National Budget 2007

National Budget 2007

These pages contain information in English about Norway's National Budget for 2007, presented to the Storting as Report no. 1 (2006-2007) on 6 October 2006. The National Budget presents the Government's programme for the implementation of economic policy and projections for the Norwegian Economy.

Royal Norwegian Ministry of Finance

Kristin Halvorsen
Minister of Finance
October 2006

Fiscal Budget 2007: Supporting a Continued Balanced Development

Summary of the Government's budget document on tax policy proposals

Summary of the Government's budget document on tax policy proposals

Direct and Indirect Taxes – Main Features of the 2007 Proposal

1 Direct and Indirect Taxes – Main Features of the Proposal

The objectives of the Government’s tax policy are to safeguard revenue for communal purposes, contribute to fairness in distribution and an improved environment, promote employment throughout the country and enhance the workings of the economy. The Government’s 2006 proposal on direct and indirect taxes marked the beginning of a change in tax policy direction. Direct and indirect taxes were increased, and the tax reform was implemented with a much better distributional profile than under the budget proposal of the Bondevik II Government.

This new tax policy direction is pursued further through the changes to direct and indirect taxes proposed by the Government for 2007:

  • Communal benefits take priority over tax reductions. As previously announced, the level of direct and indirect taxes shall be brought back to the 2004 level.
  • The distributional profile of the tax system shall be strengthened.
  • Environmentally friendly consumption shall be encouraged.
  • Overpriced government fees shall be reduced.

At the same time, the system changes which were implemented through the 2004-2006 tax reform is preserved. This ensures that the tax system is stable and predictable, which is an important factor in making it attractive to invest and engage in business activities in Norway. One of the main objectives of the tax reform was to put an end to the extensive and highly profitable tax planning resulting from the large differences in tax rates between labour income and capital income. Therefore, the highest tax rates on wage income were reduced, whilst at the same time the introduction of a dividend tax from 2006 increased the marginal tax rate on income from shares by 20 percentage points, to about 48 pct. This sufficiently reduced the tax rate differential between labour income and capital income to solve the tax-planning problem. The Government will follow the tax reform closely, in order to assess the economic distrubitional and administrative implications of the reform.

Communal benefits take priority over tax reductions

The Government is committed to improving the availability of government-provided communal benefits, instead of offering tax reductions. Good governmental welfare schemes are of particular importance to those on the lowest incomes. In line with this, the Government is pursuing a new tax policy direction. As previously announced, the tax level will revert to the 2004 level in 2007. The proposal of the Government implies that the tax level does revert to the 2004 level, and net tax revenue will increase by about NOK 2 billion accrued from 2006 to 2007. The Government will now be keeping overall direct and indirect taxes unchanged, and the room for manoeuvre allowed by the budget will be used to strengthen welfare schemes and communal benefits.

Strengthened distributional profile

As far as distribution policy is concerned, the tax system needs to be examined in the context of the effort made within other areas. Low income problems are complex, and direct subsidy schemes are often better targeted than tax reductions for purposes of assisting groups in difficulties (low income groups, the disabled, single parents, etc.) or households during certain phases of life (families with small children, students, pensioners, etc.).

The Government will further improve the distributional profile of the tax system in 2007. The Government is therefore proposing tax changes that will ensure that those with high incomes and wealth contribute more to public purposes. In addition, the Government will grant tax reductions at lower income levels, although tax reductions alone are insufficient to solve the problems facing those earning the lowest incomes. In order to improve the distributional profile, the Government is proposing, inter alia, to increase the basic allowance of those on lower incomes, as well as to increase the wealth tax and the surtax, which will increase the tax paid by those on high incomes in particular. The distributional effect from these changes will be favourable, cf. Table 1:

  • Those earning a gross income of less than NOK 400,000 will on average be paying the same or less tax, whils hose earning a gross income in excess of 400,000 will be paying more tax.
  • The largest tax reductions will apply to those on incomes of between NOK 150,000 and NOK 200,000, and amount to about NOK 1,000 on average.
  • The largest tax increases will apply to those on gross incomes in excess of
    NOK 1 million, and amount to about NOK 6,800 on average. About NOK 3,200 hereof are in the form of increased wealth tax. On average, the wealth tax increase has a relatively limited effect on those earning incomes of less than NOK 600,000.
  • On average, taxes will be reduced by 0.4 percentage point, to 7.3 pct. of gross income, for those on incomes of less than NOK 150,000. Average tax increases by 0.4 percentage point, to 33.9 pct., for those on incomes in excess of NOK 1 million.

The Government is also proposing that the value added tax rate on foodstuffs be increased from 13 to 14 pct. This implies that tax revenue will increase by about NOK 690 million accrued in 2007. The increase in the value added tax on foodstuffs, and other changes to indirect taxes, have a limited effect on the average consumption expenditure of various income groups. Experience from previous changes suggests that the rate increase will not in its entirety be reflected in increased prices charged to consumers. In addition, the value added tax increase may be seen in the context of the increased basic allowance for low-income groups and the increased allowance for labour union fees. Overall, the proposal on direct and indirect taxes has favourable distributional effects.

Table 1 Average change in tax for different gross income intervals1. 2007 tax proposal compared to wage-adjusted 2006 rules (the reference system). All persons 17 years and older. NOK

Gross income (NOK thousands)

Number of persons

Average tax under the 2007 reference system

Change in tax

Of which change in wealth tax

Average tax under the 2007 proposal (per cent)

Change in average tax (percentage points)

0-150

771 000

6 700

-400

0

7.3

-0.4

150-200

388 000

22 200

-1 000

100

12.2

-0.5

200-250

397 000

37 600

-300

100

16.6

-0.2

250-300

414 000

54 600

0

100

19.8

0.0

300-350

414 000

71 800

0

100

22.1

0.0

350-400

367 000

87 700

0

100

23.5

0.0

400-450

264 000

105 100

600

200

25.0

0.1

450-500

172 000

124 000

1 000

200

26.4

0.2

500-600

187 000

152 200

1 100

200

28.2

0.2

600-750

125 000

200 800

1 700

400

30.5

0.3

750-1 mill.

