Norway had a parliamentary election on September 13th, where the conservative-led government of Prime Minister Erna Solberg, backed by the Progress Party, lost its parliamentary majority. One of the last things her cabinet did before leaving office, was to submit its proposal for the 2022 state budget on October 12th. Now, a new center-left government led by the Labor Party, dependent on the left-wing Socialist Left Party, is due to take office.
The proposed budget from the departing conservative-led government will be changed twice before it will be approved by a majority in parliament. First, the new Labor-led government will submit a proposition with proposed changes to the conservative budget proposal. Secondly, they will enter negotiations with the Socialist Left Party, where the likely result is a budget agreement with additional changes that then has the support of a majority in parliament. The Socialist Left Party will mainly prioritize equality and emission cuts in the upcoming negotiations.
Municipalities and counties have their own budgets, separate from the state budget.
The political platform of the new Labor-led government was announced and made public on October 13th, and this platform gives us several clues on where we can expect the new government to make changes in the state budget in their upcoming proposition with changes to the conservative budget proposal.
The economic figures from the proposed national budget highlight that Norway has a very strong economy, and that it will be difficult for a new government to increase spending from the sovereign wealth fund without overheating the economy. Some experts will argue that the budget is tight, but the oil fund spending in the conservative budget proposal is actually above pre-covid levels. The unemployment is expected to be only 2,4 percent in 2022, and GDP-growth is estimated to be 3,9 percent in 2021 and 3,8 percent in 2022. GDP fell by 2,5 percent in the covid-year of 2020. The conservative-led government is therefore looking to phase out extraordinary covid-measures and reduce the use of oil money to 2,6 percent of the oil fund, well below the action rule. Here is a summary of some of the most important macro numbers1:
|Mainland Norway gross domestic product||-2,5||3,9||3,8|
|Unemployment rate, registered (level)||5||3,2||2,4|
|Structural non-oil fiscal deficit, 2022 NOK billion||385,8||406,8||322,4|
|Transfer from the GPFG3||3,6||3,6||2,6|
1 Percentage volume change from previous year, unless otherwise stated.
2 Structural non-oil fiscal deficit as a percentage of mainland Norway trend GDP. Change from previous year in percentage points.
3 Structural non-oil fiscal deficit as a percentage of the capital in the Government Pension Fund Global (GPFG) at the beginning of the year (2022 estimates).
There are two main themes behind the proposed changes in taxation. One is to increase economic value creation, and the other is to curb the emission of greenhouse gasses. The net tax relief in the proposed budget is only 576 million NOK on an annual basis, with a cost of 193 million NOK in the budget for 2022. This is quite low compared to some prior conservative budgets. Here are the key proposed changes of the departing government:
They propose a drastic increase in carbon-tax on the non-quota sector, where the price per metric ton of CO₂ will increase by 28 percent from 2021 to 2022. This means, for instance, that the carbon tax on mineral oil will increase from 593 to 770 NOK per metric ton of CO₂ emissions. This is part of an escalation plan where the rate will be increased to 2,000 NOK per metric ton in 2030, and the increase from 2021 to 2022 provides a 2 billion NOK in revenue on a full-year basis. The new political platform shows that the Labor-led government supports the increase in carbon-tax to 2,000 NOK by 2030, but is open to change the timeline of the escalation, and to partly relieve businesses through direct compensation or lowered fees.
They propose increased incentives to get people to participate in the labor market through a new tax deduction of 23,500 NOK for young people under 30 years, and reduced tax on low incomes. The combined annual cost of these two proposed changes is 4 billion NOK.
Norway is among a very small group of countries with a wealth tax on net wealth. The conservative-led government proposes to increase the discount on valuation of shares from 45 to 50 percent, and to increase the bottom wealth threshold from 1,5 million to 1,6 million NOK. The tax value of houses, cabins, and permits for aquaculture is increased, so that the net tax relief in the wealth tax is just above 500 million NOK. The new Labor-led government will not support reduced wealth tax, and states in its new political platform that it will increase wealth taxation.
They propose to introduce a new tax on onshore wind farms with a rate of 0,01 NOK per kilowatt-hour from 2023, and the ministry is looking into how municipalities with wind farms can benefit from the revenue. This kind of taxation is in line with the political platform of the new Labor-led government.
