Norway: The government announces 2019 budget, although parliamentary approval is by no means guaranteed
October 19, 2018
On 8 October, the minority coalition government laid out its 2019 budget. Expenditure is set to rise by 4.1% and revenue is expected to increase 6.2%. This would have a positive effect on the already-large fiscal surplus, which, according to the government’s figures, would rise from a projected 7.5% of GDP this year to 7.6% next year. There will also be some minor tweaks to the tax system, including reducing the basic rate of income tax and corporate tax from 23% to 22%. Moreover, the government intends to make a net transfer into the country’s sovereign wealth fund for the second year running. However, due to shifting political alliances, parliamentary approval of the budget is not certain.
Some of the government’s key economic assumptions appear slightly optimistic compared to FocusEconomics panelists’ forecasts. The budget forecasts total and mainland GDP growth of 2.3% and 2.7% next year, respectively, whereas FocusEconomics panelists expect both indicators to show a more moderate 2.1% growth. Crucially, the government expects the oil price in NOK-per-barrel terms to average slightly higher next year compared to 2018.
The support of the Christian Democrats will be crucial in pushing the 2019 fiscal budget through parliament. This small but decisive party has supported the minority coalition government—made up of the Conservative Party, the Progress Party and, since the start of this year, the Liberal Party—for the past five years. However, the Democrats have a meeting scheduled on 2 November, during which they will vote on whether to shift their support to the opposition Labor Party. Not only would this jeopardize the passage of the budget, but it would also tilt the balance of power in the Storting away from the government until the next elections in 2021.
It appears that the government has taken this political consideration into account. Foreign aid spending—a major priority of the Christian Democrats—is set for a large boost in the coming year, and tax changes are also penciled in, which are likely to be well received by the Democrats. Other spending priorities include national defense, transport investment, elderly care, research and education, the police and integration.
Author: Edward Gardner, Economist