National Budget 2003

National Budget 2003

Economic Policy- Introduction

The Government's fiscal policy will adhere to the guidelines for phasing oil revenues into the economy that were agreed upon when the Storting dealt with White Paper No. 29 (2000-2001). The guidelines require central government oil revenue spending to approximately correspond to the expected real return on capital in the Government Petroleum Fund. This entails a gradual increase of oil revenue spending via the fiscal budget, at the same time as the central government will maintain a substantial level of saving in the years ahead to cover future expenditures. This fiscal policy strategy is robust to possible oil price falls and will make for steady and prudent oil revenue spending in the years ahead, thereby avoiding precipitate economic adjustments.

The new guidelines for a gradual and sustainable increase in oil revenue spending constitute a medium-term anchor for fiscal policy. In this situation, monetary policy needs to underpin a stable economic development. Hence, the Government gives much emphasis to continuing the monetary policy that was drawn up in White Paper No. 29 (2000-2001) and received broad support in the Storting. The operational target for monetary policy is defined as an annual increase in consumer prices close to 2.5 per cent over time. Monetary policy shall be forward-looking and must pay due attention to the uncertainty in macroeconomic projections and assessment.

Fiscal and monetary policy must interact to a stabilize demand and production. The new policy guidelines imply that in most cases it is monetary policy that should react if the economic situation changes. Nevertheless, circumstances may arise where a more active fiscal policy is called for, either because capacity utilisation is very low or as a result of very high capacity utilisation in the economy.

In the long term, the development of welfare in Norway will be determined by the growth potential in the mainland (non-oil) economy. Oil and gas production will diminish in the decades ahead. Economic policy therefore needs to promote growth and productivity in the mainland economy, both in the public and private sectors. The Government will improve the regulatory framework for businesses, and ensure that the oil revenues are channelled into the economy in such a way as to promote growth. In keeping with this, the petroleum revenues should above all be used to reduce direct and indirect taxes and on other measures that enhance the economy's growth potential. A gradual reduction in the tax level could help to expand the supply of labour and improve utilisation of resources. This will also dampen pressures for adjustments prompted by higher oil revenue spending. Moreover, priority needs to be given to measures to improve infrastructure, enhance the knowledge base and promote technological progress with a view to support the business sector.

Rising prosperity, the ageing of the population and growing international integration tend to increase the pressure on the provision of public services. The modernisation programme for the public sector is a response to these challenges. Employment policy needs to be geared towards improving search activities in the labour market. A smoothly functioning wage formation system will help to keep unemployment low and labour force participation high. For a period of several years, wage growth has been significantly higher in Norway than among our trading partners. A key aim of the income policy is to avoid that an unsustainable trend in Norwegian labour costs seriously impairs the conditions for the exposed sectors of the economy. Responsibility for implementation of the income settlements rests, however, on the negotiating parties.