The Revised National Budget 2003

The Revised National Budget 2003

These pages contain information in English about Norway's Revised National Budget for 2003, presented to the Storting as Report no. 2 (2002-2003) on 15 May 2003. The National Budget presents the Government's programme for the implementation of economic policy and projections for the Revised Norwegian Economy.

Royal Norwegian Ministry of Finance

Per-Kristian Foss
Minister of Finance
May 2003

2003 Revised National Budget: A Neutral Fiscal Policy Stance

Even though the structural, non-oil budget deficit is higher than in the 2003 Approved Budget, the revised budget presented today represents a neutral fiscal stance. The spending of oil revenues in 2003, measured by the structural deficit, is unchanged from 2002.

 

- Since the adoption of the 2003 Budget, Norges Bank has reduced its interest rates four times. It is important to improve the competitive position of exposed industries through reduced wage growth. Lower wage growth and a neutral fiscal stance will pave the way for lower interest rates and a reversal of the strong Krone exchange rate, says Finance Minister Per-Kristian Foss.


Fiscal policy
The main features of fiscal policy in 2003 are:

  • A structural, non-oil fiscal deficit in 2003 of NOK 37.6 bn. This is a NOK 6.9 bn. increase compared to the level estimated in the National Budget, mainly due to new estimates for tax revenues and unemployment benefits. As a share of potential Mainland-GDP, the structural deficit remains roughly unchanged from 2002 to 2003.
  • A real, underlying growth in fiscal budget expenditure from 2002 to 2003 close to zero. The downward revision from the assessed expenditure growth in the National Budget 2003 of ½ per cent is partly due to a higher than expected expenditure level in 2002.
  • A reduction in paid taxes and excises in real terms of nearly NOK 11.8 bn. from 2002 to 2003. In accrued terms, the tax relief is nearly NOK 8.6 bn. In the amendment to the Budget, the Government proposes a NOK 140 million decline in paid taxes and excises and a NOK 340 million increase in accrued taxes compared with the National Budget.
  • A non-oil fiscal budget deficit of NOK 50.8 bn. this year, a NOK 16 bn. increase from the budget adopted last autumn. This deficit is covered by a transfer from the Government Petroleum Fund. The gap between the structural, non-oil fiscal deficit and the non-oil fiscal deficit is due to a cyclical discrepancy in tax receipts and deviations in transfers from Norges Bank and net interest revenues from their respective trend levels.
  • Central Government net cash flow from the petroleum activities is estimated at NOK 158.1 bn. in 2003, NOK 14.7 bn. less than in the National Budget. The estimated average oil price in 2003 is revised upwards by NOK 10 to NOK 190 per barrel. However, the effect on Government petroleum revenues is offset by lower than expected petroleum tax revenues and higher expenditures on Government investments in the petroleum sector.
  • Total fiscal budget surplus, including net transfers and returns on accumulated capital in the Petroleum Fund, is estimated at NOK 128.8 bn., NOK 33.1 bn. less than in the Approved budget. The total capital of the Fund at the end of 2003 is estimated at NOK 816 bn., approximating 51 per cent of GDP.

The capital of the Petroleum Fund at year-end 2002 was significantly lower than previously estimated, as a result of weak equity markets and the appreciation of the Norwegian Krone. A mechanical application of the 4 per cent fiscal rule would have resulted in a marked tightening of the fiscal stance. This would have been unfortunate, in particular in a situation where there is significant slack in the economy and unemployment is rising. The fiscal guidelines aim at a steady path for phasing in oil revenues. In accordance with this, the assessments made in the National Budget 2003 assumed a smoothing of the structural deficit over the period 2002-2004. Given the revisions in the Revised Budget, it may take longer time to return to a path where the fiscal stance is in strict accordance with the expected real return on the Petroleum Fund.

Monetary policy
According to the regulation of 29 March 2001 monetary policy shall aim at stability in the internal and external value of the krone, thus contributing to a stable exchange rate. Monetary policy shall also underpin fiscal policy by contributing to stable developments in output and employment. In accordance with this, Norges Bank’s implementation of monetary policy shall be geared at maintaining low and stable inflation. The operational target is defined as an annual increase in core inflation close to 2½ per cent over time.

Norges Bank’s deposit and lending rates have been reduced by ½ percentage point four times since the beginning of December last year, and are now at 5 per cent and 7 per cent, respectively. According to Norges Bank’s latest assessment presented 30 April, the probability that inflation two years ahead will be lower than 2½ per cent is greater than the probability that it will be higher. Following Norges Bank’s key rates, the money market rate (3 months) for NOK has fallen since December last year, and is now at about 5 per cent. The spread against the corresponding Euro rates has decreased from about 4 per cent in December to 2½ per cent.

General outlook
The Norwegian economy shows slower growth than anticipated last autumn. This is mainly due to the weak performance of the global economy and impaired competitiveness of the Norwegian manufacturing industries. Mainland GDP is projected to grow even slower in 2003 than the two previous sub-trend years. The weaker performance this year stems partly from lower electricity production, but the sour sentiment at home and abroad has also reduced growth prospect through weaker than expected private consumption, exports and Mainland investments.

