to achieve the objective of all new passenger vehicles being zero-emissions vehicles by 2025.

The government also proposes abolishing the exemption from value added tax for electronic news services, establishing a scheme for deferred timing of disputed claims, discontinuing the low rate of electricity tax for data centres and to halve the quota for tobacco products that can be imported as luggage.

Other proposed tax reforms

The government is also proposing other reforms to the tax system, including:

• Treating electric vehicles the same as other vehicles when taxing company cars.

• Introducing full re-registration tax for electric vehicles.

• Increasing the trade union allowance to NOK 7 700.

• Increasing the tax-free allowance and cost coverage of meals for commuters in temporary workers' sheds and and guest houses.

• Simplifying the minimum standard deduction.

• Continuing certain rates and limits in the income tax nominally.

• Expanding the tax-free allowance for deceased estates in the wealth tax.

• Continuing the tax-free allowance in the wealth tax nominally.

• Legislating practices for the timing of subsidies and compensation in agriculture.

• Amending the rules for property taxes under power lines.

• Introducing a general liability to pay value added tax on sales of remotely deliverable services from abroad.

• Reducing fee revenues under the Norwegian Metrology Service.

• Increasing sectoral taxes under the Norwegian Financial Supervisory Authority.

• Reducing the fee for driving licences.

• Continuing the fishing fleet’s exemption from control fees for vessels less than 15 meters in length.

• Introducing pension savings for self-employed persons from the first krone.

1.3 Revenue effects as a result of the proposed tax changes

Table 1.1 presents an overview of the effects of the government’s proposals on revenues. The revenue effects of the tax programme have been calculated in relation to a reference system for 2023. This reference system is based on the 2022 rules adjusted upwards largely by estimated price, wage or wealth growth. Allowances and upper limits etc. in the standard rate structure of individual taxation are primarily adjusted to 2023 levels based on estimated wage growth of 4.2 per cent. Special allowances and other limits on individual taxation have primarily been adjusted using an estimated consumer price increase from 2022 to 2023 of 2.8 per cent. A taxpayer who only has ordinary allowances and growth in both general and personal income of 4.2 per cent will on average pay approximately the same amount of income tax in the reference system for 2023 as in 2022. In the reference system, all per unit taxes have been adjusted by the projected rise in consumer prices from 2022 to 2023. In real terms, the reference system thus results in unchanged tax levels from 2022 to 2023.

Table 1.2 shows tax revenue estimates for 2023, as well as estimates for 2022 and accounting figures for 2021, broken down by chapter and item.

Table 1.3 shows effects arising from the proposed new rule changes in 2023, broken down by chapter and item.

1.4 Social and geographical profile of the tax scheme

1.4.1 Social distributional effects

Income and wealth disparities in Norway have increased. The government believes that those with high incomes and wealth can contribute more to society as a whole. The government wants to reduce income tax for those with incomes of less than NOK 750,000 and increase taxes for others.

In order to measure how the proposals impact different groups, the proposals are compared with the 2022 rules that have been continued for 2023 (the reference system). The calculations include the tax changes that can be calculated in the tax model LOTTE-Skatt, including changes in rates and limits in the income taxation of individuals and the changes in the wealth tax. Neither indirect taxes nor employer’s National Insurance contributions are included. Increased employer’s National Insurance contributions on wages higher than NOK 750,000, which are paid by the employer, can be said to result in a higher tax on wages above this level. The short-term distributional effects of the government’s tax proposal for 2023 when compared with the reference system are quantified below. The calculations provide a good depiction of the changes in the main rules for individual taxation.

The isolated relief in income tax is approximately NOK 1,5 billion, while the wealth tax increases by approximately NOK 2.3 billion with the changes that are included. In total, these tax changes are estimated to result in a net increase of NOK 0.8 billion accrued.

The most important proposals for individual taxpayers that are not included in the tables are the restructuring of the special allowance for single providers (which means increased income for low-income groups) and the phasing out of the electric vehicle benefit in company car taxation (which means increased tax for people with a high average income).

In 2023, it is estimated that those with incomes of less than NOK 750,000 will receive total income tax relief of close to NOK 4.5 billion, while those with higher incomes will be subject to a total income tax increase of about NOK 3 billion.

Table 1.4 provides a more detailed overview of how the tax system redistributes from high-income groups to lower-income groups. Income tax relief is provided for groups with incomes of less than approximately NOK 750,000 and increases for higher incomes, in line with the Hurdal Platform. For the wealth tax, the tax tightening increases in line with higher income. The largest tax cuts as a percentage of income relate to low-income groups. This is particularly due to the increase in the personal allowance.

People with gross incomes of less than NOK 100,000 usually pay neither bracket tax nor tax on ordinary income and therefore experience little impact from changes to income taxation. In addition to any wealth tax, they pay some National Insurance contributions if they have an income that is higher than the tax-exemption card limit (NOK 65,000). As mentioned, the transfer of the special allowance for single providers to increased expanded child benefit is not included in the distribution table. However, single providers in this income group may experience an increase in their disposable income of up to about NOK 9,600 in 2023 (NOK 11,500 for year-round effect) when compared with 2022.

Wealth is unevenly distributed among the population. Table 1.5 demonstrates the impact of estimated changes in individual taxation for different intervals of estimated net wealth. The main impression given is that people with average wealth of less than NOK 5 million on average receive income tax relief, while people with wealth of more than NOK 5 million are subject to both increased income tax and increased wealth tax. The tax tightening increases in line with higher wealth.

