1 Main tax policy features

1.1 The tax policy objectives of the Government

Taxes make it possible to finance universal and decent welfare schemes, which are crucial in ensuring that Norway is a safe and good country in which to live. Tax policy shall also contribute to fair distribution and shall facilitate economic growth, as well as high health and environmental standards. These value-based goals guide the Government’s efforts, and are particularly important in 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 is aiming for its tax policy to provide a favourable framework for work and economic growth all over Norway, which promotes investment in new businesses. Businesses and industry need a stable and competitive tax framework. The negative effects of taxes differ greatly between tax types. It is important for the government to prioritize taxes with the least possible disadvantages. Environmental taxes at the right level, such as taxes on emissions of greenhouse gases, have a positive effect on socio-economic efficiency. Properly designed resource rent taxes will give the community a share in the extraordinary return that can arise from the use of our natural resources, and provide an overall better tax system.

In Norway, we have a high level of publicly funded welfare benefits. It requires that the tax and levy system generate large revenues. A broad and robust tax base is necessary to safeguard future tax revenues and makes it possible to keep relatively low rates, thereby limiting the economic costs of taxation. A broad tax base is also necessary for the tax system to have the intended distributional effect.

In the 2023 budget, expenditure increased in many areas, including the National Insurance Scheme and the reception and integration of refugees. Moreover, large appropriations were made for household electricity subsidies and other electricity measures. Ad hoc taxes – in the form of the high-price contribution and increased employer’s National Insurance contributions on salaries above NOK 750,000 – were introduced in order to redistribute more of the extraordinarily high power generation revenues and to finance expenditure increases. At the same time, the direct redistribution contribution of the tax system was strengthened by shifting more of the tax burden to high-income and high-wealth taxpayers.

The Government aims to make tax rules simple for taxpayers to comply with and simple for the tax authorities to enforce. Administrative costs for taxpayers and the public sector can be kept down by making the most of the opportunities provided by digitalisation. The Government is reviewing the regulations, with the aim of further simplifying these for business and industry.

1.2 Main features of the tax programme for 2024

Executive summary

The tax programme for 2024 is adapted to the economic situation described in Report No. 1 (2023–2024) to the Storting, National Budget 2024. It is expected that inflation will come down, while employment will remain high and unemployment low.

The full-year effect of the overall programme for 2024 entails tax relief of about NOK 6.0 billion. Of this, the removal or phasing out of the temporary tax increases in the adopted 2023 budget amounts to NOK 5.1 billion (the high-price contribution and an extra employer's contribution on salaries above NOK 750 000).1 It is estimated that about 85 per cent of taxpayers will receive about unchanged or lower income tax from the government's proposal for 2024. The two adopted budgets since the change of government were estimated to give about unchanged or lower tax for about 8 out of 10 taxpayers.

The Hurdal Platform emphasises a predictable and responsible business tax policy. Resource rent taxes on the utilisation of our joint natural resources are based on a strong economic rationale. Neutral resource rent taxes ensure that society receives a share of the resource rent without impeding investment and growth. For a private investor, the return per unit of invested capital is the same before and after tax. This enables everyone, and not just a select few, to share in the extraordinary returns on these joint natural resources, while making it no less attractive than before to invest in new projects that utilise such natural resources.

The principle that the society as a whole should receive a share of the return from the utilisation of our common natural resources has served Norway well. In the Hurdal Platform the Government states clearly that local communities and the society as a whole should receive a fair share of the value that is created from utilising our common natural resources. The wind power sector has, similar to the hydro power, petroleum and aquaculture sectors, exclusive access to valuable areas for business activity. By utilising a location-specific natural resource the wind power sector can generate a resource rent, partly because the wind conditions in Norway are favourable, partly because the access to the resources are limited by the licensing system. The electricity prices are in the longer term estimated to exceed the levelized cost of energy for onshore wind power. It is therefore expected a resource rent in the sector over time. In the coming years, buyers of electricity will realise parts of the resource rent through existing fixed-price agreements.

The Government believes that this is an appropriate time for introducing a resource rent tax on onshore wind power and proposes to introduce a resource rent tax with an effective tax rate of 35 pct. as of the income year 2024. The proposal has been on public consultation. The proposal includes generous transitional arrangements for existing wind farms. The introduction of a neutral resource rent tax from 2024 will provide the sector with a predictable policy framework and facilitate development of profitable wind power projects in the years to come. The proposal is described in more detail in Prop. 2 LS (2023–2024) Resource rent tax on onshore wind power.

