Transcript (Government Pension Fund - Global) Considerably

Budgeting in Norway
Working party of Senior Budget Officials, OECD
Morten Baltzersen
June 2006
1
2
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So H p ug a
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A a
M fr i ry
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Br ico
Chaz
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Finansdepartementet
Norway has a strong economy
GDP per capita. 2003
adjusted for purchasing power. USD
60000
60000
50000
50000
40000
40000
30000
30000
20000
20000
10000
10000
0
0
Finansdepartementet
GDP
GDP growth in Norway
GDP
5
Mainland GDP
4
3
1
3
20
05
20
04
20
03
20
02
0
19
96
•
2
20
01
•
Average growth in GDP
1995-2005 in Norway:
2,8 % GDP
3,1 % mainland GDP
20
00
•
Mainland
average
19
99
•
6
19
98
•
Average growth in GDP
1995-2005:
3,3 % US
2,0 % Euro-area
19
97
•
Finansdepartementet
Strong growth in labour productivity
Labour productivity of the total
economy, year 2000 equals 100
Average growth in labour
productivity 1994-2004:
•
Norway 1,8 %
•
US 2,0 %
•
Euro-area 0,9 %
115
110
105
100
95
90
85
19
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
04
80
4
Norway
USA
Euro-area
Finansdepartementet
High labour market participation rate
Labour participation rate
Labour market participation rate
for population between 15-64
years in 2004:
90
• Norway 79,2 %
70
• US 75,4 %
60
• OECD 70,1 %
• Euro-area 71,4 %
80
50
40
30
20
10
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
0
5
USA
Euro-area
OECD
Norway
Finansdepartementet
..and low unemployment
Unemployment rate
Unemployment rates in
2005:
• Norway 4,6 %
12
10
8
• US 5,1 %
• OECD 6,5 %
• Euro-area 8,7 %
Euro-area
6
OECD
Norway
4
2
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
0
6
USA
Finansdepartementet
High financial investments
General government’s net lending, pct.
of GDP
General government’s net
lending as share of GDP in
2005:
•
•
Norway 15,9 %
US -3,7 %
20
15
10
5
0
-5
7
OECD -3,2 %
•
Euro-area -2,9 %
-10
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
•
USA
Euro-area
OECD
Norway
Finansdepartementet
Negative net financial liabilities
General government’s net
financial liabilities share of
GDP in 2005:
General government’s net financial
liabilities, pct. of GDP
•
Norway -89,3 %
80
•
USA 45,7 %
40
60
20
•
OECD 46,5 %
•
Euro-area 57,2 %
The Government Pension
Fund – Global
• 250 bill. US$ (01.01.06)
• 81,7 % of net financial
wealth
8
USA
Euro-area
OECD
Norway
0
-20
-40
-60
-80
-100
1995
1997
1999
2001
2003
2005
Finansdepartementet
Public sector
Government’s expenditures, pct. of GDP
Government’s
expenditures share of
GDP in 2005:
60
50
Norway
•
Norway 39,9 %
40
30
•
EU-15 47,3 %
20
10
0
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
•
Industrial
countries 40,9 %
9
EU-15
Industrial
countries
Finansdepartementet
Future pensions
Pension expenses under the National
Insurance Scheme and net oil and gas
revenues, as share of mainland GDP
•Effective
retirement
age has decreased.
•Share
of elderly is
growing.
•Expenditure
on
pensions will increase
substantially.
•The
petroleum
revenues do not cover
future pension liabilities.
10
30
25
Pensions
20
15
10
Net oil and gas
revenues
5
0
2002
2012
2022
2032
2042
2052
Finansdepartementet
Fiscal policy rule
•
•
Petroleum income should be phased into the economy on
par with the development in expected return on the
Petroleum fund (Government Pension Fund - Global)
Considerably emphasis must be put on stabilising the
economy
In practice:
•
Over time, the structural, non-oil budget deficit shall correspond
to the real return on the Government Petroleum Fund, estimated
at 4 per cent.
•
Calculation of expected real return is based on the value of the
Fund at the beginning of the year. This way we avoid uncertainty
about oil prices during the year, but fluctuations in exchange rates
and the stock market can influence the real return and value of
the fund considerably.
•
This underpins why the rule should not be used mechanically, and
considerable emphasis should be placed on stabilising economic
fluctuations.
11
Finansdepartementet
Medium-term budgetary framework
•
The fiscal rule anchors fiscal policy in the medium
and long term:


•
Multi annual appropriations:


•
Would reduce the fiscal flexibility by “protecting”
expenditure programs from budget cuts.
Multi year appropriations would easily form a floor in
the future budget negotiations rather than a ceiling.
Remedy to avoid cost overruns:



12
Frame for total spending of oil revenues.
Comparable to multi annual aggregated spending
ceilings by limiting non-oil budget deficits.
Better planning and estimates.
Consistent policy priorities.
Thorough quality check of the total cost frame on
large investment projects.
Finansdepartementet
Pressure to increase mandatory
spending programs
•
•
13
About 50% of total expenditure on mandatory
spending programs.
Pressure for more mandatory spending programs
through:

Earmarked activity based grants to local
governments.

Vouchers in health care and other state level
provided services.

Performance based budgeting for state
agencies.
Finansdepartementet
Off budget spending
Pressure to circumvent budget constraints by off
budget financing:
• Earmarking oil revenus for off budget spending.
• Earmarked off budget funds.
• Cash budgeting under pressure:
 Loan financing (under the line) of investments
 Public-private partnerships
 Government enterprises for public services with
borrowing facilities.
14
Finansdepartementet
Local government (municipalities and counties)
•
Important provider of welfare services:



•
•
Growing pressure for centralization e.g. the health
sector.
Important principles for financing local
government:


•
15
Primary education, secondary education, health care,
care of elderly, kindergarten and social security.
Local production gives room for local priorities and
adjustments within fixed budgets.
Minimum national standards in important areas as
education.
An overall governmental financing consisting of taxes
and transfers (block grants and some earmarked
grants).
Grants based on income equalization due to large
regional differences in tax base and costs.
Local tax autonomy would undermine this system.