The 5 percent adjustment, which was mainly due to higher-than-expected tax revenues, means that the 2008 budget is slightly less expansive than before, the ministry said in a statement.
The government is allowed to plug non-oil deficits by spending up to 4 percent annually of a $300 billion fund that saves oil wealth for future generations. The percentage is the assumed normal annual return on the fund.
Oil and gas exporter Norway runs big budget surpluses when petroleum cash is included, but deficits when that money is excluded.
'Lower use of oil revenues for 2008 means simultaneously that that the 2009 budget is correspondingly more expansive,' the ministry said.
Plunging oil prices to US $54.43 a barrel today from its recent high at US $147 may not affect to Norway economic stability because the country well anticipates to any oil prices shock.
Here is a part of Daniel Gross’s Article in 2004, that analyzes about relationship between Curse of Oil and Norway’s obstacle stability, via Slate.com:
Political scientists like to talk about the "curse of oil" over the past several decades, we've seen the sorry economic state of affairs that ensues when tribal kingdoms, authoritarian regimes, kleptocracies, and left-wing dictatorships get their hands on national oil revenues. Easy oil cash entrenches corrupt establishments, discourages sound long-term economic planning, and is almost never channeled in ways that promote development.
But the huge balances mean Norway can happily continue to be heavily socialist without confronting the problems that its Euro-neighbors to the south face—unemployment, high inflation, and huge national debts. Yes, fiscal budget expenditures were a whopping 38.3 percent of gross domestic product in Norway last year. But the country still runs a budget surplus. Last year, per-capita GDP was a healthy $51,755, and both unemployment and inflation are low.
In Norway, the sudden increase in oil prices has meant larger inflows to the fund and enhanced long-term welfare for its citizens. That's not how it goes down in other big oil producing countries. In Russia, the oil boom has enriched oligarchs and increased foreign currency reserves. But the quality of life in Russia continues to deteriorate. Saudi Arabia has been pumping far more oil than Norway and for a far longer time. But its oil revenues tend to flow into the bank accounts of the royal family—not into a segregated account to benefit the public at large. As a result, the richest oil nation on earth still resembles a garden-variety poor country: a 25 percent unemployment rate, tremendous inequality of wealth and assets, a massive public debt, and an undiversified economy dependent on commodity exports.
The Norwegian economy remains heavily dependent on oil (though much less than the Saudi economy): Petroleum industries account for about 17 percent of Norwegian GDP and a hefty 45 percent of exports. But the rapid growth of the fund means Norway won't suffer massively if the oil market suddenly tanks or if production begins to dwindle. (In 30 years, Norway has pumped about 29 percent of its total reserves.) In a land of high taxes, the fund functions as a substitute for national savings. When the government runs deficits, it's allowed to transfer cash out of the funds. Unlike many other oil-dependent economies—like Russia and Saudi Arabia—Norway won't have to alter spending habits dramatically if revenues suddenly decline.
Of course, Iraq isn't directly analogous to Norway—any more than it is directly analogous to Alaska. And I'm sure most Iraqis would rather have a dividend check than see their oil wealth pile up in a vast investment pool. But Iraq has endured enough internal and external shocks in the past few decades. Maybe the shattered nation needs a fiscal shock absorber more than a gift certificate.
Prime Minister Jens Stoltenberg was speaking recently in Oslo about lower oil prices, development aid and, of course, taxes. Via IHT:
How worried are you by the global slowdown?
We are going to be affected because Norway has a small, open economy and half of our GDP is exported. When economies we trade with are slowing down, it directly affects us. We are in a better position to meet the economic downturn because we have a surplus in the state budget and the trade balance. That gives us the strength to meet the recession the world is facing.
Additionally, our banks are affected by the financial crisis. We have a banking system that is quite sound. It has not suffered significant losses. The problem with our banking sector is therefore not solidity but liquidity. We have presented a package to Parliament to restore liquidity in the banking system.
Oil and gas exports were about 20 percent of GDP in 2007. With Norway's high dependence on oil, are you concerned about the price fall from a peak of $147 per barrel in July to $51 recently?
When I was minister of finance and minister of energy, I used to look at the oil price daily. But life is short, and the experts are more often wrong than right.
Norwegian businesspeople who have moved abroad say the high taxes at home discourage entrepreneurship. How do you respond?
I disagree with the picture that this is a high-tax country. We have reduced corporate taxes to 28 percent. The average personal tax rate is less than 30 percent and the marginal tax rate at over $100,000 is around 50 percent. We have a well-developed welfare state. Health and education are free.
There is one year of paternity leave financed by taxes, which is one of the reasons we have a high female participation in the work force. We are spending the money on things that are important.
People who leave Norway for tax reasons are not a big problem. It does not bother me at all.
You've been using green taxes for longer than many other countries. What are the lessons?
In the 1990s, taxes were shifted from labor to pollution. They have been a great success. I believe the solution to climate change is to put a price on carbon, to make market forces work for a greener environment.
You have been surprisingly outspoken about immigration and have put through 13 new measures to deal with it. How do you square this with Norway's reputation for openness?
We have quite a high number of asylum seekers relative to our population. We are eager to defend the idea of asylum and to integrate those that fulfill the criteria. But although we maintain the principle of collective protection in emergency situations, we will move away from generalized country assessments. Each individual who applies for asylum will be give an individual assessment.
But we are also increasing our development aid. It is 0.98 percent of GDP, the highest in the world. Our aim is to reach 1 percent. The official UN Millennium Development Goal is 0.7 percent of GDP.
In a speech a few months ago, you said the need for strong trans-Atlantic security was greater than ever and that NATO's door was open to Georgia and Ukraine joining. Is this part of a new Cold War with Russia?
We are not in a new Cold War with Russia, but we are facing some serious challenges. We have a good bilateral relationship with Russia, also cooperating in managing fisheries, oil and gas and the environment, but negotiating from a position of security from our platform within NATO. We are a peaceful nation but the support for NATO is strong.
Sources :
- The Norway Post: Finance Minister presents National Budget for 2009, November 29, 2008
- Slate.com: Avoiding the oil curse, October 29, 2004
- The International Herald Tribune: Oil, taxes and development, November 28, 2008
- Hemscott: Norway cuts 2008 non-oil deficit estimate by 5 pct, November 28, 2008
- Maps of World Finance: Norway Budget
- Yahoo Finance: Norway cuts 2008 non-oil deficit estimate by 5 pct, November 28, 01:36 PM
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