Norwegian Tax Programme for 2014
Prime Minister Erna Solberg’s Conservative Party (Høyre) led coalition government has made changes to the 2014 budget. The original budget was presented by Prime Minister Jens Stoltenberg’s Labour government just before it left office on 15th October.
The two press releases explaining the changes made as published on the Norwegian government’s website are as follows:
“The Government’s proposal for 2014 marks a new direction for Norway’s tax policy. The former government, Stoltenberg II, increased the tax level, whereas this Government is reducing taxes. The Government is giving priority to tax cuts promoting economic growth and contributing to long-term securement of the welfare system. Overall, the tax relief amounts to NOK 8 billion accrued and NOK 4.8 billion booked in 2014.
Tax on net income
The Stoltenberg II Government proposed a reduction in the tax rate on net income for corporations from 28 pct. to 27 pct. The tax rate on net income for personal taxpayers was maintained at 28 pct. Differences in these tax rates encourage tax planning and should be avoided. The Government is thus proposing to reduce the tax rate on net income to 27 pct. for personal taxpayers as well as for corporations. This will effectively reduce the general tax level in Norway. It also implies that the former Government’s poorly targeted and complicated tax relief proposals regarding the self- employed can be withdrawn.
Tax on net wealth
The Government is proposing a reduction in the tax rate on net wealth by 0.1 percentage point, to 1 pct. Reductions in the tax rate on wealth encourage savings and will in combination with a lower tax rate on ordinary income promote economic growth.
In the longer term part of the immediate revenue loss, roughly estimated to 10 – 30 pct., will thus be restored.
The Stoltenberg II Government’s proposals with regard to base broadening and the increase in the basic allowance in the net wealth tax to NOK 1 million are maintained.
The inheritance tax is abolished. This facilitates the transfer of family businesses, dwellings and holiday homes from one generation to another. It also implies a significant simplification for taxpayers. The administrative burden for the Norwegian Tax Administration will be reduced. The inheritance tax bases, which are also used as a base for the capital gains tax, will be replaced by new tax bases. These will in most cases equal the deceased’s or donor’s entry values. However, if the deceased could have sold his dwelling, holiday home or farm free of tax, the recipient is also granted a capital gains tax exemption at the inheritance settlement. In the case that the recipient does not sell the property, any capital gains tax is only due on the gains earned while the property is kept by the recipient.
Limitation of deductions for interest expenses to related parties
The Government maintains the main features of the former government’s proposal on new rules limiting tax deductions in the corporate tax base for interest expenses to related parties. According to the proposal, deductions for intra-group interest expenses will be disallowed if total net interest expenses exceed 30 pct. of an adjusted taxable income. Only net intra-group interest expenses will be disallowed. However, interest paid to unrelated lenders is included when calculating the interest deduction limit.
The Government adjusts the proposal somewhat, proposing to increase the threshold for the limitation to be applicable from interest expenses of NOK 3 million to NOK 5 million.
Initial depreciation rules
The Government also maintains the former Government’s proposal regarding the introduction of 10 pct. initial depreciation for machinery and other operating equipment in asset group d. The Government will also initiate an evaluation of the depreciation rules and how they relate to real value loss on operating equipment.
Tax incentive scheme for R&D (Skattefunn)
The Government’s proposal includes a further expansion of the Skattefunn R&D tax incentive scheme relative to the former government’s proposal. The cap on internal R&D is increased from NOK 5.5 million to NOK 8 million. The overall cap on internal and outsourced R&D is maintained at NOK 22 million as with the former government’s proposal. The 2014 amendments imply a broad extension of the Skattefunn R&D tax incentive scheme that will benefit all users of the scheme.
Other tax changes
The Government is proposing some other tax changes, inter alia:
- The social security contributions will be increased by 0.4 percentage points. This increase must be seen in connection with the reduced tax rate on net income. The special tax credit for pension income is adjusted to the other tax changes in such a manner that the minimum pension remains tax free.
- In line with the Government’s political platform the home investment savings scheme for people below the age of 34 years (BSU) is expanded. The scheme is aimed at helping young people buying a home. The Government is proposing to increase the maximum annual deposit entitling a tax credit to NOK 25 000. The overall ceiling for tax credit entitling deposits is increased to NOK 200 000.
- The Government maintains the proposed reduction in judicial registration fees on real estate, mortgage bonds etc. as well as in other sectoral taxes and overpriced fees. The price to the public should not exceed the government’s cost of providing these services.
- The Government maintains the former government’s proposals on increased tax on greenhouse gases.