The temporary tax increases in the form of high-price contributions and additional employer’s National Insurance contributions adopted in the 2023 budget were justified by the special situation prevailing in Norway, like in other European countries, with extraordinary power sector revenues and increased expenditure in many areas.

The high-price contribution was necessary and appropriate in order to redistribute more of the extraordinary power sector revenues as a result of the extremely high electricity prices in parts of Norway in 2022 and into 2023. The Government has made it clear that the high-price contribution (excise duty on power production) will be phased out by the end of 2024 at the latest. Power producers have emphasised that the high-price contribution creates uncertainty and impairs the incentives to invest. This applies regardless of whether the power prices are at a level that actually generates revenue for the state. Going forward, it is important to facilitate economically profitable investments in renewable power. The Government believes that the extraordinary situation we were facing last year, is no longer applicable to the same extent. The Government therefore proposes to abolish the high-price contribution with effect from 1 October 2023.

The Government also proposes that the threshold for the additional employer’s National Insurance contributions be increased to NOK 850,000 in 2024. This is a first step in the phasing out of this ad hoc tax.

The Government proposes to increase taxes on non-ETS emissions in line with a linear increase to NOK 2,000 at 2020 prices in 2030. With such a long-term target and gradual movement towards a specified emissions price, businesses and consumers will be able to adapt over time. For 2024, this means that taxes on non-ETS greenhouse gas emissions will be increased by 19 per cent. The tax base will be expanded, and reduced rates will be increased in several areas – including an increase in the waste incineration tax to 75 per cent of the general rate. The sales requirement for biofuels in road traffic will be increased from 17 per cent to 19 per cent in 2024. For reporting on Norway's obligations under the Climate Act, reference is made to the special appendix to Prop. 1 S (2023–2024) under the Ministry of Climate and Environment (2023–2024) The Government's climate status and plan. Both the increased sales requirement and the CO₂ tax increase will in themselves lead to higher fuel prices. The government wants the green transition to be socially and geographically fair. To help keep the cost of living down for households, an amount in excess of the cost increase for households as a whole will be returned to them. This will be achieved by significantly reducing the road usage tax on petrol and diesel, and by reducing the traffic insurance tax on fossil fuel vehicles by NOK 400 per year.

In terms of personal income tax, the Government proposes moderate modifications with redistributional effect. On average, people on low and medium incomes will pay less or about the same amount of tax, while people on high incomes will pay more tax. In total, net tax relief will be about NOK 400 million. The personal allowance will be increased by NOK 8,650 from 2023, and National Insurance contributions on wages, benefits and self-employment income will be reduced by 0.1 percentage points. The measures in the action zone in Northern Troms and Finnmark will be simplified and clarified by increasing the Finnmark allowance to NOK 30,000 and making the tax rate in bracket 3 of the bracket tax uniform across the whole country. The trade union allowance and the travel allowance will be price-adjusted.

A study by NTNU Social Research shows that the method for calculating the market value of commercial property is not sufficiently accurate. In particular, commercial property in rural areas is overvalued. The Government is committed to ensuring that the valuation of commercial property for wealth tax purposes is as accurate as possible, and will ask Statistics Norway to consider modifications to the calculation method. In the short term, it is proposed to increase the commercial property discount rate by 1 percentage point for properties located outside the major cities of Oslo, Bergen, Trondheim and Stavanger in order to mitigate the clear regional differences in model accuracy revealed by the report.

Other proposed tax changes

The Government is also proposing other changes to the tax system with effect from 2024:

• The upper limits on the basic allowance are kept unchanged in nominal terms. The additional revenues are used to increase the personal allowance.

• The bracket tax thresholds are modified, and the tax rates in brackets 3 to 5 are increased in line with the reduction in National Insurance contributions on wages, benefits and self-employment income.

• The tax-free subsistence allowance for accommodation in temporary workers’ sheds (the sheds allowance) is increased from NOK 250 to NOK 400.

• The tax-free subsistence allowance for long-distance lorry drivers is increased from NOK 350 to NOK 400.

