Amendment to the Budget 2006

Amendment to the Budget 2006

This page contains information in English about amendments to Norway's National Budget for 2006, presented to the Parliament (Stortinget) 10 November 2005. The Amendment to the Budget for 2006 presents the Stoltenberg Government's program for implementing economic policy and projections for the Norwegian Economy.

Royal Norwegian Ministry of Finance

Kristin Halvorsen
Minister of Finance
November 2005

Proposed Changes in the Fiscal Budget 2006 – the Stoltenberg Government

Amendment to the Budget 2006 – Tax policy

Press Release

No.:

89/2005

Date:

10.11.2005

Contact:

Therese Riiser Wålen , Telephone 22 24 41 09 , Mobile 940 50 886

Amendment to the Budget 2006 – Tax policy

The Government aims at bringing the overall level of taxation back to the level of 2004. This is estimated to entail an increase in the tax level by some NOK 4.9 billion on an accrued basis compared to 2005, of which NOK 3.0 billion is included in the Government’s proposal for 2006. Compared to the former government’s tax proposals, total tax revenue is estimated to be NOK 9.7 billon higher in 2006 on an accrued basis, of which NOK 3.6 billion stems from tax on labour income, NOK 2.9 billon from wealth and inheritance tax, and NOK 1.9 billon from tax on business income.
 
Tax reform

The Government will implement the main remaining features of the tax reform, which was presented to the Storting in March 2004 by the former government (Report no. 29 (2003-2004)) and endorsed by a majority in the parliament. The main objective of the reform is to achieve a more efficient and fair tax system, inter alia by removing the possibilities for active owners and self-employed to have labour income taxed as capital income at a much lower rate. The maximum rate differential between capital income and labour income is 33.5 percentage points in 2005.

In line with the proposal for 2006 from the previous government, the maximum marginal tax rate (including employer’s social security contribution) will be reduced from 61.5 per cent to 54.3 per cent. Combined with the approved tax on returns on shares above the risk-free interest rate and on corresponding income for self-employed, which implies a 48.2 per cent marginal tax rate on returns to individuals, it is possible to abolish the prevailing splitting of business income of self-employed into capital and labour income (the split model).

Tax on labour income

The Government proposes to reduce the surtax by 3 percentage points (from 12 per cent to 9 per cent) in bracket 1 and by 3.5 percentage points (from 15.5 per cent to 12 per cent) in bracket 2, compared to 2005. The overall surtax reduction is estimated to about NOK 3.3 billion. Compared to the former government’s proposal, the revenue from the surtax is estimated to increase by about NOK 2.3 billion.

It is proposed to increase the basic allowance for wage income by increasing the rate from 31 per cent to 34 per cent and the upper limit from NOK 57,400 to NOK 61,100. This is estimated to entail a tax reduction of just over NOK 1.2 billion compared to 2005, and a tax increase of about NOK 1.3 billion compared to the former government’s proposal.

The Government maintains the former government’s proposal of abolishing the supplementary employer’s National Insurance contribution on high wage income.

Wealth and inheritance taxes

The former government announced to halve the revenue from the net wealth tax by 2007, and proposed to implement about half of this reduction (NOK 1.9 billion) in 2006. In the amended budget the net wealth tax is proposed increased with NOK 260 million compared to 2005. The Government emphasises that the wealth tax in principle has good redistributive effects. However, the taxable value of wealth varies strongly between different wealth components, which weakens the redistributive effects and potentially distort investments. The Government proposes to increase the taxable value on houses and property by 25 pct., and to increase the taxable value on shares from 65 per cent to 80 per cent of market value. The basic allowance is increased from NOK 151,000 to NOK 200,000.

The Government does not maintain the former government’s proposal of reducing the inheritance tax with about NOK 690 million. The proposal of introducing a grace period for the payment of the inheritance tax on family-held businesses is however kept in the amended budget.

Business taxation

The Government withdraws the former government’s proposal to increase the depreciation rate for machinery etc. from 20 per cent to 25 per cent.

Tax bases

There are two tax bases for individual tax payers. Ordinary income consists of all types of taxable income after deductions (basic allowances, interest expenses etc.). All individuals and companies pay a tax rate of 28 per cent on ordinary income. Personal income includes income from work and/or pensions with no deductions. Surtax and social security tax are levied on personal income.

