- Basic data
- Public finances and the state budget
- Banking system
- Tax system
According to cheeroutdoor.com, the Norwegian economy returned to a growth trajectory (4.1%) during 2021. The government’s fiscal measures to support economic growth continued during 2021 (their value reached approx. NOK 26 billion), but in a much smaller volume than in the crisis year 2020 (approx. NOK 300 billion). The government obtained the necessary funds through a transfer from the oil fund, thereby avoiding borrowing on international markets or issuing government bonds. The government’s fiscal measures were suitably supported by the central bank’s monetary policy, which kept the key interest rate at an unprecedented zero until autumn 2021 (it was raised to 0.75% in March 2022). In 2022, the positive economic growth trend of 3.3% is expected to continue. Household consumption has already returned to pre-pandemic levels. The value of the Norwegian krone, after a sharp weakening in the 1st half in 2020, it has gradually stabilized and is slowly strengthening, but in a long-term historical comparison, it is still at a relatively low level of around NOK 10/1 EUR, which helps the export of Norwegian goods abroad. Considering the current inflation (4.5%), real wages are growing only very slowly (roughly 1%). Registered unemployment has returned to pre-pandemic values – this year it is expected to further decrease from the current 3.5%. Among the challenges facing Norway in the coming period, we can mention in particular the decreasing labor productivity, the labor shortage, the aging population and the costly green transition of the petroleum industry.
Norway is an industrially developed country with an open economy and a high level of social welfare. Through the EEA Agreement, Norway is closely linked to the EU’s internal market, where about 3/5 of Norway’s exports go and where more than half of its imports come from. Oil and natural gas extraction plays a significant role in the national economy. Although the government has long been trying to deepen the diversification of the Norwegian economy, the products of the petroleum industry still make up about half of the value of Norwegian exports. Other export commodities are based on traditional Norwegian industries such as fish and seafood, aluminum, food and industrial fertilizers. A specific element of the Norwegian economy is the so-called oil fund, which is one of the largest sovereign funds in the world and at the same time a guarantor of the country’s fiscal stability. The market value of the fund is currently around NOK 11,500 billion. Among the largest items of import are passenger cars and means of transport for mass transport of goods and people, incl. trailers, machines, equipment and other engineering products and computer technology.
|GDP growth (%)||0.9||-1.3||4.1||3.3||2.6|
|Export of goods (billion USD)||104||82.7||159.8||179.7||169.8|
|Import of goods (billion USD)||86.2||81.3||98.5||108||107.9|
|Trade Balance (Billion USD)||15.7||-0.1||42.6||50.6||42.4|
|Industrial production (% change)||-5||4.1||3.3||3.1||3.1|
|OECD export risk||ON||ON||ON||ON||ON|
Source: EIU, OECD, IMD
Public finance and state budget
|State budget balance (% of GDP)||1.3|
|Public debt (% of GDP)||40.1|
|Current account balance (billion USD)||41.6|
|VAT||base rate 25%, reduced 15% and low 12%|
The capital gains of the oil fund, combined with the 3% fiscal rule for annual transfers of funds to the state budget, have provided the government with considerable fiscal flexibility for many years. The volume of the state budget has been constantly increasing in the last two decades, and with it the scope of public services provided by the state. Currently, up to a third of the country’s workforce is employed in the public sector, which also accounts for more than 60% of GDP generated by the onshore economy (excluding oil and gas extraction). In order to limit the negative effects of the Covid-19 pandemic, transfers of funds from the oil fund increased sharply in 2020 and 21 and deviated from the long-standing fiscal rule, according to which a maximum of 3% of the value of the oil fund can be transferred in a given fiscal year to cover negative state budget deficit. This is also why the budget ended in 2021 with a positive balance of 1.3%. The budget for 2022 already assumes that the volume of funds transferred from the oil fund will return below 3%, namely to a value of 2.6%. In 2022, the state budget deficit, excluding the transfer of funds from the oil fund, should reach NOK 322 billion (approx. USD 36 billion), which is NOK 84 billion less than the previous year. Once oil and gas production slows down (in connection with the green transition), the Norwegian government will face a number of questions related to the long-term sustainability of public finances. However, in connection with the war in Ukraine, the prediction of a possible slowdown in mining activities is extremely uncertain, and it is possible that Norway will extract oil and natural gas longer than expected.
The supervision of the financial market is ensured and the Norwegian currency is issued by the central bank Norges Bank, which is also entrusted with the role of administrator of the oil fund. In addition to Norges Bank, the state banks include eight other banks that fulfill specific tasks of credit activity in the area of housing, education, development of territorial self-governing units, development of agriculture, fisheries and postal services. The Norwegian banking sector is healthy and stable. Currently, two dozen commercial banks operate on the Norwegian market, among which DNB, Nordea Bank Norge and Danske Bank Norge play a decisive role. In addition, there are over 120 local savings banks. Both commercial banks and savings banks are universal banking institutions. The banking and financial system is completed by smaller financial houses specialized in leasing and factoring operations and, of course, insurance, reinsurance and mortgage companies. The current trend in Norwegian banking is characterized by the reduction of the number of financial institutions, the cancellation of branches and cash services in them, the reduction of the number of employees with an emphasis on electronic banking services. Deposits in Norwegian banks are guaranteed up to NOK 2 million. Norway’s main commercial banks have established a separate company, Eksportfinans, to provide export credit. The state insurance and guarantee company GIEK operates for the financial assurance of foreign operations and the issuing of guarantees. The basic interest rate was increased from 0% to 0.25% in the fall of 2021, at the very end of 2021 there was a further increase to 0.5% and in March 2022 to 0.75%.
In Norway, all natural and legal persons with resident status pay taxes on all domestic and foreign income. A company becomes a resident at the time of registration and a natural person after six months of legal residence in the country. Individuals and legal entities without resident status pay taxes on profits achieved by activities in Norway. The income of foreign workers who are not tax residents in Norway is taxed at 25% under the new PAYE system. The income of foreign athletes and artists is taxed at a lower rate of 15%. An 8% contribution to the national social insurance system is also part of the income tax.
Corporate profit tax is 22%, or providers of certain financial services up to 25%. Losses can be taken into account as a deductible item for ten years. Social and health insurance for employees is paid by the company. For natural persons, the total income tax of 22% consists of sub-taxes, which include municipal tax, regional tax, state tax and social sickness benefit. Apart from this basic scheme, other taxes such as property tax and progressive income tax ranging from 0-17.4% are applied by the state. Tax rates are in the range of 22-53%. The VAT rates are 25% (basic rate), 15% (food) and 12% (passenger transport, accommodation, TV receiver fee, admission to theaters, cinemas, museums, etc.). Details about Norway’s tax system can be found on the Norwegian Tax Authority ‘s website. A treaty on the avoidance of double taxation is in force between the Czech Republic and Norway.