81 000

276 800

4 500

900

32.9

0.5

Above 1 mill.

68 000

636 800

6 800

3 200

33.9

0.4

All

3 646 000

77 200

200

200

23.8

0.1

1 Excluding changes to indirect taxes. Rounded off to the nearest NOK 100.

Sources: Statistics Norway and the Ministry of Finance.

 

Increased focus on the environment

In their joint declaration from Soria Moria, the governing parties announced a review of the tax system, with a view to making changes to promote more environmentally friendly behaviour. The Government proposes the introduction of a tax on NOx emissions, with attendant compensation schemes for certain affected industries, from 1 January 2007. This represents an important contribution to meeting our obligations pursuant to the Gothenburg Protocol, which governs transboundary air pollution.

To avoid gas being used for heating purposes rather than more environmentally friendly alternatives, the Government is proposing the introduction of a CO2 tax on the domestic use of gas for heating purposes, etc., in homes and commercial buildings from 1 July 2007. Motor vehicle taxes are changed to achieve a more environmentally friendly profile by including the CO2 emissions of the motor vehicle will be included in the basis for calculating the motor vehicle registration tax. This implies that motor vehicles with relatively low CO2 emissions will be subject to less tax.

Reduction in overpriced government fees

The Ministry of Finance is reviewing sectoral fees and other government fees, and is receiving feedback from, inter alia, the various ministries with regard to government fees that are higher than the actual costs that such government fees are intended to cover.The Government proposes that the overpricing of government fees be dealt with as part of the budget proposals relating to direct and indirect taxes.For 2007, it is proposed that the fees for enforcement proceedings and the fees collected by the Norwegian Public Roads Administration for driving tests, vehicle tests, etc., be adjusted to a level matching their costs. The overall reduction in these government fees is estimated at NOK 270 million in 2007. This forms a first step towards removing the overpricing of government fees. The Government will consider new steps in this direction in the budgets in the years ahead.

Reintroduction of the regionally differentiated employer’s social security contribution scheme

Norway has won approval for the reintroduction of the regionally differentiated employer’s social security contribution scheme. The Government’s proposal, which has been approved by the EFTA surveillance authority, implies that the zero-rated employer’s social security contribution for Finnmark and Northern Troms will be continued. In Tromsø and Bodø, the employer’s social security contribution rate will be 7.9 pct. The remaining municipalities in Troms and Nordland, as well as all municipalities in zone IV in Southern Norway, will have the general rate of 5.1 pct. reintroduced. The municipalities in zone III, and more than half of the municipalities in zone II, will see the reintroduction of rates of 6.4 pct. and 10.6 pct., respectively. As far as the remainder of the municipalities in zone II are concerned, the reduced employer’s social security contribution rate will be continued within an exemption limit.

2 Direct and Indirect Taxes – Additional Details on the Proposal

Income taxation

The Government believes there is room for increasing the surtax by reducing the thresholds, whilst at the same time preserving the system changes introduced by the tax reform. The Government is therefore proposing changes to the thresholds for both bracket 1 and bracket 2 of the surtax. The threshold in bracket 1 is increased to NOK 400,000, which is less than the estimated wage growth from 2006 to 2007. The threshold in bracket 2 is reduced from NOK 750,000 in 2006 to NOK 650,000. These changes will result in about 65,000 more people becoming subject to the surtax than at present, and in about 68,000 more people falling within bracket 2 of the surtax. Those with a personal income on par with, or below, the average wage of a full-time employee will still not be paying any surtax. In total, these proposals are estimated to increase tax revenue by about NOK 1.2 billion accrued in 2007.

The Government will also in 2007 increase the basic allowance in order to strengthen the distributional profile. These tax reductions take the form of increases in the basic allowance rates, thus ensuring that the reductions benefit those earning the lowest incomes. Pensioners will also be benefiting from the tax reductions granted through the basic allowance. The basic allowance rate for wage income will be increased from 34 to 36 pct., whilst the basic allowance rate for pension income will be increased from 24 to 26 pct. The maximum limits applicable to the basic allowance are increased more or less in line with estimated wage growth from 2006 to 2007. The overall tax reduction by way of changes to the basic allowance is estimated at about NOK 800 million.

The lower wage and pension income limit for paying social security contribution is NOK 29,600 for 2006. In other words, the so-called tax-exemption card limit is NOK 30,000. The Government is proposing that the tax-exemption card limit be increased to NOK 40,000. This implies a tax reduction of NOK 130 million accrued in 2007. This proposal is of importance to school and university students.

Wealth tax

The Government will continue the effort to improve the wealth tax by broadening the tax bases and increasing the minimum allowance. This will result in more equal treatment of different forms of wealth, and improve the correlation between a person’s real wealth and how much wealth tax that person pays. This will strengthen the distributional effects of the wealth tax.

The Government is proposing that the assessed values of homes, holiday homes and other real estate (excepting forest properties and power plants) be increased by 10 pct. in 2007. Such an increase is necessary to counteract that the relatively strong price growth on homes further amplifies the distortions characterising the wealth tax. For other real estate it is proposed a maximum limit of 80 pct. for the assessed value as a proportion of market value. At the same time, the assessment rules for forest properties will be changed, with the implication that the assessed valuations of forest properties will on average be increased by about one third.

The discount applied when assessing the value of equities, equity funds and primary capital certificates for wealth tax purposes will be reduced by 5 percentage points, to 15 pct., and the discount applicable to units of other securities funds than equity funds will be abolished with effect from 2006.

In order to compensate pensioners with low income from any increase in wealth tax, the net wealth surcharge under the tax limitation rule will be reduced by 0.5 percentage points, to 1.5 pct. In order to further strengthen the distributional profile of the wealth tax, the Government proposes that the minimum allowance applicable to the wealth tax be increased from NOK 200,000 to NOK 220,000. In total, the proposals for changes to the wealth tax and the net wealth surcharge under the tax limitation rule amount to an increase of about NOK 400 million accrued in tax revenue for 2007, and NOK 90 million accrued for 2006. As announced in the Revised National Budget 2006, the preferential treatment of individual annuities in the wealth tax will be abolished, cf. below.

