«The Miser» Solberg warns Government colleagues
When the economy is going well, the Government must hold back. This means tight budget discipline, even for the election year, states Norwegian Prime Minister Erna Solberg (Conservatives).
On Wednesday and Thursday, she will gather her college to a decisive budget conference at the Prime Minister’s office. Hopeful Cabinet Ministers with long lists full of good intentions receive the following message when they arrive:
– The Norwegian economy cannot tolerate an expansive budget at the moment. We have had expansive budgets when there has been little growth in the private sector, but now there is a large growth in that sector. Then we need to have less growth in public budgets, says Solberg to NTB.
She expects fights between different ministries for means but believes the Conservatives (Høyre), Progress Party (Frp) and the Liberals (Venstre) agree on the main goal.
– We have a common perspective on keeping profitable jobs and developing the Norwegian economy from the bottom up. This means that understanding that now is not the time to spend so much money in the budgets, is present.
End to large tax cuts
Sources close to the budget process indicate that the time for the large tax cuts is over, both year by year and in the parliamentary term as such. Since 2013, the Government has abolished the inheritance tax, reduced the tax on wealth, removed the machine tax and reduced both the income tax and the corporate tax.
Solberg finds that the biggest threats to the Norwegian economy now come from abroad in terms of unstable conditions internationally and trade wars. At the same time, the situation may change suddenly, as when oil prices suddenly plummeted in the autumn of 2014 and brought the Norwegian economy down.
But the decline has long since been reversed, and Bank of Norway has announced interest rate hikes in September.
– In the interests of the competitive sector, we must ensure that we do not raise the currency exchange rate through our budget policy, thus making more businesses unprofitable, says Solberg.
– When we approach a situation with pressure in the labour market and struggle for finding labourers, the public should not oust private companies.
However, some Cabinet Ministers may enter 2019 with a smile on their face, as the Government has committed to spending a lot of money on defence, transport and health. In addition, the Government has announced a large-scale incentive to provide more persons who are currently unemployed, with a job.
And with the budget deadline approaching, the Government receives a welcome message from Statistics Norway: During the past year, the number of employed has increased by 54,000. This means an increase in the employment rate from 66.5 to 67.5 per cent.
– The more people we provide with jobs, the easier it is to finance future welfare, says Solberg.
Forecasts neutral budget
DNB Markets estimates in its economic outlook that oil fund spending will increase to NOK 235 billion next year. If the oil fund grows in line with expectations, it will indicate an oil fund revenue spending of 2.7 per cent – well below the 3 per cent rule.
The economic backdrop is that unemployment is still dropping slowly, a somewhat stronger currency, still low – albeit slightly increasing – interest rates and low inflation. According to DNB Markets, this scenario points to a neutral fiscal policy in the near future.
– All in all, we expect a neutral budget from the Government, but it is more likely that the budget becomes expansive than the opposite, writes DNB Markets.
The Norwegian Government’s proposal for next year’s state budget will be presented on Monday, 8th October.
© NTB scanpix / #Norway Today