The Government proposes some changes in order to broaden the tax base, including removing tax exemptions or increasing taxation of some fringe benefits. The proposals include among other things increased taxation of telephone expenditures and PCs paid for by employers and abolishing the tax exemption for free diet for employees on the continental shelf and for the special wage supplements for seamen.

Indirect taxes

In total, the Government’s proposal to changes in indirect taxes will increase revenue by about NOK 2.6 billion.

Value Added Tax (VAT) - The halving of the rate of Value Added Tax (VAT) on food as of 1 July 2001 does not appear to have been fully passed on to consumers. Reduction of the rate from 12 to 11 percent as from 1 January 2005 has not resulted in demonstrably lower consumer prices on food. The Government proposes to increase the VAT rate on food from 11 percent to 13 percent. The Government also proposes to increase the lowest VAT rate from 7 percent to 8 percent. Accommodation services will be brought into the VAT system at a rate of 8 percent as of 1 September 2006 (as of 1 January in the former government’s proposal). The proposal entails considerable administrative simplifications, and resolves new demarcation problems resulting from a judgment recently passed by the Supreme Court (the «Porthuset Judgment»). In addition, it is proposed that VAT will be introduced on the use of mobile telephones abroad by subscribers domiciled in Norway.

Environmental taxes - The Government proposes to increase the rates of CO2 and SO2 tax for domestic sea transportation of goods, the supply fleet and national aviation to the same level as for mineral oil. The Government emphasises the role of environmental taxes and tradable emission permits to motivate firms and individuals to more environmentallly friendly behaviour. Such instruments also secure that environmental goals are reached at lowest possible costs. The main challenge in terms of Norway’s obligations under the Gothenburg Protocol is to fulfil the obligation to reduce NOx emissions. The Ministry of Finance will therefore consider taxes differentiated according to NOx emissions in cooperation with affected Ministries.

Motor Vehicle taxes - The Government proposes to introduce a registration tax on vehicles with a total weight between 3,5 and 7,5 tons corresponding to 20 percent of the tax on passenger cars. Furthermore, it is proposed that the annual tax on motor vehicles with a permitted gross weight of between 7.5 and 12 tons will be differentiated according to environmental standards. It is also proposed to increase the annual tax rate for tractors, mopeds etc. and to increase the annual tax for lorries with a permitted total weight not exceeding 7500 kg to the same level as for passenger cars. The Government aims to strengthen the environmental characteristics of the taxation of motor vehicles in the 2007-budget.

Beverage taxes etc. - The Government proposes to reintroduce the base tax on disposable beverage packaging for plastic bottles abolished in The National Revised Budget 2005, as well as reversing the former government’s proposal of abolishing the rest of the tax as of 1 January 2006. The former government’s proposals of abolishing the tax on chocolate and sweets and changing in the tax on non-alcoholic beverages are also reversed. On the other hand, the Government maintains the former government’s proposal of expanding the base to which the environmental tax on beverage packaging applies.

Table 1 Direct tax rates and thresholds etc. for 2005 and proposals for 2006

 

2005-rules

Proposal 2006

Percentage change

Employee’s National Insurance contribution

 

 

 

Wage income

7.8 percent

7.8 percent

Income from self-employment within agriculture, forestry and fisheries

7.8 percent

7.8 percent

Other income from self-employment

10.7 percent

10.7 percent

Pension income, etc.

3.0 percent

3.0 percent

Lower threshold for the payment of employee’s National Insurance contribution

NOK 29 600

NOK 29600

-

Supplementary rate

25.0 percent

25.0 percent

 

 

 

Surtax1

 

 

 

Bracket 1

 

 

 

Rate

12.0 percent

9.0 percent

-3 percentage points

Lower threshold, class 1

NOK 381 000

NOK 394000

3.4

Lower threshold, class 2

NOK 393 700

To be abolished

 

Bracket 2

 

 

 

Rate

15.5 percent

12.0 percent

-3.5 percentage points

Lower threshold, class 1

NOK 800 000

NOK 750 000

 

 

 

Tax on ordinary income

 

 

 

Individuals

28.0 percent

28.0 percent

Individuals in Finnmark and Northern Troms

24.5 percent

24.5 percent

Taxpayers which pay in arrears (businesses)

28.0 percent

28.0 percent

 

 

 

Personal allowance

 

 

 

Class 1

NOK 34 200

NOK 35400

3.5

Class 2

NOK 68 400

NOK 70800

3.5

 

 

Basic allowance applicable to wage income

 

 

 

Rate

31.0 percent

34.0 percent

3 percentage points

Upper threshold 2

NOK 57 400

NOK 61 100

6.4

Lower threshold

NOK 4 000

NOK 4000

 

 

 

Basic allowance applicable to pension income

 

 

 

Rate

24.0 percent

24.0 percent

Upper threshold 2

NOK 49 400

NOK 51100

3.4

Lower threshold

NOK 4 000

NOK 4000

 

 

 

Special wage income allowance3

NOK 31 800

NOK 31800

 

 

Special allowance relating to old age and disability etc..