Tax-favoured pension savings schemes

The Government proposes that tax-favoured pension savings schemes be curtailed. As announced in the Revised National Budget 2006, the wealth tax exemption for individual annuities will be abolished, whilst the favourable tax treatment of new premiums paid on group annuities will be abolished with effect from 1 January 2007. The right to deduct new premium payments under individual pension savings schemes (IPAs) is abolished with effect from 12 May 2006. The overall increase in tax revenue from these changes is estimated at NOK 480 million accrued in 2007.

Allowance for labour union fees

In their joint declaration from Soria Moria, the governing parties announced that the allowance for labour union fees shall be doubled from its 2005 level, which was NOK 1800. The allowance for labour union fees was increased by NOK 450 in 2006, and an increase of a further NOK 450 is proposed for 2007, to NOK 2700. This proposal implies a tax reduction of NOK100 million accrued in 2007.

Employer’s social security contribution

Employer's differentiated social security contributions constitute a well-targeted regional policy measure, directly aimed at employment and settlement in peripheral regions. In 2004, the regionally differentiated employer’s social security contribution scheme was restructured on the orders of the EFTA Surveillance authority (ESA). The European Commission and the ESA have subsequently adopted new guidelines for regional subsidies, which will enter into effect on 1 January 2007. The new guidelines permit the use of differentiated employer’s social security contributions on certain conditions. Following a close dialogue with the ESA, Norway notified a proposal for a new differentiated employer’s social security contribution scheme. The ESA approved this scheme on 19 July 2006.

The Government’s proposal implies that the zero-rated employer’s social security contribution for Finnmark and Northern Troms is continued. In Tromsø and Bodø, the employer’s social security contribution rate will be 7.9 pct. The remaining municipalities in Troms and Nordland, as well as all municipalities in zone IV in Southern Norway, will have the general rate of 5.1 pct. reintroduced. The municipalities in zone III, and more than half of the municipalities in zone II, will see the reintroduction of rates of 6.4 pct. and 10.6 pct., respectively. As far as the remainder of the municipalities in zone II are concerned, the reduced employer’s social security contribution rate will be continued within an exemption limit.

In the private sector, the new scheme will, all in all, provide more than 90 pct. of the reduction in employer’s social security contributions offered by the scheme prior to the restructuring in 2004. The new scheme will also encompass the public sector.

The Government proposes that the 2003 rates be maintained for fisheries and agriculture in those municipalities that are not having the 2003 scheme reintroduced. The new scheme will have fewer industry-specific exclusions than the previous scheme. Only parts of the shipbuilding industry and the manufacturing of certain steel products will be excluded from the general differentiation. These industries may pay the low rate within an exemption limit.

It is proposed, at the request of the ESA, that the localisation criterion be changed. Previously, the residence (for tax purposes) of the employee was decisive in determining which rate of differentiated employer’s social security contribution should be applied. The new scheme is based on where the business of the employer is located.

Moreover, the Government proposes that this policy measure be adjusted to stimulate broader participation in the labour force. The reduced rate of the employer’s social security contribution for employees over 62 years will be increased by 1 percentage points. It is estimated that this proposal will increase tax revenue by about NOK 280 million accrued in 2007. These tax revenues shall be spent on strengthening the policy measures aimed at stimulating broader labour market participation.

Agriculture

The Government is proposing several tax changes to improve conditions for agriculture:

  • An increased agriculture allowance represents a tax reduction of 283 million accrued in 2007, as announced in the Agricultural Settlement.
  • The tax benefit offered by the forestry fund scheme will be enhanced. The proposal is estimated to represent an overall tax reduction of about NOK 50 million accrued in 2007.
  • A tax exemption will be introduced in respect of compensation received upon the protection of forests. The proposal represents a tax reduction of NOK 10 million kroner accrued in 2007.
  • A conditional tax exemption is introduced in relation to all redemptions of land leases. The proposal is estimated to represent a tax reduction of NOK 5 million accrued in 2007.
  • There will be introduced an expanded capital gains tax exemption for agricultural land under family co-ownership. This proposal will have no discernible effect on tax revenue.
  • Allowances for jointly-owned capital provisions on the part of certain cooperative enterprises will be reintroduced, cf. below.

Skattefunn

Skattefunn is an entitlement-based tax credit for research and development costs incurred in projects approved by the Research Council of Norway. On the assignment from the Ministry of Finance, the Norwegian Government Agency for Financial Management has evaluated the financial management and administration of the scheme. Based on, inter alia, this evaluation, the Government is considering measures to improve financial management in relation to Skattefunn. Several of these measures can be implemented by way of the Research Council of Norway and the Norwegian Tax Administration preparing better routines and internal guidelines for their administration of Skattefunn, and for the cooperation between these bodies. Other measures will require amendments to the regulations laid down pursuant to Section 16-40 of the Tax Act. In the Fiscal Budget for 2007, the Government is proposing the introduction of a maximum hourly rate and a maximum number of hours per year as far as the inclusion of internal R&D personnel in the tax credit base is concerned. The proposals are estimated, on an uncertain basis, to increase tax revenue by about NOK 150 million accrued in 2007.

Environmental taxes

As announced in the Revised National Budget 2006, the Government will introduce a tax on NOx emissions as from 1 January 2007. The main purpose is to meet the NOx obligation under the Gothenburg Protocol. To begin with, the NOx tax will be NOK 15 per kilogram for 2007. Analyses of the costs associated with implementing measures to reduce NOx emissions show that sufficient reductions in 2010 can only be achieved with a marginal cost of NOK 50 per kilogram.

The Government believes that it is necessary to consider the introduction of a NOx tax in the context of compensations paid to certain affected industries. The Government is proposing, inter alia, to increase grants for funding measures to reduce the NOx emissions of ships and fishing vessels. The proposal is estimated to yield net tax revenue of NOK 520 million accrued in 2007.

