Proposed tightening of fiscal measures in revised 1998 Budget

Download article in original language : NO9805167NNO.DOC

The revised national Budget for 1998 was made public by the Norwegian Government on 15 May 1998. The Government is concerned about the present overheating in the economy, and proposes that employers must set aside 2% of paybill as well as paying a larger share of the cost of sick pay benefits.

The revised national Budget was made public on 15 May 1998. The Government - a minority coalition of the three centre parties - is proposing the following measures, among others, in order to reduce the pressure on the Norwegian economy:

• an extension of the period during which employers pay sickness benefits in respect of sick employees, from two weeks and two days to three weeks;

• an increase of 5.0 percentage points in employers' social security contributions on annual incomes more than NOK 680,000. Through this measure, the Government wants to encourage moderation in relation to management salaries.

• an increase in electricity tax;

• a requirement for companies to set aside 2% of paybill into a non-interest bearing account in the Bank of Norway (Norges Bank);

• the introduction of a temporary tax of 5% on investments in the building and construction sector; and

• a reduction in the allocation of funds for labour market measures.

Macroeconomic estimates in the revised Budget have also been adjusted in relation to the original budget proposal put forward by the Government in the autumn of 1997. The Government's general wage growth figures for 1998 have been readjusted from 3.5% to 5.0%, and it is suggested that the figures may be even higher. The estimate for the unemployment rate has been adjusted from 3.75% to 3.2%.

The revised national Budget has been criticised by the other political parties. They object to many of the measures proposed, and argue that the measures will not stop the "overheating" of the Norwegian economy. The Government has already indicated that it does not expect to have all the proposals approved in Parliament.

The Confederation of Norwegian Business and Industry (Næringslivets Hovedorganisasjon, NHO) believes that the Budget will not lead to the necessary tightening in the Norwegian economy. NHO also believes that too many of the measures are directed towards private enterprises, and that small and medium-sized enterprises will suffer the most due to the changes in the sick pay scheme. Both NHO and the Norwegian Confederation of Trade Unions (Landsorganisasjonen i Norge, LO) are sceptical as to the proposed cuts in the allocation of funds for labour market measures. The labour market parties have signalled in their new collective agreements that any tightening of fiscal regulations as a result of the 1998 wage settlements will not be accepted (NO9805164F).