- The Government cancels the former government’s proposed increase in the electricity tax. Estimated revenue effects of the tax programme for 2014. Negative figures represent tax reductions. The estimates have been calculated relative to a benchmark system for 2014. NOK million.
|Income tax for individuals||-3,345||-2,688|
|Reduce the general tax rate to 27 pct.1||-10,540||-8,430|
|Increase employee’s social security contribution by 0.4 percentage point||6,155||4,925|
|Increase the rate of the basic allowance against wage income to 43 pct. and|
|to 27 pct. against pension income||-679||-543|
|Reduce maximum amount of the special tax credit for pensioners to 30000 NOK||765||610|
|Abolish tax class 2 for married couples||1,045||836|
|Tax the transitional benefit for sole providers as wage income2||52||33|
|Simplify the taxation of electronic communications||0||0|
|Tighten tax rules for long commutes||15||12|
|Expand the home investment savings scheme for people below the age of 34 years (BSU)||-270||-220|
|Increase the threshold triggering a duty to report wages||-18||-14|
|Allow tax relief to all trade union subscriptions, etc.3||0||-3|
|Increase the mark-up in the benchmark rate for the taxation of subsidised employee|
|loans by 0.75 percentage point to 1.25 percentage points||30||15|
|Adjust the personal allowance in line with wage increases4||-62||-50|
|Adjust the upper limit of the basic allowance against pension income in line with wage increases4||-56||-45|
|Adjust the special allowance for sole providers in line with wage increases4||-21||-17|
|Maintain some other rates, limits and allowances unchanged in nominal terms, etc||239||198|
|Tax on net wealth and inheritance||-3,570||-1,940|
|Reduce the net wealth tax rate to 1 pct. Increase the taxable values of secondary homes,|
|commercial property and holiday homes. Increase the basic allowance to NOK 1 million||-1,595||-1,270|
|Abolish the inheritance tax||-1,975||-670|
|Reduce the corporation tax rate for mainland businesses to 27 pct||-2,600||0|
|Increase the special tax on oil companies5||–||–|
|Increase the economic rent tax on hydropower plants||150||0|
|Restrict the deductibility of debt interest payable to related parties||2,450||0|
|Introduce initial depreciation for operating equipment in asset group d6||-960||-300|
|Expand the Skattefunn R&D tax incentive scheme||-250||0|
|Expand the conditional tax exemption for compulsory acquisition of agricultural|
|property upon reinvestment||-1||0|
|Increase taxes on greenhouse gases to NOK 330 per tonne of CO2 equivalent6||700||640|
|Increase the CO2 tax on fishing, whaling and sealing7||30||30|
|Adjust the motor vehicle registration tax||0||0|
|Reduce the motor vehicle re-registration tax||-250||-250|
|Abolish the re-registration tax and expand the environmental component|
|of the annual weight-based tax for large motor vehicles||0||0|
|Sectoral taxes and overpriced fees||-333||-318|
|Reduce judicial registration fees to a cost-based level||-325||-310|
|Sectoral taxes and other fees8||-8||-8|
|Aggregate new tax changes in 2014||-7,979||-4,831|
|New changes with effect in 20133||-3|
|Changes in National Budget 2013||0||52|
|Changes in Revised Budget 2013||-12||6|
- 23.5 per cent in Finnmark and Nord-Troms.
- The revenue estimate takes into account the increased gross benefit for new recipients.
- The proposal has effect from 2013.
- Adjustment in line with wage increase represents overcompensation.
- The income from the petroleum sector is not included in the table because it is included in the Government Pension Fund Global. The net loss of revenues from oil companies as the result of increased special tax and reduced corporation tax is estimated at NOK 350 million accrued and NOK 175 million booked in 2014. Transfers to the Government Pension Fund Global are reduced correspondingly.
- The long-term effect of introducing initial depreciation is estimated at -400 million NOK.
- The revenue estimate also includes abolition of the tax exemptions for protected vessels, museum railways, technical facilities and cultural relics within the museum sector. The revenue estimate takes into account compensations on the expense side in the total amount of about NOK 70 million.
- This includes reduce fees for the Civil Aviation Authority Norway and for the Norwegian Railway Authority and increased annual fee for foundations.
Source: Ministry of Finance
Amendments to the 2014 Fiscal Budget
The amendments to the 2014 Fiscal Budget are a first step of the new government towards a change of policy direction. The Government will promote growth of the Norwegian economy through targeted tax reductions, high priority on infrastructure and emphasis on other measures to stimulate productivity and competitiveness.
-The Government is committed to the 2001 guidelines for fiscal policy, and will pursue a prudent fiscal policy within the confines of these guidelines, says Minister of Finance Siv Jensen.