• A special allowance for seafarers is granted to seafarers with a three-week rotation or more, as an alternative to the distance travelled requirement.

• The tax rules are technically adapted to the introduction of the new adjustment benefit for surviving spouses, etc., from 2024, as stipulated by the Storting.

• The maximum tax credit for pension income and the thresholds for reduction of such tax credit are increased by estimated pension growth rates.

• Some income tax allowances and thresholds are kept unchanged in nominal terms.

• Wealth tax thresholds and limits are kept unchanged in nominal terms.

• Gains from the sale of milk quotas are exempted from personal income calculation.

• The tax-free allowance under the differentiated employer’s National Insurance contribution scheme is increased from NOK 500,000 to NOK 850,000.

• The interest limitation rule is amended to prevent tax avoidance through application of the EBITDA rule between close associates and through the use of intra-group contributions.

• The duration requirement for agreements under the industrial power exemption from resource rent tax on hydropower is reduced from seven to three years.

• CO₂ tax on natural gas and LPG (liquefied petroleum gas) for the greenhouse industry is increased from 8 per cent to 15 per cent of the general level. To favour the greenhouse industry, the appropriation for Bionova is increased by a corresponding amount in 2024, which is earmarked for assisting businesses that need help to cover the costs of converting from LPG to electricity.

• A tax is introduced on NO₂ emissions (nitrous oxide) from the burning of mineral oil.

• A reduced CO₂ tax is introduced on shipping subject to ETS.

• The reduced CO₂ tax on the use of mineral oil subject to ETS is increased due to Norwegian kroner depreciation.

• The preferential tax treatment of plug-in hybrid cars under the motor vehicle registration tax is abolished.

• The exemption from road usage tax on petrol used for exploration and exploitation of subsea natural resources is repealed.

• The rate of the CO₂ component of the motor vehicle registration tax on light vans is increased by 5 per cent.

• The reduced rate of electricity tax is increased due to Norwegian kroner depreciation.

• The tax on TRI and PER is abolished.

• Off-road motorcycles used in reindeer husbandry are exempted from motor vehicle registration tax and will qualify for value added tax deduction.

• The value added tax exemption for electronic newspapers under Section 6-1 of the Value Added Tax Act shall encompass newspapers that predominantly contain text and still images.

• The sectoral tax under the energy authorities is increased to strengthen the Norwegian Water Resources and Energy Directorate (NVE).

• The sectoral tax under the Norwegian Communications Authority is increased to intensify digital preparedness efforts.

Several of the proposals also further the Government’s goal of simplifying the tax system:

• The limit on direct deduction of expenses and residual balances is increased from NOK 15,000 to NOK 30,000.

• The depreciation rate on electric vans is reduced from 30 to 24 per cent.

• The rules for tax-free reorganization are changed, by codifying three typical cases from tax-exempt practice. This applies to cross-border mergers of investment funds that are UCITS funds, mergers and divisions of savings banks where one or more savings bank foundations are created and conversion of merger and demerger claims.

• Special rules that are not being applied, especially in relation to excise duties are repealed.

1.3 Revenue effects of the proposed tax changes

Table 1.1 provides an overview of the revenue effects of the Government’s proposal. Accrued effects are changes in payment obligations for the income year 2024 that follow from the government's proposal, while booked effects are changes in payments in the same year. Payment routines can lead to discrepancies between accrued and book effects, for example companies pay income tax in subsequent years, and not all changes can be fully taken into account in the withholding tax. The revenue effects of the tax programme have been calculated in relation to a benchmark system for 2024. The benchmark system is based on the 2023 rules, adjusted upwards primarily by projected price, wage and wealth growth. Allowances and thresholds, etc., in the standard rate structure of personal taxation are adjusted to 2024 levels based on estimated wage growth of 4.9 per cent in the benchmark system. Special allowances and other thresholds in personal taxation have primarily been adjusted by an estimated consumer price increase from 2023 to 2024 of 3.8 percent. A taxpayer who only has ordinary allowances and growth in both ordinary income and personal income of 4.9 per cent will on average pay approximately the same amount of income tax in the benchmark system for 2024 as in 2023. In the benchmark system, all per unit taxes (for instance taxes per kg or per litre) have been adjusted by the projected growth in consumer prices from 2023 to 2024. In real terms, the benchmark system thus results in unchanged tax levels from 2023 to 2024.

