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Your children and grandchildren will pay for government consumption today.
These are very serious times for the Norwegian economy, and now Finance Minister Jan Tore Sanner is shouting both short-term and long-term warnings:
- Income plummets
- Expenses are increasing
- In practice, the Oil Fund has already “depleted”
- Municipal spending will increase
- Fewer and fewer employed people will finance more and more outside jobs
- Jobs that are now gone are in danger of never coming back
- Even without crown measures, government spending is too high
- Your children and grandchildren must pay the bill for today’s binge drinking
- The public sector dominates the economy in total: 2 out of 3 crowns are now public money
This is something that emerges from the Finance Minister’s description of economic policy in Norway.
Your children and grandchildren must take the bill
Norway must spend an incredible NOK 433.2 billion from the Oil Fund this year and NOK 371 billion next year.
– The pandemic has made it necessary to spend more money on the state budget, but at the same time it has intensified the challenges with increased spending and weakened the revenue base in the state budget going forward, writes Jan Tore Sanner.
The government has increased public spending this year by more than 10 percent, at the same time that revenues from the oil sector in particular have plummeted.
– The structural budgetthe deficit is estimated at increase with more than NOK 150 billion compared to the planned budget, writes the Minister of Finance in the National Budget.
That’s three times more than after the financial crisis.
– Although we have a large financial cushion in the pension fund, it is not free to finance financial measures. Today’s larger budget deficits weaken the long-term sustainability of public finances. Future generations will indirectly pay for today’s public consumption through higher taxes or lower public consumption than otherwise, Sanner writes.
Also read: Social security bomb with Erna Solberg at the helm
You must spend less money on oil: expenses increase
He warns that the use of oil money must decrease.
– When we look ahead, the annual increase in the use of funds will have to be less than before. The fund will not continue to grow as fast as it has so far, and over the next two decades, the fund’s performance, measured as part of value creation, will likely start to decline.
– At the same time, demographic trends [aldring av befolkningen, journ.anm], with fewer people in employment behind each pensioner, providing higher spending growth and lower income growth for the state, Sanner cautions.
This clearly means that fewer people have the responsibility to provide for more and more people.
Although today there are around 5 working people who support each pensioner, there will be around 240 working 2.5 per pensioner, and only 2 per pensioner in 2100.
Municipalities will also suffer a cost hit as a result of more and more older people:
Looking ahead, the room for maneuver in public finances will become increasingly narrow, at the same time that there will be more older people in need of municipal services.
Extremely high pension costs: devour the oil fund
In the state budget for next year, Jan Tore Sanner plans to spend almost NOK 60,000 from the oil fund. for each and every one of the inhabitants – from around 40,000 crowns before the corona pandemic.
The challenge for Sanner is that this is not the way to go.
The Petroleum Fund is estimated to be worth around 10.3 billion crowns by the new year, a somewhat artificially high figure due to the very weak exchange rate of the crown.
Also read: The value of the oil fund to the sky, even if the stock markets fall. Why?
At the same time, the Government announces that the National Insurance obligations for old-age pensions alone next year will be NOK 9.201 billion. In addition to this, the Government Pension Fund has liabilities of between NOK 900 and 1 billion.
- Oil fund: 10.3 trillion
- Pension obligations, national insurance: 9,201 billion
- Pension obligations, SPK: 900-1000 billion
Government spending has skyrocketed in the past two years, while revenue has plummeted. At the same time, the Petroleum Fund has been eaten up by pension obligations.
The room for maneuver was reduced by 75 percent.
Sanner has tried to project how much leeway the state will actually have in the future.
– Annual use of oil money may increase by an average of NOK 3-6 billion over the next ten year period. In good years, use of funds should increase Less than this so there is room to spend more during economic downturns. By comparison, the use of oil revenue increased by an average of nearly NOK 12 billion annually from the rule of action was introduced in 2001 through 2019, Sanner writes.
The precondition is that climate policy does not lead to a faster drop in production and prices than the government now believes.
The state is not sure how much money they will actually make on oil and gas in the future.
Photo: Carina Johansen (NTB)
– Estimates of future oil revenues are uncertain. They depend on price, production and cost assumptions in the oil business. In the long term, there is uncertainty about how climate policy may affect Norwegian oil and gas prices and oil activities.
These revenues have a huge impact on the Norwegian economy: since May alone, “total wealth in the oil business” has degraded by NOK 100 billion.
The government has adjusted up the amount of oil and gas Norway will produce in the future, compared to estimates in previous Perspective reports.
Fears that unemployment will become permanent
Jan Tore Sanner also describes that there is a real concern that rising unemployment could become permanent. At the end of March, the registered unemployment rate was the highest in the postwar period.
– Unemployment remains high, although it has fallen since the beginning of April. When many are unemployed for a long time, the risk of unemployment getting stuck at a high level increases, Sanner writes.
– It is important to prevent unemployment from getting stuck at a high level. Although the majority of people who have now been laid off as a result of infection control measures are likely to return to work in the near future, a long-term decline in international demand may contribute to more layoffs. It is challenging for the affected individual and will result in both a decrease in tax revenue and an increase in spending on unemployment benefits. In that case, the deficit in the state budget could increase.
The state totally dominates the economy in Norway
The Finance Ministry also expresses concern about the slowdown in economic growth, at the same time that public consumption has skyrocketed.
– Total public spending in Norway is estimated to be 66% of GDP. The increases are due to both increased public spending and decreased value creation in the continental economy, Sanner writes in his report.
Since the state cannot make money by taxing itself, the decline in private business means that the basis for financing public consumption is reduced.
In 2020, it is historically bad because of the crown, but Norway is generally in a bad position in this area.
Even before the crown crisis, the public sector in Norway was at a very high level compared to other countries.
– The increase in spending in 2020 comes after a decade of sustained growth in the share of spending. In countries we can compare ourselves to, including Denmark and Sweden, which also have a large public sector, public spending as a percentage of GDP has declined over the last decade, Sanner writes.
– About a third of Norway’s workforce is employed in the public sector. This is high in the OECD context, even when taking into account that Norway uses private providers for public services to a lesser extent than other countries.
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