  • Mainland GDP is estimated to grow by ¾ per cent in 2003 compared to a 1.3 per cent growth last year. Growth is expected to pick up to close to 2 per cent in 2004, contingent on improved growth conditions, both internationally and domestically. Total GDP, which also includes petroleum and shipping, is expected to increase by some 1 per cent both in 2003 and 2004.
  • Private consumption is estimated to grow by close to 3 per cent this year, more than ½ percentage point lower than assessed in the National Budget. The downward revision is due to lower income growth and weaker development in the labour market.
  • The number of housing starts is trending downwards, and is seen to decrease somewhat during the year. Thus, residential investments are projected to decline for the second year in a row. Still, residential investments remain at a high level.
  • Mainland business fixed investments are projected to decline by 6 per cent in 2003, after a similar fall last year. A marked deterioration of cost competitiveness places a heavy burden on the Norwegian manufacturing industries. Subdued global growth is also taking its toll on the cyclically sensitive business sector. Thus, a pick-up of investments in the mainland business sector is probably dependent on a firm recovery amongst our trading partners.
  • Petroleum investments are projected to rise by 13 per cent in 2003, roughly in line with the estimate of the National Budget.
  • Traditional merchandise exports are projected to fall by 2 per cent in 2003, after growing 1.3 per cent last year. The current account balance is estimated at NOK 204 bn. in 2003, down from NOK 211 bn. last year.
  • Employment is estimated to fall by ½ per cent in 2003, after growing by 0.3 per cent in 2002. Nevertheless, the Norwegian employment rate remains high, both historically and internationally. The unemployment rate is estimated to increase from 3.9 per cent in 2002 to 4.4 per cent this year, before stabilising at 4½ per cent in 2004.
  • Consumer price inflation is estimated to average 2¾ per cent in 2003, boosted by high electricity prices. Core inflation, CPI adjusted for excise duties and energy prices, is expected to increase by 1¾ per cent from 2002 to 2003.
  • Despite large wage carry-over from last year’s generous wage settlement, agreements concluded for major areas indicate much more moderate negotiated increases this year. The wage growth is now estimated at 4½ per cent in 2003 and 4¼ per cent in 2004, compared to 5.7 per cent in 2002.

Key projections for the Norwegian economy. Volume changes from previous year. Per cent.

 

2002

NOK bn

2002

2003

Private consumption

683.5

3.3

2.9

Public consumption

336.6

4.5

0.3

Gross fixed investments

258.5

-3.3

1.1

 Petroleum

59.0

7.0

13.3

 Business sector, Mainland Norway

98.8

-6.0

-6.0

Exports

640.7

-0.5

0.0

 Crude oil and natural gas

275.0

0.2

0.5

 Traditional goods

199.8

1.3

-2.2

Imports

415.1

1.7

1.3

 Traditional goods

272.0

4.7

1.9

Gross domestic product

1531.2

1.0

1.1

 Mainland Norway

1205.9

1.3

0.7

Memorandum items:

 

 

 

Consumer price inflation

 

1.3

Core inflation

 

2.3

Wage growth

 

5.7

Employment growth

 

0.3

-0.6

Unemployment rate (pct. of labour force)

 

3.9

4.4

Household savings rate, pct. of net disposable income

 

 

7.4

 

6.8

Current account balance NOK bn

 

211.2

203.7

In per cent of GDP

 

13.8

12.8

Sources: Statistics Norway and Ministry of Finance.

Key figures for the petroleum sector

 

2003

2004

2007

Oil price sensitivity 2003

Assumptions:

 

 

 

 

Crude oil price. NOK per barrel

190

172

149

10

Production. Mill sm3 oil equiv.

262

266

265

 

- Crude oil and NGL

190

192

166

 

- Natural gas

72

75

99

 

NOK bn.:

 

 

 

 

Export value1)

287.8

265.8

226.4

12.1

Accrued taxes and royalties2)

92.8

84.0

61.5

7.9

Paid taxes and royalties2)

93.9

 88.5

63.6

3.9

Net cash flow3)

158.1

146.9

109.8

7.7

1) Crude oil, natural gas and pipeline transport.

2) Sum of accrued taxes, royalties, area fees and CO2 tax.

3) Sum of paid taxes and royalties incl CO2 tax, dividends from Statoil and net payments from the State’s Direct Financial Interest (SDFI).

Sources: Statistics Norway, Ministry of Petroleum and Energy and Ministry of Finance.

Central government net lending (surplus). NOK billion

 

2002

2003

Fiscal budget surplus

-8.9

0.0

+ Surplus in Government Petroleum Fund

138.4

128.8

+ Surplus in other Central government and social security accounts

 

8.2

 

5.4

+ Definitional diff. between fiscal budget and national accounts1)

 

18.7

 

0.8

+ Direct investment in state enterprises

-8.8

0.3

= Central government net lending

147.5

135.3

+ Local government surplus, accrued value

5.1

-6.1

= General government net lending

152.6

129.2

In per cent of GDP2)

10.0

8.1

1) Including the difference between accrued and recorded taxes.

2) Comparable with the Maastricht criterion of 3 per cent deficit ceiling.

Sources: Statistics Norway and Ministry of Finance.

Key figures for the fiscal budget (incl social security) and Government Petroleum Fund before loan transactions. NOK billion

 

2002

Estimate for 2003

1. The fiscal budget

 

 

Total revenues

691.1

694.2

Revenues from petroleum activities

185.3

178.0

Revenues excl petroleum activities

505.8

516.1

Total expenditures

584.2

586.9

Expenditures on petroleum activities

16.1

19.9

Expenditures excl petroleum activities

568.2

566.9

Non-oil budget surplus

-62.4

-50.8

+ Transfer from the Petroleum Fund

53.4

50.8

= Fiscal budget surplus

-9.0

0.0

2. The Government Petroleum Fund

 

 

The fiscal budgets net revenues from petroleum activities are transferred to the Petroleum Fund

 

169.2

 

158.1

- Transfer to the fiscal budget

53.4

50.8

+ Dividends on the Petroleum Fund

22.6

21.5

= Surplus in the Petroleum Fund

138.4

128.8

3. Fiscal budget and the Petroleum Fund

 

 

Surplus

129.4

128.8

Source: Ministry of Finance