Budgeting in Norway Working party of Senior Budget Officials, OECD Morten Baltzersen June 2006

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Budgeting in Norway Working party of Senior
Budget Officials, OECD Morten Baltzersen June
2006
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Norway has a strong economy
GDP per capita. 2003adjusted for purchasing
power. USD
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GDP
GDP growth in Norway

• Average growth in GDP 1995-2005
• 3,3 US
• 2,0 Euro-area
• Average growth in GDP 1995-2005 in Norway
• 2,8 GDP
• 3,1 mainland GDP

GDP
Mainland GDP
Mainland average
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Strong growth in labour productivity
Labour productivity of the total economy, year
2000 equals 100

• Average growth in labour productivity 1994-2004
• Norway 1,8
• US 2,0
• Euro-area 0,9

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High labour market participation rate
Labour participation rate

• Labour market participation rate for population
  between 15-64 years in 2004
• Norway 79,2
• US 75,4
• OECD 70,1
• Euro-area 71,4

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..and low unemployment
Unemployment rate

• Unemployment rates in 2005
• Norway 4,6
• US 5,1
• OECD 6,5
• Euro-area 8,7

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High financial investments
General governments net lending, pct. of GDP

• General governments net lending as share of GDP
  in 2005
• Norway 15,9
• US -3,7
• OECD -3,2
• Euro-area -2,9

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Negative net financial liabilities

• General governments net financial liabilities
  share of GDP in 2005
• Norway -89,3
• USA 45,7
• OECD 46,5
• Euro-area 57,2
• The Government Pension Fund Global
• 250 bill. US (01.01.06)
• 81,7 of net financial wealth

General governments net financial liabilities,
pct. of GDP
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Public sector
Governments expenditures, pct. of GDP

• Governments expenditures share of GDP in 2005
• Norway 39,9
• Industrial
• countries 40,9
• EU-15 47,3

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Future pensions
Pension expenses under the National Insurance
Scheme and net oil and gas revenues, as share of
mainland GDP

• Effective retirement age has decreased.
• Share of elderly is growing.
• Expenditure on pensions will increase
  substantially.
• The petroleum revenues do not cover future
  pension liabilities.

Pensions
Net oil and gas revenues
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Fiscal policy rule

• Petroleum income should be phased into the
  economy on par with the development in expected
  return on the Petroleum fund (Government Pension
  Fund - Global)
• Considerably emphasis must be put on stabilising
  the economy
• In practice
• Over time, the structural, non-oil budget deficit
  shall correspond to the real return on the
  Government Petroleum Fund, estimated at 4 per
  cent.
• Calculation of expected real return is based on
  the value of the Fund at the beginning of the
  year. This way we avoid uncertainty about oil
  prices during the year, but fluctuations in
  exchange rates and the stock market can influence
  the real return and value of the fund
  considerably.
• This underpins why the rule should not be used
  mechanically, and considerable emphasis should be
  placed on stabilising economic fluctuations.

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Medium-term budgetary framework

• The fiscal rule anchors fiscal policy in the
  medium and long term
• Frame for total spending of oil revenues.
• Comparable to multi annual aggregated spending
  ceilings by limiting non-oil budget deficits.
• Multi annual appropriations
• Would reduce the fiscal flexibility by
  protecting expenditure programs from budget
  cuts.
• Multi year appropriations would easily form a
  floor in the future budget negotiations rather
  than a ceiling.
• Remedy to avoid cost overruns
• Better planning and estimates.
• Consistent policy priorities.
• Thorough quality check of the total cost frame on
  large investment projects.

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Pressure to increase mandatory spending programs

• About 50 of total expenditure on mandatory
  spending programs.
• Pressure for more mandatory spending programs
  through
• Earmarked activity based grants to local
  governments.
• Vouchers in health care and other state level
  provided services.
• Performance based budgeting for state agencies.

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Off budget spending

• Pressure to circumvent budget constraints by off
  budget financing
• Earmarking oil revenus for off budget spending.
• Earmarked off budget funds.
• Cash budgeting under pressure
• Loan financing (under the line) of investments
• Public-private partnerships
• Government enterprises for public services with
  borrowing facilities.

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Local government (municipalities and counties)

• Important provider of welfare services
• Primary education, secondary education, health
  care, care of elderly, kindergarten and social
  security.
• Local production gives room for local priorities
  and adjustments within fixed budgets.
• Minimum national standards in important areas as
  education.
• Growing pressure for centralization e.g. the
  health sector.
• Important principles for financing local
  government
• An overall governmental financing consisting of
  taxes and transfers (block grants and some
  earmarked grants).
• Grants based on income equalization due to large
  regional differences in tax base and costs.
• Local tax autonomy would undermine this system.