Norway introduces expansionary budget to boost employment

The Norwegian government on Wednesday introduced an expansionary revised budget to boost employment and growth, principally in oil-dependent southern and western regions.

"Lower demand from the petroleum sector has dampened growth and increased unemployment in Norway's southern and western regions," Minister of Finance Siv Jensen was quoted as saying in a press release while presenting the Revised National Budget for 2016.

"The government proposes new targeted policies to boost employment in the most affected regions," Jensen said. "A key priority for the government in the current situation is to support growth and employment in sectors exposed to international competition."

"Tax reform with lower taxes and increased spending on education and infrastructure, is essential in this respect," she added.

The budget for 2016 is among the most expansionary since the fiscal guidelines were introduced in 2001, and includes measures to support employment and activity in particularly affected regions, according to the press release.

The Norwegian government is estimated to collect 1,174.9 billion kroner (141.0 billion U.S. dollars) in total revenues and spend a total of 1,259.1 billion kroner in its 2016 budget, resulting in a deficit of 84.2 billion kroner.

The non-oil fiscal budget deficit is estimated to be 215.9 billion kroner, which is covered by a transfer from Norway's sovereign wealth fund, known as the Government Pension Fund Global. Net cash flow from petroleum activities is estimated at 131.7 billion kroner.

The Norwegian policy framework shields the fiscal budget from fluctuations in oil and gas revenues. The state's net cash flow from petroleum is transferred in full to the Government Pension Fund Global. The use of petroleum revenues, i.e. the withdrawal from the Fund, fully covers the non-oil budget deficit.

The fiscal guidelines stipulate a gradual and sustainable use of petroleum revenues over time in line with the expected real return on the Government Pension Fund Global, estimated at 4 percent. A decline in the price of oil therefore has no immediate impact on the fiscal stance, but translates into reduced fiscal space over time.

Spending of petroleum revenues, as measured by the structural non-oil budget deficit, is estimated to be 205.6 billion kroner in 2016. This corresponds to 2.8 percent of the value of the Government Pension Fund Global.

Given the strong growth of the Government Pension Fund Global over the past three years, of which about one half is due to a weaker Norwegian krone, spending of petroleum revenues is held well below 4 percent of the capital in the Fund, according to the press release. (1 Norwegian kroner=0.12 U.S. dollar) Enditem