They propose to increase car taxation to make sure that Norway reaches its target of all new cars sold by 2025 being zero-emission. The largest increase in the budget proposal is on the one-off registration tax, with 1,2 billion NOK in increased taxation. Most of this burden is put on plug-in hybrid electric vehicles by decreasing the discount in the one-off tax.
They propose to reduce the tax on electricity by 0,015 NOK per kilowatt-hour, and this brings a 1,1 billion NOK decrease in revenue on a full-year basis.
The air passenger tax was temporarily abolished because of the covid-19 pandemic but is now reintroduced with a revenue of 1,75 billion NOK. The new Labor-led cabinet wants to change the air passenger tax, but they don’t have a completely alternative model yet.
They propose a 5 percent increase in tobacco product tax. This comes after the budget agreement for the 2021-budget that contained a 25 percent reduction in the tobacco product tax on snus with nicotine. The upcoming Labor-led government will according to their political platform have a restrictive tobacco policy, and it is unlikely that they will not support the proposed increase.
There is a fierce competition amongst small European countries on corporate tax rate, even between Norway, Sweden, Denmark, and Finland that are trying to attract the same companies. The Norwegian conservative-led government has therefore since 2013 reduced the corporate tax rate from 28 percent in 22 percent to stay competitive and is highly supportive of the new OECD/G20-framework for international tax reform and a global minimum corporate tax rate. The new political platform from the Labor-led government says that it wants to intensify the efforts on fair taxation of multinational companies, including taxation of the digital and platform economies.
Defense and Security
The outgoing government increases defense spending in their budget proposal for 2022. Unfavorable exchange rates between the Norwegian krone and the most relevant foreign currencies, such as the dollar, have resulted in significant additional expenditures throughout 2021. This led to significant delays in some projects as well as an increase in costs, some of which are compensated for in this year’s defense budget.
- Defense spending increases by 4,3 billion NOK when compared to 2021, largely driven by investments in, and upgrades of, various materiel.
- In 2022, defense expenditure as a share of GDP is estimated to about 1,9 percent.
- The government allocates 2,2 billion NOK to strengthen capabilities, in line with the priorities set forth in Long-Term Plan (LTP) for the Norwegian Armed Forces.
- 20 billion NOK will be invested in defense materiel throughout the year.
- Starting in 2022, the F-35 fighters will be the only fighter planes in active use by the Norwegian military. The budget allocates 7,4 billion NOK to this procurement in 2022.
- The government is discontinuing the current Leopard A24 tanks. A supplier for new MBTs will be chosen by the end of 2022, and the projected cost of the acquisition is 17 billion NOK.
- 243 million NOK are set aside for a new helicopter base in Tromsø for the Norwegian Search and Rescue-services.
The new government will be bound by the same Long-Term Plan for the Norwegian Armed Forces as the previous one was, including the planned investments in submarines, fighter jets, MBTs, etc. At the same time, the Labor-led government will prepare the groundwork for the next Long-Term Plan, due to be adopted in 2024. Additionally, the new government seeks to increase the use of procurements in the defense sector to further strengthen Norwegian industry and focus on acquiring off-the-shelf materiel.
Seeking to continue its efforts to reduce emissions and promote, among others, hydrogen as an energy solution, the government proposes to continue investing in renewable energy.
100 million NOK to be invested in hydrogen as an energy carrier, mainly towards infrastructure and commercial use, as a continuation of an identical sum from 2021.
Offshore Wind Farms: The government is looking to let interested companies apply for licenses to develop bottom-fixed offshore wind farms in the regions Utsira Nord and Sørlig Nordsjø II. These can be built without government subsidies if they can be connected to the UK/European grid, in addition to the Norwegian grid.
240 million NOK over up to eight years to finance a new research center on renewable energy (so-called FME) specifically focused on hydrogen and ammonia.