NOK 19 368

NOK 19368

 

 

 

The tax limitation rule for retired persons etc.

 

 

 

Upper rate

55.0 percent

55.0 percent.

Tax-free net income

 

 

 

Single

NOK 92 100

NOK 95300

3.5

Married couple

NOK 151 000

NOK 156300

3.5

Net wealth surcharge

 

 

 

Rate

2.0 percent

2.0 percent

Limit

NOK 200 000

NOK 200000

 

 

Special allowance applicable to tax payers in Finnmark and Northern Troms

 

 

Class 1

NOK 15 000

NOK 15000

Class 2

NOK 30 000

NOK 30000

 

 

Fishermen’s and seamen’s allowance

 

 

Rate

30.0 percent

30.0 percent

Upper treshold

NOK 80 000

NOK 80000

 

 

Special allowance applicable to income from self-employment within agriculture etc.

 

 

Income-independent allowance

NOK 36 000

NOK 36000

Allowance rate above income-independent allowance

19.0 percent.

19.0 percent

Maximum overall allowance

NOK 61 500

NOK 71500

16.3

 

 

 

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

 

NOK 40 000

 

NOK 40000

 

 

Maximum allowance for labour union fees etc.

NOK 1 800

NOK 2 250

25

 

 

Allowance for travel between home and workplace

 

 

Rate per km

NOK 1.40

NOK 1.40

Lower allowance threshold

NOK 12 800

NOK 12800

 

 

 

Maximum allowance for gifts to voluntary organisations etc

NOK 12 000

NOK 12000

-

 

 

 

Special allowance for high expenses related to sickness

 

 

 

Lower threshold

NOK 9180

NOK 9180

Upper threshold

unlimited

unlimited

 

 

 

Parent allowance for documented costs associated with childcare

 

 

 

Upper threshold

 

 

 

One child

NOK 25 000

NOK 25000

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 percent

20 percent

Maximum annual saving amount

NOK 15 000

NOK 15 000

Maximum savings amount under the scheme

NOK 100 000

NOK 100 000

 

 

 

 

Employer’s National Insurance contribution4

 

 

 

Zones 1 and 2

14.1 percent

14.1 percent

Zone 3

10.2 percent

12.1 percent

1.9 percentage points

Zone 4

9.5 percent

11.7 percent

2.2 percentage points

Zone 5

0 percent

0 percent

 

Supplementary employer’s National Insurance contribution on income in
excessof 16 times the basic amount (G) the National Insurance system

12.5 percent

0 percent

-12.5 percentage points



The wealth tax

2005 rules

Proposal 20065

Percentage change

Limits NOK

Rate

Limits NOK

Rate

Local government

0 – 151 000

0.0 percent

0 – 200 000

0.0 percent

32.5

151 000 –

0.7 percent

200000 –

0.7 percent

32.5

Central government

Class 1

0 – 151 000

0.0 percent

0 – 200 000

0.0 percent

32.5

151 000 – 540 000

0.2 percent

200000 – 540 000

0.2 percent

32.5

540 000 –

0.4 percent

540000 -

Class 2

0 – 181 000

0.0 percent

To be abolished

181 000 – 580 000

0.2 percent

580 000 –

0.4 percent


1 The rate for Northern Troms and Finnmark is 9.5 percent in bracket 1 for 2005. It is proposed that the rate in bracket 1 be reduced to 7 percent in 2006. Bracket 2 applies to Northern Troms and Finnmark as well.
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 61,100 in 2006.
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 Anyone who is 62 years or older is subject to a reduced rate of 4 percentage points. Zones 2–4 shall continue to pay employer’s National Insurance contributions at the rates which applied in 2003 (10.6, 6.4 and 5.1 percent, respectively) until the difference between what the firm actually paid by way of employer’s National Insurance contribution (pursuant to the 2003 rules) and what the firm would have paid by way of employer’s National Insurance contribution at a rate of 14.1 percent equals the lower contribution threshold. The lower contribution threshold for 2006 is NOK 270,000 per firm.
5 It is proposed for 2006 that married couples be granted a double basic allowance (class 2 to be abolished).

