A Less Oil Dependent State Budget in 2011

With the prospect of growth above trend and continued low unemployment, the Government has adobted a less oil dependent budget for next year. Both the interests of the state's finances and the rate and activity and employment in the competitive sector suggested such a decision. Use of oil revenues beyond the 4-percent pitch was reduced from over 19 billion in 2010 to 7.4 billion next year.

Activity in the international economy has clearly picked up since last year's strongest downturn since the Second World War. The increase is expected to continue next year, but the pace varies from country to country. The state's financial situation in developed countries creates uncertainty about the strength of growth. Many countries still need to tighten their budgets to prevent the national debt out of control.

The guideline is a plan for steady and gradual increase in the use of oil revenues in the Norwegian economy to a level that can be sustained over time. At the same time, the use of oil revenues each year adjusted economic situation. In 2009 and 2010 the government used fiscal policy in order to combat the effects of the financial crisis on employment and unemployment. As a result of this, the use of oil revenues is now significantly above the 4-percent pitch. An expansionary fiscal policy in an economic downturn must be followed by tightening of the economy when the situation normalises.

Same Oil Money

The main features of the proposed budget for 2011 is as follows (all amounts stated in the 2011-million):

The structural non-oil budget deficit is projected as 128.1 billion dollars, which is 7.4 billion higher than expected fund returns in 2011.

Tax level is kept at about the same level as in 2010.

The real, underlying growth in central government expenditure is estimated as 2 ¼ per cent from 2010 to 2011, which is slightly less than the average for the past 25 years.

Total local government revenues will increase by 5.7 billion, or 1.7 percent from 2010 to 2011. Real growth in municipal-free income is 2.75 billion, equivalent to 1.0 percent. Growth is then calculated in relation to income level in 2010 as was projected in the Revised National Budget 2010.

The non-oil budget deficit in 2011 is estimated to be 135 billion, an increase of 13.5 billion from 2010.

Net cash flow from petroleum activities is estimated to be 288 billion.

Net sales in the Government Pension Fund, where the transfer to the state budget to cover the non-oil deficit is deducted, estimated as 153 billion. The total government budget surplus and the Government Pension Fund, including interest and dividends on the Fund's capital, is estimated to be 266 billion.

The market value of the Government Pension Fund in the end of 2011 is estimated to be about 3,360 billion, while assets at the end of this year is estimated 3018 billion.

The total capital of the Government Pension Fund, which also includes domestic part of the Fund, is estimated in the end of 2011 to be about 3481 billion. By comparison, estimated state obligations to the retirement pensions of the National Insurance Scheme will be 5087 billion in the end of 2010.

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