In the joint declaration from Soria Moria, it was announced that the Government will be reviewing the CO2 tax system to prevent the use of gas for heating purposes from becoming more competitive than more environmentally friendly alternatives. The domestic use of gas does not fall within the scope of the CO2 tax. The Government proposes the introduction of a CO2 tax on the domestic use of gas in households and office buildings, etc., with effect from 1 July 2007. The level of such tax will be the same as that of the CO2 tax on light heating oil, which for 2006 corresponds to NOK 200 per ton CO2. The proposal is estimated to increase tax revenue by NOK 6 million accrued in 2007.

In the supplement to the Fiscal Budget 2006, it was announced that motor vehicle taxes would be made more environmentally friendly in the budget for 2007. To begin with, the Government is proposing that CO2 emission replace piston displacement as a component in calculating the motor vehicle registration tax, as from 1 January 2007. The intention is to encourage the purchase of motor vehicles with low CO2 emissions. The Government wishes to retain motor effect as a tax calculation component in 2007. The most expensive motor vehicles are often characterised by a high motor effect. The weight of the vehicle is retained as a tax calculation component. There is a correlation between high weight and the damage inflicted on others in case of a collision. The restructuring of the motor vehicle registration tax in 2007 has a more or less neutral effect in terms of tax revenue. One aims to continue the restructuring of motor vehicle taxes in future budgets.

In the Revised National Budget 2006, the Government clarified practise under the current tax framework pertaining to E85 (bio-ethanol with a high ethanol content), and introduced a temporary exemption from motor vehicle registration tax for hydrogen cars. At the same time, it announced an exemption from CO2 tax for such part of petrol as is represented by bio-ethanol. Consequently, the part of petrol represented by bio-ethanol will be exempted from the CO2 tax as from 1 January 2007. It is expected that the proposal will result in a tax reduction of NOK 14 million in 2007.

Overpriced sectoral fees and other government fees

The use of sectoral fees and other government fees to fund the provision of government services has become very widespread. Annual government revenue from such user payments is between NOK 6 and NOK 7 billion, of which NOK 5 billion are in the form of other government fees. In June 2006, the Ministry of Finance laid down new guidelines to clarify which conditions shall be met in order to justify the introduction of sectoral fees or other government fees within an area. The guidelines entered into force immediately as far as new schemes are concerned, whilst one is aiming for the gradual adaptation of existing schemes. The introduction of the new guidelines also implies a clearer budgetary distinction between sectoral fees and other government fees.

The adaptation process has already commenced. The Government is proposing, as part of the 2007 proposal on direct and indirect taxes, that overpriced government fees be reduced by NOK 270 million. The Government will continue to pursue this effort in future budgets. Reference is made to the more detailed discussion in Proposition No. 1 (2006-2007) to the Storting; the Fiscal Budget including the social security System – Yellow Book.

Other changes to direct and indirect taxes

The Government is also proposing a number of other changes to direct and indirect taxes:

  • The tax-exempted amount pertaining to non-commercial work inhomes is increased from NOK 1,000 to NOK 2000 . This tax reduction is estimated to NOK 5million accrued for 2007.
  • There will be a tax credit for persons resident in Svalbard for tax purposes, of up to NOK 7,200, corresponding to a deduction of about NOK 60,000 per person in wage income. This change enters into effect from 2006, and will result in a tax reduction of NOK 13 million accrued in 2006.
  • Allowances for jointly-owned capital provisions on the part of certain cooperative enterprises will be reintroduced. The purpose of this scheme is to reduce the tax on enterprises in the so-called established cooperatives within the agriculture, fisheries and consumer sectors. The proposal is estimated to reduce tax revenue by NOK 30 million accrued in 2007.
  • Certain monetary limits will remain unchanged in nominal terms, hereunder the seamen’s and fishermen’s allowances, the special allowance against labour income (the wage allowance), the parent allowance and the special allowance for age and disability. In addition, there are the overall interactive effects from the proposal. The overall increase in tax revenue is estimated at NOK 210 million accrued.
  • Municipal harbours will be brought within the scope of the value added tax system. This proposal is estimated to result in a tax reduction of NOK 70 million accrued for 2007.
  • The diesel tax will be expanded to encompass leisure boats. This proposal will increase tax revenue by NOK 22 million accrued in 2007.
  • Cohabitants will be exempted from stamp duty on the transfer of title to their common home in case of breakup of the relationship. The proposal results in a tax reduction of NOK 100 million in 2007.
  • Certain payment dates for VAT and direct tax arrears will be changed. The net increase in tax revenue is estimated at NOK 248 million accrued in 2007.
  • The tax on alcoholic beverages will be restructured. The proposal is estimated to increase tax revenue by NOK 60 million accrued in 2007.
  • Transportation on rails will be exempted from electricity tax. The loss of tax revenue is estimated at NOK 35 million.
  • Certain rates under the tax on the incineration of waste will be adjusted. These adjustments will result in tax revenue increasing by NOK 11 million accrued.

 

3 Effects on revenue of the proposed changes to direct and indirect taxes

Table 2 shows the estimated effects on revenue of the Government’s proposed changes to direct and indirect taxes for 2007.

The effects on revenue have been calculated on the basis of a reference system for 2007. The reference system for direct taxes is based on the 2006 rules, but with all income limits adjusted to 2007 levels, assuming wage growth of 4½ percent. A taxpayer with an annual wage growth of 4½ per cent will then end up with the same average tax rate under the reference system for 2007 as in 2006. In the reference system for indirect taxes, all volume-based taxes have been adjusted by an estimated price increase from 2006 to 2007 of 1.8 per cent. Consequently, the indirect tax burden under the reference system is unchanged in real terms from 2006 to 2007.

Tables 3 and 4 offer an overview of important direct and indirect tax rates and thresholds included in the Government’s proposal relating to direct and indirect taxes for 2007. The tables also show direct and indirect tax rates and thresholds for 2006, as well as percentage changes from 2006 to 2007. The percentage increases in the general allowances and thresholds from 2006 to 2007 may deviate somewhat from the estimated wage growth as the result of rounding off.