Norwegian petroleum policy in general remains unchanged in the new political platform from the Labor-led government, provided the new government avoids any significant concessions to the Socialist Left Party in parliament. When it comes to hydrogen, the government will consider establishing a separate, state-owned enterprise, to achieve a goal of a complete value chain with a consistent yearly production of blue and green hydrogen by 2030. Furthermore, the government wishes to create an overall plan for energy construction that requires licenses, such as wind power. Apart from this, the Labor-led government hopes to intensify the work on offshore wind farms through a new national strategy.
Sustainable development, Carbon Capture and Storage, and Investment
Continuing to provide capital for green initiatives and investments, the government also proposes to further prioritize a full value chain for Carbon Capture and Storage (CCS).
- The “Langskip” CCS project, mainly concerning CO₂ capture at the Norcem cement factory in Brevik, increases its financing by 1,2 billion NOK from last year. The total investment in 2022 is now 3,45 billion NOK, within the total projected cost of 17 billion NOK for the project towards 2030.
- In line with prior statements, the government is also prepared to contribute to CCS at the waste management facility of Fortum as part of Langskip. This is dependent on sufficient self-financing and financing by the EU (or others). If this is the case, the government could provide up to 3 billion NOK in 2022.
- 528 million NOK to The Green Platform Initiative, which provides funding for enterprises and research institutes engaged in green growth and restructuring, driven by research and innovation. An increase of 200 million NOK from 2021.
- 900 million NOK in fresh capital for Nysnø, the government’s climate investment company. After this capital injection, Nysnø’s total assets will amount to 3,3 billion NOK.
- 192 million NOK to finance a partial membership in InvestEU, providing access to European capital investments.
The new political platform from the Labor-led government strengthens the previous government’s work on CCS, as well as hydrogen and battery industries. Prime minister Støre wants to propose a national strategy for the preparation of areas designed for new industrial initiatives. Long-term capital investments will be made available to such initiatives. For the battery industry, the government will seek to secure internationally competitive operating parameters for building large-scale production in Norway.
As covid-19 recedes, the need for extraordinary spending in the healthcare budget does too.
- 225 million NOK to implement the adopted changes to the Law on Biotechnology, introduced by parliament in 2020. This mostly concerns early ultrasound and the changed age limit for prenatal testing, including non-invasive prenatal testing (NIPT) paid for by the state. It is meant to cover the costs of establishing these examinations as well as costs related to assisted reproductive technology and egg donation.
- The government still plans to use 3,2 billion NOK in the 2022 budget on vaccines and vaccination programs for covid-19.
Budget process – milestones
October 12th: Ministry of Finance submits its proposal for State Budget to Parliament.
October 13th: New government platform for the new Labor-led government made public.
October 14th: New cabinet enters government.
Tentatively October 25th -26th: Hearings on the State Budget in the Finance Committee.
October – November: Opposition parties publish their own alternative state budgets.
Tentatively November 10th: The new Labor-led government submits a proposition with proposed changes to the conservative budget proposal.
Tentatively November 15th: New hearing in the Finance Committee on the additional proposition with changes from the Labor-led government. Most likely written submissions only.
Tentatively November 29th: Deadline for the Finance Committee to decide on spending limits
Tentatively December 3rd: Finance debate in Parliament
Tentatively December 15th: Deadline for budget appropriations and final decision in Parliament
What can you do?
With an ingoing Labor-led minority government scrambling to make the conservative budget their own, there is considerable room to influence the final budget agreement. If your business or organization is impacted by the State Budget, some possible initiatives are:
- Map out key decision-makers: Which Committee is responsible, and who are the MPs serving on that committee? How can you relate to their interests and political objectives?
- Build an alliance: Find out which interest groups agrees/disagrees with you and define your message accordingly. Is there a localized impact? Can you get the attention from the politicians by creating media attention?
- Get in touch: Norway is a small and open country. You can get in touch with decision-makers, arrange a meeting or submit proposals in writing. Keep it short and simple. Explain the issue and provide a solution.
- No time to wait: The State Budget process is fast paced and often unpredictable. The one primary interest for your business is just a minor part of the puzzle to politicians. To wield influence, you need to keep up with the timeline.
- Socialist Left Party: The Socialist Left Party is a key player in the 2022 national budget. Whatever budget changes the new Labor-led government proposes must be agreed upon in negotiation with the Socialist Left Party. Anyone who seeks to influence the budget should take their views into consideration.