The government’s efforts to make the tax system more redistributive must be viewed over time. Table 1.6 shows estimated distributional effects of adopted 2022 rules compared with the 2022 reference (left), and the estimated distributional effects of proposed 2023 rules compared with the 2023 reference (right). The estimates for 2022 were calculated in connection with the Storting’s budget settlement, and the salary and inflation estimates etc. in the National Budget for 2022 are included in these estimates. The estimates are compared with different reference systems. It is not the same people who are included in a specific income group in 2022 and 2023. Among other things, this is due to general income growth, changes in employment, retirement, deaths and immigration/ emigration. This is also illustrated by the fact that the number of taxpayers in each interval and overall is different for the years. Therefore, the columns for 2022 and 2023 in the table cannot be aggregated. However, the table can still provide an impression of the distribution profile of the tax programme for 2022 and the proposed tax programme for 2023.

The combined impact of the tax changes since 2021 can be illustrated with an example, see Table 1.7.

The table shows that a person with a salary of NOK 550,000 as their only income and who only qualify for the standard deductions (personal allowance and minimum standard deduction) in 2023 will pay about NOK 136,400 in tax under the government’s proposal. Under the continued 2022 rules, i.e. the reference system for 2023, the tax paid by this wage earner would be NOK 138,650. This means that the government’s proposal provides tax relief of NOK 2,250. When compared with the 2021 rules, total tax relief in 2023 is estimated at approximately NOK 3,900. In this calculation, the estimates in the National Budget for 2023 are also used as a basis for wage growth etc. in 2022.

The tax programme for 2023 has been adapted to the difficult economic climate we are currently experiencing and contributes significantly to net central government financing in 2023, not least through the high-price contribution from hydropower and wind power. As a group, households are shielded by taxes on current income and consumption being reduced by NOK 2.5 billion, cf. Table 1.8. This is exclusive of dividend tax, wealth tax and sales taxes on motor vehicles, as well as the introduction of value added tax on electric vehicles with a purchase price of more than NOK 500,000.

1.4.2 Geographical distributional effects

Income, wealth and opportunities are unevenly distributed geographically. The government wishes to even out these disparities. Therefore, the government’s goal is for the tax system to make a stronger contribution towards geographical redistribution and to support the government’s other policies for rural areas.

On assignment from the Ministry of Finance, Statistics Norway has expanded the tax model LOTTE-Skatt so that it can also be used to estimate the geographical distributional effects of changes to taxation of individuals. The average change in tax is estimated in six centrality zones, where zone 1 is the most central and includes Oslo with some neighbouring municipalities, while zone 6 is the least central. The map in Figure 1.1 shows the division into zones, which is based on Statistics Norway’s centrality index.

Zoom in on image

Source Statistics Norway.

The government’s tax programme for 2023 redistributes from central parts of the country to less central parts of the country. It is estimated that taxpayers in the two most central zones will experience a total tax increase of approximately NOK 1.4 billion, while taxpayers in the four least central zones will experience combined tax relief of approximately NOK 0.6 billion.

Table 1.9 shows the estimated geographical distributional effects of the proposed changes in taxation of individuals per taxpayer. The tax changes included in the table are the same as those in the distribution table according to income groups, see section 1.4.1.

On average, taxpayers in zone 1 experience higher income tax, while those in zones 2 to 6 experience lower income tax. Zone 1 also experiences the largest increase in wealth tax. In the income tax, increased dividend tax and the restructuring of National Insurance contributions/bracket tax particularly contribute to geographical equalisation. In the wealth tax, an increased tax rate in bracket 1 and increased valuation of shares and commercial property contribute the most to geographical equalisation.

1.5 Tax rates and amount limits

Table 1.10 shows key tax rates, allowances and amount limits in 2022 and the government’s proposal for 2023. After adjustment to take account of anticipated growth in wages, pensions or prices from 2022 to 2023, the general allowances and amount limits will be rounded off. The upward adjustment may therefore deviate somewhat from the level indicated by the various growth projections. Wage growth is estimated at 4.2 per cent, consumer price inflation at 2.8 per cent and pension growth at 4.3 per cent. See an overview of allowances and amount limits on the Ministry’s website.

Table 1.11 shows the current rates for value added tax and excise duties, as well as the proposed rates for 2023. All excise duties have generally been adjusted upwards by 2.8 per cent to take into account anticipated inflation. Minor deviations may be due to rounding of the rates.

1.6 Distribution of public tax revenues

Table 1.12 presents a general overview of the main groups of taxes and shows the areas of the public sector that receive revenues from each main group. Total tax revenues are estimated at NOK 2,313.1 billion in 2022. Of this amount, just over 89 per cent will accrue to central government, just over 9 per cent to the municipalities and just under 2 per cent to the counties.

Most municipal and county council tax revenues originate from income tax and wealth tax paid by individual taxpayers. Approximately 23 per cent of central government tax revenues are derived from value added tax, excise duties and customs duties. Approximately 20 per cent of central government tax revenues are derived from individual taxpayers, while just under 21 per cent comes from non-personal taxpayers excluding petroleum and employer’s National Insurance contributions in Mainland Norway. 36 per cent of central government’s tax revenues in 2022 were derived from taxes on petroleum. High petroleum prices have resulted in taxes from the petroleum sector accounting for a higher proportion and contribute to higher overall tax revenues than what have been observed in recent years. Taxes from the petroleum sector are included in the central government’s net cash flow from petroleum activities, which is transferred to the Government Pension Fund Global.