Table 2 Estimated effects on proceeds from changes in direct and indirect taxes proposed for 2007. The estimates have been calculated relative to the reference system for 2007. Negative figures reflect tax reductions. NOK million

Accrued

Booked

1. SURTAX, BASIC ALLOWANCE AND SOCIAL SECURITY CONTRIBUTION

240

195

Increase the threshold for bracket 1 to NOK 400,000 (underadjustment)

745

600

Reduce the threshold for bracket 2 NOK to NOK 650,000

445

355

Increase the basic allowance rates applicable to wage income and pension income to 36 and 26 pct., respectively

-820

-655

Increase the lower wage and pension income limit for paying social security contribution to NOK 39,600 (and, consequently, the tax exemption card limit to NOK 40,000)

-130

-105

2. WEALTH TAX, ETC

400

425

Increase the assessed valuations for homes, holiday homes and other real estate (excepting forests and power plants) by 10 pct. Reduce the net wealth surcharge under the tax limitation rule to 1.5 pct. Increase the minimum allowance applicable to the wealth tax to NOK 220,000.

120

100

Reduce the discount applied when assessing the value of equities to 15 pct

280

225

Abolish the discount applied when assessing the value of units of other securities funds than equity funds as from the 2006 tax year

0

90

Increase the assessed values of forest properties

0

10

3. TAX FAVOURED PENSION SAVINGS SCHEMES

48

540

Abolish the favourable tax treatment of individual and group annuities (announced in Revised National Budget 2006)

350

360

Abolish the right to deduct new premium payments under IPAs as from 12 May 2006 (announced in Revised National Budget 2006)1

130

180

4. SPECIAL ALLOWANCE SCHEMES

-100

-100

Increase the allowance for labour union fees by NOK 450, to NOK 2700

-100

-100

5. TAXATION OF BUSINESSES

-228

-333

Reintroduce and restructure differentiated employer’s social security contributions2

0

0

Increase the employer’s social security contributions for employees over 62 years (the Inclusive Workplace Agreement)3

0

0

Increase the agriculture allowance

-283

-283

Expand the forestry fund scheme

-50

-50

Introduce a conditional tax exemption for gains from the redemption of land leases

-5

0

Introduce tax exemption in respect of compensation received upon the preservation of forests

-10

0

Reintroduce tax exemption in respect of jointly-owned capital provisions on the part of certain cooperative enterprises

-30

0

Improve financial management in relation to the Skattefunn scheme

150

0

6. VALUE ADDED TAX

620

505

Increase the value added tax rate on foodstuffs from 13 to 14 pct

690

575

Bring municipal harbours within the scope of the value added tax system 4

-70

-70

7. MOTOR VEHICLE TAXES

-25

-23

Restructure the motor vehicle registration tax

-25

-23

8. ENVIRONMENTAL AND ENERGY TAXES

510

447

Introduce Nox tax, part compensation5

520

440

Introduce CO2 tax on gas as from 1 July 2007

6

5

Exempt bio-ethanol from CO2 tax

-14

-13

Exempt rail based transportation from electricity tax 6

-35

-15

Change rates under the tax on the incineration of waste

11

10

Introduce diesel tax on leisure boats

22

20

9. SECTORAL FEES AND OVERPRICED GOVERNMENT FEES, ETC

-267

-267

Reduce overpricing of government fees

-270

-270

Change sectoral fees

3

3

10. OTHER CHANGES

413

386

Increase the tax exempted amount pertaining to non-commercial work in the homes to NOK 2000

-5

-4

Introduce a special tax allowance for Svalbard (announced in the RNB)

0

-13

Change payment dates for VAT and tax arrears, etc

248

278

Restructure the tax on alcoholic beverages

60

55

Exempt cohabitants from stamp duty on the transfer of title to their joint home in case of relationship breakup

-100

-100

Maintain nominal monetary limits and interactive effects

210

170

NEW INCREASES IN DIRECT AND INDIRECT TAXES FOR 20077

2 043

1775

PREVIOUS RESOLUTIONS8

-21

-659

Resolutions in connection with the National Budget 2006 (incl. supplementary proposition)

65

-489

Resolutions in connection with the Revised National Budget 2006

-43

-120

Expand the duty-free quota

-43

-50

OVERALL EFFECT ON REVENUE IN 2007

2 022

1 116

1 Overall revenue increase is NOK 390 million, of which NOK 260 million accrued in 2006.

2 Net effect on revenue is nil, when taking into consideration the compensatory changes in expenditure.

3 The revenue from this change shall be spent on inclusive workplace measures on the expenditure side of the Budget. Consequently, net revenue is nil.

4 Net effect on revenue. Changes in general transfers to municipalities and value added tax refunds are taken into consideration.

5 Revenue from the petroleum sector is not included because it is channelled into the Government Pension Fund - Global. Compensations for affected industries on the expenditure side of the Budget have been deducted.

6 Net effect on revenue. The abolition of compensation for Norwegian State Railway through government purchases of passenger transportation services and the reduction in general subsidies for municipalities that achieve savings in connection with the exemption are taken into consideration.

7 As far as some of the proposals included in the 2007 Budget are concerned, part of the accrued revenue effect will be realised in 2006. This pertains to, inter alia, the tightening of the IPA scheme and the abolition of the discount applied when assessing the value of units of other securities funds than equity funds. In total, this amounts to about NOK 350 million. Consequently, overall new increases in direct and indirect taxes, i.e. those presented to the Storting for its formal resolution in 2007, amount to about NOK 2.4 billion.

8 As far as most resolutions relating to the National Budget 2006 and the Revised National Budget 2006 are concerned, part of the booked budgetary effect will materialise in 2007 due to the payment dates for direct and indirect taxes, etc. This pertains to, inter alia, reductions in the surtax (NOK -660 million), increased basic allowance (NOK -245 million), abolition of supplementary employer’s scoial security contribution on income in excess of 16 times the basic amount (G) of the scoial security system (NOK -880 million), broadening of tax bases (NOK 240 million), the dividend tax (NOK 500 million), increased value added tax (NOK 100 million), etc. In total, this amounts to just under NOK 0.7 billion in net booked tax reductions.