Source: Ministry of Finance.

Table 2 Indirect tax rates for 2005 and proposed rates for 2006

Category of indirect tax

Current rate

Proposal 2006

Percentage change

VAT, percent of sales value1

Ordinary rate

25

25

0

Reduced rate

11

13

2

Low rate

7

8

1

 

 

 

Alcoholic beverages

 

 

 

Spirit-based beverages in excess of 0.7 percent alcohol by volume

 

 

 

NOK/percent alcohol and litre

5,54

5,64

1,8

Other alcoholic beverages from 4.7 to 22 percent alcohol by volume

 

 

 

NOK/percent alcohol and litre

3,61

3,67

1,7

 

 

 

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

 

 

 

a) 0.0-0.7 percent alcohol by volume

1,58

1,61

1,9

b) 0.7-2.7 percent alcohol by volume

2,47

2,51

1,6

c) 2.7-3.7 percent alcohol by volume

9,35

9,51

1,7

d) 3.7-4.7 percent alcohol by volume

16,18

16,46

1,7

 

 

 

 

Tobacco

 

 

 

Cigars, NOK/100 grams

181

184

1,7

Cigarettes, NOK/100 units

181

184

1,7

Smoking tobacco, NOK/100 grams

181

184

1,7

Snuff, NOK/100 grams

58

59

1,7

Chewing tobacco, NOK/100 grams

58

59

1,7

Cigarette paper, NOK/100 units

2,76

2,81

1,8

 

 

 

 

Motor vehicle registration tax

 

 

 

Vehicle category a2

 

 

 

Weight tax, NOK/kg

 

 

 

Initial 1150 kg

34,75

35,36

1,8

Next 250 kg

69,50

70,72

1,8

Next 100 kg

139,00

141,43

1,7

Remainder

161,66

164,49

1,8

Piston displacement tax, NOK/cm3

 

 

 

Initial 1200 cm3

10,26

10,44

1,8

Next 600 cm3

26,86

27,33

1,7

Next 400 cm3

63,18

64,29

1,8

Remainder

78,93

80,31

1,7

Motor effect tax, NOK/kW

 

 

 

Initial 65 kW

134,22

136,57

1,8

Next 25 kW

489,54

498,11

1,8

Next 40 kW

979,38

996,52

1,8

Remainder

1 657,36

1 686,36

1,7

Vehicles, category b,3 percent of category a

20

20

0,0

Vehicles, category c,4 percent of category a

13

13

0,0

Vehicles, category d,5 percent of category a

55

55

0,0

Vehicles, category e,6 percent of value

36

36

0,0

Vehicles, category f,7 unit tax

9 228

9 389

1,7

Piston displacement tax, NOK/cm3

 

 

 

Initial 125 cm3

0

0

0,0

Next 775 cm3

31,70

32,25

1,7

Remainder

69,50

70,72

1,8

Motor effect tax, NOK/kW

 

 

 

Initial 11 kW

0

0

0,0

Remainder

410,65

417,84

1,8

Vehicles, category g8

 

 

 

Weight tax, NOK/kg

 

 

 

Initial 100 kg

13,01

13,24

1,8

Next 100 kg

26,01

26,47

1,8

Remainder

52,01

52,92

1,7

Piston displacement tax, NOK/cm3

 

 

 

Initial 200 cm3

2,72

2,77

1,8

Next 200 cm3

5,42

5,51

1,7

Remainder

10,83

11,02

1,8

Motor effect tax, NOK/kW

 

 

 

Initial 20 kW

34,68

35,29

1,8

Next 20 kW

69,34

70,55

1,7

Remainder

138,69

141,12

1,8

Vehicles, category h,9 percent of category a

40

40

0,0

Vehicles, category i,10 NOK

3 038

3 091

1,7

Vehicles category j,11 percent of category a

35

35

0,0

 

 

 

 

Annual tax on motor vehicles, NOK/year

 

 

 

Ordinary rate

2 815

2 865

1,8

Motorcycles

1 585

1 615

1,9

Caravans

940

955

1,6

Vehicles with a total weight exceeding 3.5 tons12

1 785

-

160,5

Tractors, mopeds, etc.13

360/180

365

1,4/102,7

 

