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$Unique_ID{COW02689}
$Pretitle{436}
$Title{Norway
Chapter 1. Medium-Term Economic Strategy and Economic Plans for 1991}
$Subtitle{}
$Author{Royal Norwegian Ministry of Finance}
$Affiliation{Norway Information Service, New York}
$Subject{budget
policy
government
economy
fiscal
per
billion
cent
nok
norwegian}
$Date{1991}
$Log{Table 2*0268901.tab
Table 3*0268902.tab
}
Country: Norway
Book: The National Budget 1991
Author: Royal Norwegian Ministry of Finance
Affiliation: Norway Information Service, New York
Date: 1991
Chapter 1. Medium-Term Economic Strategy and Economic Plans for 1991
1.1 Introduction
The National Budget 1991 discusses the Government's economic strategy
and policies for 1991 (Chapter 1), the short and medium-term prospects for
the Norwegian economy (Chapter 2), the implementation of the Government's
structural policy program (Chapter 3), and the effects of an EES agreement on
the Norwegian economy (Chapter 4).
The Norwegian economy is showing a number of favourable trends. Price
and cost inflation is now lower than among our trading partners (Diagram 6),
and the interest rate level is roughly the same (Diagram 4). The current
account of the balance of payments has returned to a surplus position. We are
seeing the beginning of a moderate but increasingly broadly-based economic
upturn, with traditional merchandise exports and investments in exposed
industries as major driving forces. The implementation of the Fiscal Budget
for 1990 is proceeding according to Government plans, with additional
appropriations through 1990 being kept within the total expenditure budget
adopted by the Storting (the legislative assembly). However, much
remain to be done.
In economies as open and exposed to competition as Norway's, price and
cost levels are decisive for the level of employment. With international
economies rapidly becoming more integrated, employment in a growing number of
sectors in the norwegian economy is becoming dependent on
cost-competitiveness. The wage level in Norwegian manufacturing industry is a
good 20 per cent higher in Norway than among our competitors (Diagram 1).
However, following two decades of relatively slow productivity growth,
the productivity level in Norwegian manufacturing industry is probably not
sufficiently high to counter the effect of the high level of wage costs.
An economic policy which aims at secure and continuing high employment
without increasing our dependence on oil or renewal of borrowing abroad
must therefore aim in particular at lower price and cost inflation than in
the countries we compete with, and more rapid improvements in productivity in
all public and private sectors of the economy.
Increased economic growth will have to be achieved through an up-turn
in the private sectors of the Mainland economy. Continuing low cost inflation,
satisfactory levels of productivity growth, and slower growth in public
expenditure are the main prerequisites for bringing this about. This will
provide a favourable enterprise climate, thus contributing to the creation of
expectations that it will be profitable to invest in Norway by expanding
established activities and by starting new ones in those industries which are
most exposed to foreign competition.
Higher investment will increase the productive capacity of those
industries, enabling them to increase their market shares abroad and putting
them in a better position to maintain them at home. Rapid increases in output
and productivity are also necessary conditions for real wages to begin rising
again and for higher employment. Increases in real wages and higher employment
will in their turn stimulate private consumption and thus contribute to
increased production and investment in consumer goods industries. This will
lead to a more broadly-based upturn in the industries which manufacture
investment goods. Service industries will also be stimulated by an upturn in
consumption and investment.
Satisfactory growth in the private sectors of the economy is a
prerequisite for greater central and local government activity without any
increase in taxation levels.
Of the income generated in the Norwegian economy, a high share is
channelled through government budgets. There has been a strong increase in
public sector expenditure as a percentage of Mainland Norway's GDP, from 56.9
per cent in 1986 to 64.7 per cent in 1990. This reflects the very slow growth
of the Mainland economy over the same period and the rapid growth of public
expenditure, with particularly sharp increases in 1989 and 1990. Such trends
will not be allowed to continue, and importance is therefore being attached to
improving the management of public expenditure and curbing its growth.
1.2 The Government's medium-term economic strategy
The Government's medium-term economic policy strategy was laid down in
the Revised National Budget 1990. Its main features are:
- A structural policy program aimed at better resource utilisation and a
higher rate of productivity growth than in the 1970s and 1980s. The program is
intended to improve the functioning of the labour, financial and capital
markets, the energy market, and the goods and services market, and to adapt
economic policy better to environmental considerations. A separate program
aimed at making public services and administration more efficient is being
prepared. The Government has already adopted structural policy measures or
proposed extensive reforms in a number of areas. A Report on reforms in the
taxation of companies and capital was recently submitted to the Storeing.
The primary purpose is to bring about a more efficient allocation of
investments in the Norwegian economy. The proposed Budget for 1991 also
includes far-reaching proposals on the pricing of environmental goods,
reflecting their value in alternative uses, and other economic measures in
environmental policy. Several state banks, including the Post Office Savings
Bank and the Municipalities Bank, will be modernised, and will have to operate
on the same terms as their private competitors. The recently adopted Energy
Act, under which the energy market can be made much more efficient, enters
into force on 1 January 1991.
- A stable demand policy. Budget policy must be designed to give
enterprises stable and predictable working conditions. Experience in the 1970s
and 1980s showed that attempts at fine tuning of economic developments through
fiscal policy often fail. For one thing, it proves difficult in practice to
implement the stimulating or restrictive budgetary measures intended for such
fine-tuning at the right time or on the right scale. Experience also shows
that once expansionary measures are in place, it is difficult to tighten the
budget again, even though that is what the state of the economy requires.
- A budget policy whereby the Fiscal Budget is gradually made less
dependent on revenues from petroleum activities. If the Norwegian economy is
to be made more efficient, laying firm foundations for higher employment,
this should be done by curbing expenditure and not by raising tax and excise
levels. According to the Budget proposal for 1991, Fiscal Budget expenditure
will increase less than Mainland Norway's GDP. Furthermore, the Fiscal Budget
deficit, adjusted for petroleum revenues and transfers from Norges Bank,
should be no higher in real terms in 1993 than in 1990. If petroleum revenues
in 1991 and on towards 1993 increase more than technically assumed in this
Report, the Government assumes that the additional income will be used to
improve the Fiscal Budget balance before loan transactions and, eventually, to
build up a petroleum fund.
- The Government will continue to work towards lower personal and company
income tax rates. Lower rates will be combined with a broader tax base, in
which among other things various types of investments and savings will be more
uniformly taxed. Emphasis will also be given to m