Source: Ministry of Finance.

Table 3 Direct tax rates and thresholds, etc. for 2006 and proposals for 2007

2006 rules

Proposal 2007

Change from 2006 to 2007

Social security contribution

Wage income

7.8 pct.

7.8 pct.

Income from self-employment within agriculture, forestry and fisheries

7.8 pct.

7.8 pct.

Other income from self-employment

10.7 pct.

10.7 pct.

Pension income, etc

3.0 pct.

3.0 pct.

Lower threshold for the payment of social security contribution

NOK 29 600

NOK 39 600

33.8 pct.

Levelling rate (on income bracket above lower threshold)

25.0 pct.

25.0 pct.

Surtax

Bracket 1

Rate1

9.0 pct.

9.0 pct.

Lower threshold

NOK 394 000

NOK 400 000

1.5 pct.

Bracket 2

Rate

12.0 pct.

12.0 pct

Lower threshold

NOK 750 000

NOK 650 000

-13.3 pct.

Tax on ordinary income

Individuals

28.0 pct.

28.0 pct.

Individuals in Finnmark and Northern Troms

24.5 pct.

24.5 pct.

Taxpayers that pay in arrears (businesses)

28.0 pct.

28.0 pct.

Personal allowance

Class 1

NOK 35 400

NOK 37 000

4.5 pct.

Class 2

NOK 70 800

NOK 74 000

4.5 pct.

Maximum marginal tax rates

Wage income, incl. employer’s social security contribution

Bracket 1

51.6 pct.

51.6 pct.

Bracket 2

54.3 pct.

54.3 pct.

Income from self-employment, incl. social security contribution of 10.7 pct.

Bracket 1

47.7 pct.

47.7 pct.

Bracket 2

50.7 pct.

50.7 pct.

Income from self-employment in primary industries, incl.; employee’s social security contribution of 7.8 pct.

Bracket 1

44.8 pct.

44.8 pct.

Bracket 2

47.8 pct.

47.8 pct.

Dividends and distributions

48.2 pct.

48.2 pct.

Basic allowance applicable to wage income

Rate

34.0 pct.

36.0 pct.

2.0 pct.points

Upper threshold 2

NOK 61 100

NOK 63 800

4.4 pct.

Lower threshold

NOK 4 000

NOK 4 000

Basic allowance applicable to pension income

Rate

24.0 pct.

26.0 pct.

2.0 pct.points

Upper threshold 2

NOK 51 100

NOK 53 400

4.5 pct.

Lower threshold

NOK 4 000

NOK 4 000

Special labour income allowance (wage allowance)3

NOK 31 800

NOK 31 800

Special allowance relating to old age and disability, etc

NOK 19 368

NOK 19 368

The tax limitation rule for retired persons, etc.

Levelling rate

55.0 pct.

55.0 pct.

Tax-free net income

Single

NOK 95 300

NOK 99 600

4.5 pct.

Married couple

NOK 156 300

NOK 163 300

4.5 pct.

Net wealth surcharge

Rate

2.0 pct.

1.5 pct.

-0,5 pct.points

Limit

NOK 200 000

NOK 200 000

Special allowance applicable to tax payers in Finnmark and Northern Troms

Class 1

NOK 15 000

NOK 15 000

Class 2

NOK 30 000

NOK 30 000

Fishermen’s and seamen’s allowance

Rate

30.0 pct.

30.0 pct.

Upper threshold

NOK 80 000

NOK 80 000

Special allowance applicable to income from self-employment within agriculture

Income-independent allowance

NOK 36 000

NOK 45 000

25.0 pct.

Allowance rate above income-independent allowance

19.0 pct.

32.0 pct.

13,0 pct. points

Maximum overall allowance

NOK 71 500

NOK 142 000

98.6 pct.

Maximum allowance for premium paid to individual pension savings schemes (IPA)

NOK 40 000

Abolished

Maximum allowance for labour union fees etc

NOK 2 250

NOK 2 700

20.0 pct.

Allowance for travel between home and workplace

Rate per kilometre

NOK 1.40

NOK 1.40

Expense threshold for allowance

NOK 12 800

NOK 12 800

Maximum allowance for gifts to voluntary organisations, etc

NOK 12 000

NOK 12 000

Special allowance for high expenses related to sickness

Lower threshold

NOK 9 180

NOK 9 180

-

Upper threshold

unlimited

unlimited

-

Parental allowance for documented costs associated with
childcare. Upper threshold

One child

NOK 25 000

NOK 25 000

-

Additional amount for each subsequent child

NOK 5 000

NOK 5 000

-

Tax credits for home savings for people under the age of 34
years (BSU)

Rate of tax credit

20.0 pct.

20.0 pct.

-

Maximum annual savings amount

NOK 15 000

NOK 15 000

-

Maximum savings amount under the scheme

NOK 100 000

NOK 100 000

-

Employer’s social security contribution

Zone I

14.1 pct.

14.1 pct.

-

Zone Ia4

14.1 pct.

14.1 pct.

-

Zone II

14.1 pct.

10.6 pct.

-

Zone III

12.1 pct.

6.4 pct.

-

Zone IV

11.7 pct.

5.1 pct.

-

Zone IVa

11.7 pct.

7.9 pct.

-

Zone V

0.0 pct.

0.0 pct.

-

Reduction for employees over the age of 62 years

4 pct.points

3 pct.points

-1 pct.points

Wage allowance under the split model/rate of return allowance method for sole proprietorships s

15.0 pct.

15.0 pct.

Discount applicable to equities 80

20 pct.

15.0 pct.

-5.0 pct.points

Wealth tax

2006 rules

Proposal 2007

Change from 2006 to 2007

Limits NOK

Rate

Limits NOK

Rate

Limits

Rate

Local government

0 – 200 000

0.0 pct.

0 – 220 000

0.0 pct.