Annual weight-based tax, NOK/year

varies

varies

1,8

 

 

 

 

Re-registration tax

varies

varies

1,8

 

 

 

 

Petrol, NOK/litre

 

 

 

Sulphur-free14

4,03

4,10

1,7

Low-sulphur15

4,07

4,14

1,7

 

 

 

 

Auto diesel, NOK/litre

 

 

 

Sulphur-free16

2,92

2,97

1,7

Low-sulphur17

2,97

3,02

1,7

 

 

 

 

Marine engines, NOK/HP

135,00

137,50

1,9

 

 

 

 

Electricity consumption, øre/kWh

 

 

 

General rate

9,88

10,05

1,7

Reduced rate

0,45

0,45

0,0

Lubricating oil, NOK/litre

1,62

1,65

1,9

 

 

 

 

Tax on mineral products

 

 

 

Base-tax on heating oil, NOK/litre

0,414

0,421

1,7

CO2-tax, ordinary rate

 

 

 

Petroleum activities, NOK/litre or Sm3

0,78

0,79

1,3

Mineral oil, NOK/litre

0,52

0,53

1,9

Petrol, NOK/litre

0,78

0,79

1,3

CO2-tax, reduced rate18

 

 

 

Mineral oil, NOK/litre

0,31

-

71,0

Petrol, NOK/litre

0,28

-

182,1

Sulphur tax, ordinary rate, NOK/litre

0,07

0,07

0,0

Sulphur tax, reduced rate, NOK/litre19

0,03

-

133,3

 

 

 

 

Waste tax

 

 

 

Landfills for waste disposal, NOK/ton

Landfills – high environmental standard

409

416

1,7

Landfills – low environmental standard

533

542

1,7

Incineration plants, NOK/emission unit

varies

varies

1,8

CO2-tax on incinerated waste, NOK/ton

40,57

41,28

1,8

 

 

 

 

Tax on health- and environmentally damaging chemicals

 

 

 

Trichloreten, NOK/kg

55,71

56,67

1,7

Tetrachloreten, NOK/kg

55,71

56,67

1,7

 

 

 

Tax on greenhouse gases HFC and PFC

 

 

 

NOK/ton CO2-equivalents

187,27

190,55

1,8

 

 

 

Chocolate and sweets, NOK/kg

15,79

16,07

1,8

 

 

 

 

Non-alcoholic beverages

 

 

 

Finished product, NOK/litre

1,58

1,61

1,9

Concentrate (syrup), NOK/litre

9,64

9,81

1,8

Carbonate, NOK/kg

64,00

65,12

1,8

 

 

 

 

Tax on beverage packaging, NOK/unit

 

 

 

Environmental tax

 

 

 

a) Glass and metals

4,46

4,54

1,8

b) Plastics

2,69

2,74

1,9

c) Carton

1,11

1,13

1,8

Base-tax on disposable beverage packaging.

0,91

0,93

2,2

 

 

 

Sugar, NOK/kg

6,12

6,23

1,8

 

 

 

 

Stamp duty, percent of sales value

2,5

2,5

0,0

1Change 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.
3 Group b: Delivery vans class 2. Lorries with a permitted total weight not exceeding 7500 kg.
4 Group c: Campervans.
5 Group d: Dual-purpose cars with total weight not exceeding 7500 kg.
6 Group e: Weasels.
7 Group f: Motorcycles.
8 Group g: Snowmobiles (snow scooters).
9 Group h: Taxi and transportation of disabled people.
10 Group i: Vintage cars.
11 Group j: Buses less than 6 meters in length, with up to 17 seats, of which at least 10 are forward-facing.
12 Motor vehicles with a total weight exceeding 3.5 tons will pay the ordinary rate.
13 Reduced rate to be abolished. Tax to be payable at the ordinary rate
14 Petrol with a sulphur content of 10 ppm or less.
15 Petrol with a sulphur content between 10 ppm an 50 ppm.
16 Auto diesel with a sulphur content of 10 ppm or less.
17 Auto diesel with a sulphur content between 10 ppm an 50 ppm.
18 Reduced rate to be abolished. Tax to be payable at the ordinary rate.
19 Reduced rate to be abolished. Tax to be payable at the ordinary rate.

Source: Ministry of Finance.