Fiscal budget for 2016 presented
Finance Minister Siv Jensen on Wednesday presented the proposal for the 2016 Fiscal Budget. A budget which she said promotes employment, growth and structural adjustment in the Norwegian economy.
This is done through targeted tax reductions, high priority on infrastructure and emphasis on other measures to stimulate employment, productivity and competitiveness.
Lower demand from the petroleum sector is dampening growth and poses a structural challenge to the mainland economy.
“The 2016 fiscal budget will help dampen the macroeconomic effects of the decrease in activity in the petroleum sector, while allowing for necessary structural adjustments. Our main challenge is to create new jobs in sectors exposed to international competition. The government aims to foster productivity growth and implement measures to increase the economy’s growth potential,” Minister of Finance Siv Jensen said.
Growth in the non-oil economy has declined so far this year while the unemployment rate has increased, particularly in the more oil-dependent southern and western regions. The increase in unemployment has principally been concentrated among engineers and other occupational groups that are employed in industries that supply the petroleum sector. Within other occupational groups and in other parts of the country unemployment has remained stable or declined. The unemployment rate currently stands at 4.3 per cent.
The Fiscal Budget for 2016 forecasts a structural non-oil deficit of NOK 194 billion, equivalent to 2.8 per cent of the value of the Government Pension Fund Global. The fiscal stance, measured as the change in the structural non-oil deficit as a share of trend GDP for Mainland Norway, is estimated at 0.7 per cent. This includes targeted fiscal measures of NOK 4 billion to stimulate employment in areas and sectors that are particularly affected by the downturn. The Fiscal Budget for 2016 provides a significant stimulus to activity and employment in the Norwegian mainland economy.
Some points outlined in a press release from the Ministry of Finance:
Tax proposals for 2016
Including the proposals in the Budget for 2016, the Solberg Government has introduced tax reductions totalling NOK 22 billion since it was appointed in 2013. The Government is prioritizing tax reductions that stimulate growth and transformation, with NOK 9.1 billion in tax cuts for enterprises and individuals in the following year.
Reducing the corporate tax
The Government is proposing to reduce the corporate tax rate from 27 to 25 per cent. This will encourage investment and at the same time make it less beneficial to shift profits out of Norway to low-tax jurisdictions. To further secure the tax base the Government will also tighten the rule that limits the deductibility of interest payed to associated companies.
The proposed changes in corporate taxation will give Norway a more robust tax system that is adapted to high international tax base mobility. Tax on dividends will be adjusted to keep the overall tax on distributed profits at about the same level as today.
Tax reductions for individuals
Broad tax reductions for wage earners will make it more attractive to work. With the Government’s proposal the tax rate on ordinary income is reduced by 2 percentage points, from 27 to 25 per cent. The Government will also replace the current surtax with a new progressive tax on personal income (the bracket tax) with four brackets. The tax rate within each bracket is set so that the overall marginal tax rate on personal income is reduced for most wage earners.
The Government also proposes reductions in the net wealth tax that will strengthen Norwegian private ownership and redirect investments from real estate to business activities.
In conjunction with the 2016 budget the Government presents a white paper to the Storting outlining proposals for tax reform. The aim is to create a more effective tax system to spur productivity and growth.
Following international trends of corporate tax rate reductions, the Government proposes a tax reform that reduces the corporate tax rate further, to 22 per cent by 2018. Starting the implementation of the tax reform already in 2016 is well timed given the need to transform the economy in the face of weaker demand from the petroleum industry.