Tight state budget proposed for 2003

The 2003 state budget proposal put forward by the Norwegian government in October 2002 is in many quarters regarded as tight in terms of spending. The proposal has been criticised by political parties both to the right and left of the centre-right coalition government as well as by the trade unions. Employers, on the other hand, are by and large satisfied with the proposed budget.

In October 2002, the Norwegian government put forward its state budget proposal for 2003. The budget is in many quarters regarded as tight, with meagre growth of 0.5% in spending compared with the 2002 budget. The new proposal does not entail significant tax or duty reductions. It is expected that the budget will contribute to lessening the pressure in the Norwegian economy and as such bring the interest rate down.

Most commentators believe that the government – a minority centre-right coalition of the Conservative Party (Høyre), the Christian Democratic Party (Kristelig Folkeparti, KRF), and the Liberal Party (Venstre) – is faced with a difficult task in attaining support for the proposal in parliament (Stortinget), as it has been criticised by parties to both the left and the right. The government’s most important collaborator, the Progress Party (Fremskrittspartiet, FRP), has expressed reluctance over the proposals. FRP wants to see more money spent in the budget, including on tax reductions and improved welfare arrangements. The government stresses, however, that it is out of the question to abandon the fiscal policy guidelines regarding use of petroleum revenues (the 'handlingsreglen') - ie that spending of oil revenues shall not exceed the real profits of the national petroleum fund. The budget has a clear conservative profile. However, significant funds are also set aside to improve pre-school and childcare facilities.

One of the more controversial recommendations in the budget is that of reducing the period during which an unemployed person may receive unemployment benefits from three years to two. The waiting period after becoming unemployed before receiving such unemployment support would be increased from three to five days. Furthermore, the requirements with regard to the minimum income below which people are entitled to receive benefits would be tightened. The purpose of all these changes is to increase the job-seeking activity of unemployed people, with a view to getting them back into employment as soon as possible. The government also proposes increased funds for the Labour Market Administration (Aetat).

It is also proposed that the rules regarding who is to cover the loss of wages of employees in the event of redundancies in struggling companies should be changed. At present, the employer has to cover the first three days' pay, after which it becomes the responsibility of the state. The government proposes increasing the period covered by the employer to 20 days. The main rationale for this is the belief that some companies adjust their operations according to this scheme, and as such pass on their wage expenses to the public authorities.

The 2002 pay bargaining round generated a higher wage growth than first anticipated (NO0206105F), and recently there has been growing speculation as to whether or not an attempt will be made to achieve a more binding 'cooperative venture on incomes policy' in Norway (NO0209101N). The government emphasises that the parties themselves must bear responsibility for wage formation. It points to the fact that continued high wage growth in the long run will lead to increasing unemployment, among other reasons because the Bank of Norway (Norges Bank) will then increase the interest rate.

The government nevertheless underlines that it will contribute to continued cooperation on incomes policy, and has revealed several measures in this area. These include an increase in the tax-deductible part of trade union contributions from NOK 900 to NOK 1,100 a year. Although such an increase was set by unions as a precondition for even entering into discussions on further cooperation on incomes policy, the proposed increase is probably too small to bring about much enthusiasm among trade unions. Simultaneously, the unions regard a number of the other proposals made by the government as provocative, not least the proposed reductions in unemployment benefits. This will, according to the unions, have an adverse affect on long-term unemployed people as well as women working part time.

The employers are by and large satisfied with the budget proposal, and are of the opinion that the budget – if accepted – will contribute to a reduction in the interest rate. However, it should be noted that most trade unions have also called for a tight budget, and are mainly critical with regard to individual recommendations and priorities in the budget proposal.