10.0 pct.

-

200 000 –

0.7 pct.

220 000 –

0.7 pct.

10.0 pct.

-

Central government

0 – 200 000

0.0 pct.

0 – 220 000

0.0 pct.

10.0 pct.

-

200 000 -540 000

0.2 pct.

220 000 – 540 000   

0.2 pct.

10.0 pct.

-

540 000 –

0.4 pct.

540 000 –

0.4 pct.

-

-

                     

1 The rate for Northern Troms and Finnmark is 7 pct. in bracket 1.

2 The sum of the basic allowance applicable to wage and pension income shall not exceed the upper threshold applicable to the basic allowance for wage income, i.e. NOK 63,800 in 2007.

3 Taxpayer with wage income benefits from the higher of the sum of the basic allowance applicable to wage and pension income and the special allowance applicable to labour income.

4 Zone Ia (municipalities previously located in zone II, but now falling outside such zone) shall continue to pay employer’s social security contributions at the rates which applied in 2003 (10.6 pct.) until the difference between what the firm actually paid by way of employer’s social security contribution (pursuant to the 2003 rules) and what the firm would have paid by way of employer’s social security contribution at a rate of 14.1 pct. equals the de minimis state aid threshold. The threshold for 2007 is NOK 530,000 per firm.

Source: Ministry of Finance.

Table 4 Indirect tax rates for 2006 and proposed rates for 2007

Category of indirect tax

Current rate

Proposal 2007

Percentage change

Value added tax, per cent of sales value 1

Ordinary rate

25

25

-

Reduced rate

13

14

1.0

Low rate

8

8

-

Tax on alcoholic beverages

Spirit-based beverages in excess of 0.7 pct. alcohol by volume,

NOK/pct. alcohol and litre

5.64

5.74

1.8

Other alcoholic beverages from 4.7 to 22 pct. alcohol by volume,

NOK/pct. alcohol and litre

3.67

3.74

1.9

Other alcoholic beverages up to 4.7 pct. alcohol by volume, NOK/litre

a) 0.0-0.7 pct. alcohol by volume

1.61

1.64

1.9

b) 0.7-2.7 pct. alcohol by volume

2.51

2.56

2.0

c) 2.7-3.7 pct. alcohol by volume

9.51

9.68

1.8

d) 3.7-4.7 pct. alcohol by volume

16.46

16.76

1.8

Tax on tobacco goods

Cigars, NOK/100 grams

184

187

1.6

Cigarettes, NOK/100 units

184

187

1.6

Smoking tobacco, NOK/100 grams

184

187

1.6

Snuff, NOK/100 grams

59

60

1.7

Chewing tobacco, NOK/100 grams

59

60

1.7

Cigarette paper, NOK/100 units

2.81

2.86

1.8

Motor vehicle registration tax

Passenger cars, etc. Tax category a2

Weight tax, NOK/kg

initial 1150 kg

35.36

33.16

-6.2

next 250 kg

70.72

72.27

2.2

next 100 kg

141.43

144.55

2.2

remainder

164.49

168.11

2.5

Motor effect tax, NOK/kW

initial 65 kW

136.57

120.59

-11.7

next 25 kW

498.11

502.47

0.9

next 40 kW

996.52

1 205.92

21.0

remainder

1 686.36

2 512.33

49.0

CO2 emissions, grams/km

initial 120 grams

-

40.20

-

next 20 grams

-

190.94

-

next 40 grams

-

502.47

-

remainder

-

1 406.90

-

Delivery vans class 2. Tax category b,3

pct. of passenger car tax

20

22

2.0

Camper vans. Tax category c,4

pct. of passenger car tax

13

22

9.0

Dual-purpose cars. Tax category d,5 pct. of passenger car tax

55

-

-

Weasels. Tax category e, pct. of value

36

36

-

Motor cycles. Tax category f, unit tax

9 389

9 558

1.8

Piston displacement tax, NOK/cm3

initial 125 cm3

0

0

-

next 775 cm3

32.25

32.83

1.8

remainder

70.72

71.99

1.8

Motor effect tax, NOK/kW

initial 11 kW

0

0

-

remainder

417.84

425.36

1.8

Snow scooters. Tax category g

Weight tax, NOK/kg

initial 100 kg

13.24

13.47

1.7

next 100 kg

26.47

26.95

1.8

remainder

52.92

53.87

1.8

Piston displacement tax, NOK/cm3

initial 200 cm3

2.77

2.82

1.8

next 200 cm3

5.51

5.61

1.8

remainder

11.02

11.22

1.8

Motor effect tax, NOK/kW

initial 20 kW

35.29

35.93

1.8

next 20 kW

70.55

71.82

1.8

remainder

141.12

143.65

1.8

Taxis. Tax category h6, pct. of passenger car tax

40

40

-

Vintage cars. Tax category i, NOK

3,091

3,147

1.8

Mini buses, Tax category j7, pct. of passenger car tax

35

40

5.0

Annual tax on motor vehicles, NOK/year

Ordinary rate

2,865

2,915

1.7

Motor cycles

1,615

1,645

1.9

Caravans

955

970

1.6

Tractors, mopeds, etc.