Table 1.2 presents estimated booked tax revenues for 2024, as well as estimates for 2023 and accounting figures for 2022, specified by chapter and item.

Table 1.3 presents booked effects of proposed new rule changes in 2024, specified by chapter and item.

1.4 Social and geographical profile of the tax programme

1.4.1 Social distributional effects

The tax policy of the Government is characterised by social and geographical redistribution. This profile is maintained in the 2024 budget, with the Government proposing moderate modifications with redistributional effect.

The income tax reduction directly entailed by the changes included in the estimates is approximately NOK 425 million accrued. To measure the impact of the proposals on different groups, these proposals are compared with the 2023 rules applied to 2024 (the benchmark system). The estimates include changes in rates, allowances and thresholds under personal income taxation. The short-term distributional effects of the Government’s tax proposals for 2024 are presented in Table 1.4.

It is estimated that around 85 per cent of taxpayers will pay less or about the same amount of income tax.

The most important income tax change for which it has not been possible to calculate distributional effects in the Statistics Norway tax model is the proposal to increase allowances for accommodation in workers’ sheds/guest houses and for long-distance lorry drivers. Nor has it been possible to take into account changes in the estimated market value of commercial property as the result of a higher discount rate outside the major cities. Wealth is unevenly distributed, and changes in estimated market values will have the greatest impact on those holding the most wealth. In the Hurdal platform, it is stated that the government will keep the overall level of taxes and levies for people's incomes unchanged. It is then assumed that dividend tax and wealth tax are excluded. In 2024, the relief for households according to this definition adds up to NOK -0.9 billion, see table 1.5.

1.4.2 Geographical distributional effects

The geographical distributional effects of the proposed tax changes are moderate, but the increased Finnmark allowance and more accurately calculated market value of commercial properties in rural areas, as well as changes to the special allowance for seafarers, will serve to reduce tax in rural areas. The increase in bracket 3 of the bracket tax in the action zone will, in itself, result in somewhat higher tax in the action zone.

Table 1.6 presents the estimated average tax change from the Government’s proposed income tax changes for people in six centrality zones. Zone 1 is the most central and includes Oslo and some neighbouring municipalities, while zone 6 is the least central. Taxpayers in zones 3 to 6 will on average pay less income tax, while taxpayers in zones 1 and 2 will pay about the same amount of tax as before.

1.5 Tax rates and thresholds

Table 1.7 presents key tax rates, allowances and thresholds in 2023 and the Government’s proposal for 2024. After adjustment for projected growth in wages, pensions or prices, etc., from 2023 to 2024, the general allowances and thresholds have been rounded off. The upward adjustment may therefore deviate somewhat from the level indicated by the various growth projections. Wage growth is estimated at 4.9 per cent, consumer price inflation at 3.8 per cent and pension growth at 4.8 per cent. Reference is also made to the proposed tax decisions in this proposition and to the overview of allowances and thresholds on the Ministry’s website.

Table 1.8 presents the current rates for value added tax and excise duties, as well as the proposed rates for 2024. All excise duties have generally been adjusted upwards by 3.8 per cent to take into account anticipated inflation. Minor deviations may be due to rounding of the rates. Reference is also made to the decision on indirect taxes proposed in this proposition.

1.6 Distribution of public tax revenues

Table 1.9 provides a general overview of the main groups of taxes and the parts of the public sector that receive revenues from each main group. Total tax revenues are estimated at NOK 2,105 billion in 2023. Of this amount, just over 87 per cent will accrue to central government, just over 11 per cent to local government and just over 2 per cent to regional government.

Most local and regional government tax revenues are in the form of income tax and wealth tax paid by personal taxpayers. Just over 27 per cent of central government tax revenues are in the form of value added tax, excise duties and customs duties. Just over 24 per cent of central government tax revenues are paid by personal taxpayers, while just under 22 per cent are paid by non-personal taxpayers outside the petroleum sector, including employer’s National Insurance contributions in mainland Norway. 24 per cent of central government tax revenues in 2023 will take the form of taxes on petroleum. Taxes from the petroleum sector are included in central government’s net cash flow from petroleum activities, which is transferred to the Government Pension Fund Global.