365

370

1.4

Annual weight-based tax

varies

varies

1.8

Re-registration tax

varies

varies

1.8

Petrol tax, NOK/litre

Sulphur-free 8

4.10

4.17

1.7

Low-sulphur 9

4.14

4.21

1.7

Auto diesel tax, NOK/litre

Sulphur-free 10

2.97

3.02

1.7

Low-sulphur 11

3.02

3.07

1.7

Marine engine tax, NOK/HP

137.50

140.00

1.8

Electricity consumption tax, øre/kWh

General rate

10.05

10.23

1.8

Reduced rate

0.45

0.45

-

Lubricating oil tax, NOK/litre

1.65

1.68

1.8

Tax on mineral products

Base-tax on heating oil, NOK/litre

0.421

0,429

1.9

CO2 tax

Petroleum activities, NOK/litre or Sm3

0.79

0.80

1.3

Mineral oil, NOK/litre

0.53

0.54

1.9

Mineral oil in the wood-processing, herring meal and fish meal industries, NOK/litre

0.27

0.27

-

Petrol,

0.79

0.80

1.3

Natural gas12, NOK/Sm3

-

0.47

-

LPG13, NOK/kg

-

0.60

-

Sulphur tax, NOK/litre

0.07

0.07

-

Tax on the final treatment of waste

Landfills for waste disposal, NOK/tonne

Landfills – high environmental standard

416

423

1.7

Landfills – low environmental standard

542

552

1.8

Incineration plants, NOK/emission unit

varies

varies

1.8

CO2 tax on incinerated waste, NOK/tonne

41.28

59.00

42.9

Tax on health- and environmentally damaging chemicals

Trichloreten, NOK/kg

56.67

57.69

1.8

Tetrachloreten, NOK/kg

56.67

57.69

.18

Tax on greenhouse gases HFC and PFC

NOK/tonne CO2-equivalents

190.55

193.98

1.8

Tax on emissions of NOx, NOK/kg

-

15.00

-

Tax on chocolate, etc., NOK/kg

16.07

16.36

1.8

Tax on non-alcoholic beverages

Finished product, NOK/litre

1.61

1.64

1.9

Concentrate (syrup), NOK/litre

9.81

9.99

1.8

Carbonate, NOK/kg

65.12

-

Tax on beverage packaging, NOK/unit

Environmental tax

a) Glass and metals

4.54

4.62

1.8

b) Plastics

2.74

2.79

1.8

c) Carton and cardboard

1.13

1.15

1.8

Base-tax on disposable packaging, NOK/unit

0.93

0.95

2.2

Sugar tax, NOK/kg

6.23

6.34

1.8

Stamp duty, per cent of sales value

2.5

2.5

-

1 Change in Value Added Tax is stated in percentage points.

2 Group a: Passenger cars, delivery vans class 1 and buses less than 6 meters in length, with up to 17 seats. For vehicles with no specification as to CO2 emissions, piston displacement will be retained as a factor in determining the amount of tax.

3 Group b: Delivery vans class 2. For vehicles with no specification of CO2 emissions ipiston displacement will be retained as a factor in determining the amout of tax.

4 Group c: Campervans. For vehicles with no specification of CO2 emissions, piston displacement will be retained as a factor in determing the amount tax, Change stated in percentage points.

5 Group d: Dual-purpose cars with total weight not exceeding 7500 kg. To be abolished as a separate vehicle category. 6 Group h: Taxi and transportation of disabled people. For vehicles with no specification of CO2 emissions, piston displacement will be retained as a factor in determing the amount tax, Change stated in percentage points.7 Group j: Buses less than 6 meters in length, with up to 17 seats, of which at least 10 are forward-facing. For vehicles with no specification of CO2 emissions, piston displacement will be retained as a factor in determing the amount tax,

8 Petrol with a sulphur content of 10 ppm or less.

9 Petrol with a sulphur content between 10 ppm and 50 ppm.

10 Auto diesel with a sulphur content of 10 ppm or less.

11 Auto diesel with a sulphur content between 10 ppm and 50 ppm.

12 Applicable from 1 July 2007.

13 Applicable from 1 July 2007.

Source: Ministry of Finance.

4 Allocation of public sector revenue from direct and indirect taxes

Table 5 offers an overall overview of the main categories of direct and indirect taxes, and the part of the public sector to which the revenue from each of the main categories accrue. Overall revenue from direct and indirect taxes is estimated at about NOK 948 billion for 2006, of which about 87 percent accrues to central government, 11 percent to local government and 2 percent to regional government.

The main part of the tax revenue accruing to local and regional government is in the form of income and wealth tax paid by taxpayers who are individuals. About 30 percent of central government revenue originates from value added tax, excise duties and customs duties. About 19 percent originates from taxpayers who are individuals, whilst about 18 percent is in the form of income and wealth tax from those who pay their taxes in arrears, together with employer’s social security contributions from Mainland Norway. About 30 percent of 2006 central government revenue is in the form of direct and indirect taxes from the petroleum sector. Other direct and indirect taxes account for about 2 percent.

Table 5 Accrued direct and indirect taxes allocated by tax creditors.1 2006 estimates. NOK billion

Central government

Local government

Regional government

In total

Individual taxpayers

158.7

93.4

19.0

271.1

Tax on ordinary income

76.8

87.2

19.0

183.0

Surtax

10.9

-

-

10.9

Social security
contribution

68.2

-

-

68.2

Wealth tax

2.8

6.2

-

9.0

Businesses (which pay their taxes in arrears)

50.8

1.3

0.2

52.3

Income tax 2

50.5

1.3

0.2

52.1

Wealth tax

0.3

-

-

0.3

Property tax

-

4.4

-

4.4

Employer’s social security contribution

100.4

-

-

100.4

Indirect taxes

252.4

-

-

252.4

Value added tax and investment tax

167.7

-

-

167.7

Excise duties and customs duties

84.6

-

-

84.6

Petroleum

246.4

-

-

246.4

Tax on income

242.5

-

-

242.5

Tax on extraction, etc

3.9

-

-

3.9

Other direct and indirect taxes

19.9

0.9

-

20.8

Social security and pension premiums, other central government and social security accounts 3

15.4

-

-

15.4

Tax on dividends for foreign shareholders

1.4

-

-

1.4

Other direct and indirect taxes 4

3.1

0.9

-

4.0

Total direct and indirect taxes

828.4

100.0

19.2

947.7

Of which direct taxes

576.1

100.0

19.2

695.4

1 Overall figures are in accordance with the definitions applied in the National Accounts, but the classification into tax types deviates somewhat therefrom.

2 Including tax on shipowning companies encompassed by the taxation scheme for shipowning companies, and power stations.

3 Including, inter alia, the Norwegian Public Service Pension Fund.

4 Including certain revenue items classified as tax revenue in the National Accounts, but not entered as tax revenue in the Fiscal Budget.

Source: Ministry of Finance.