The Government proposes an Amendment to the 2014 Fiscal Budget with a structural, non-oil deficit estimated at NOK 139 billion, which is NOK 3.9 billion higher than proposed by the previous Government (Stoltenberg II). However, the expected value of the Pension Fund has been revised upwards and the proposed structural deficit is now NOK 56 billion below the 4per cent path of the Fiscal Policy Guidelines. The spending of petroleum revenues is equivalent to 2.9 per cent of the value of the Government Pension Fund Global.
-The increased spending of petroleum revenues is targeted on measures that stimulate growth and production, says Minister of Finance Siv Jensen.
Growth in the Mainland economy seems to have slowed somewhat this year. The slowdown may well be temporary, but may also signal that high costs for businesses and high household debt are becoming a drag on growth. Growth in Mainland GDP is estimated at 2.0 per cent in 2013 and at 2.5 per cent in 2014. Both growth figures are 0.2 percentage points lower than estimated in the National Budget. The main growth drivers are fiscal policy impulses, a low interest rate and strong demand from the petroleum sector. The 2014 growth rate is close to normal, and unemployment is expected to remain at 3½ per cent.
The performance of the Norwegian economy was strong in the years before the financial crisis, and the economy has recovered after a relatively mild setback. Over the past few years, Mainland growth has been close to the historical trend. In formulating its economic policy, the Government must nevertheless consider some important challenges facing the Norwegian economy. Ten years of strong economic growth, partly driven by high oil prices, has led to an increasingly divided economy. The petroleum sector, including subcontractors, has expanded, whereas the high cost level has posed challenges for the trade exposed industries. Real wage growth has outpaced productivity growth, which has slowed down after 2005. Even if profitability has been underpinned by high product prices, the cost level now poses important challenges for exposed sectors. In addition, housing prices are very high, and household debt ratio has increased accordingly.
To address these challenges, the Government emphasises tax reductions and measures to boost the economy’s growth potential. A productivity commission will be set up to advice on how to strengthen growth in productivity.
The Government adheres to the 2001 Fiscal Policy Guidelines that stipulate a gradual and sustainable increase in the use of petroleum revenues over the fiscal budget. The increased spending shall, over time, be in line with the expected real return on the Government Pension Fund Global, which is estimated at 4 per cent. The guidelines allow automatic stabilisers to play out fully over the business cycle, and additional fiscal measures can be used to counter economic fluctuations.
The interest rate is low and capacity utilisation in the Norwegian economy is close to trend. At the same time, the Government Pension Fund Global is growing rapidly. In order to support a stable development of the Norwegian economy, the Government proposes an Amendment to the Fiscal Budget 2014 with a non-oil deficit significantly below the 4 per cent expected real return suggested by the fiscal policy guidelines. Long-term budget challenges, due to future increases in pension costs and other age-related expenses, underline the need for a prudent fiscal policy. Uncertainty about the underlying fiscal stance and the long-term return of the Fund also implies a need for prudency.
The main features of fiscal policy in 2014:
- Spending of petroleum revenues, as measured by the structural non-oil budget deficit is estimated at NOK 139 billion, an increase of NOK 3.9 billion from the Fiscal Budget. This is NOK 56 billion below the 4 per cent path, and equivalent to 2.9 per cent of the value of the Government Pension Fund Global.
- The real underlying growth in budget expenditures from 2013 to 2014 is estimated at 2.4 per cent. In nominal terms the expenditures is estimated to increase by 5.5 per cent.
- The structural, non-oil deficit as a share of mainland trend GDP is estimated to increase by 0.5 percentage points from 2013 to 2014. As measured by its impact on Mainland GDP, the 2014 budget implies a fiscal stimulus of ¼ per cent.
- The non-oil fiscal budget deficit is estimated at NOK 137 billion. The deficit is covered by a transfer from the Government Pension Fund Global.
- Net cash flow from petroleum activities is estimated at NOK 314 billion.
- The consolidated surplus on the Fiscal Budget and the Government Pension Fund, including interest and dividends, is estimated at NOK 325 billion.
- The market value of the Government Pension Fund Global is estimated at NOK 4863 billion at the end of 2013, and NOK 5340 billion at the end of 2014.
- A reduction in paid taxes and excises from 2013 to 2014 of about NOK 4.8 billion and NOK 8.0 billion on an accrual basis.
The long term role of monetary policy is to provide the economy with a nominal anchor. In the short and medium term monetary policy is to balance the need for low and stable inflation against the outlook for production and employment. The operational target for the implementation of monetary policy is defined as an annual increase in consumer prices of close to 2.5 per cent over time. The key policy rate has been 1.5 per cent since March 2012.
Government Pension Fund
The purpose of the Government Pension Fund is to facilitate government savings to finance rising public pension expenditures and support long term considerations in the spending of government petroleum revenues. The investment strategy of the Government Pension Fund is based on the Fund’s purpose, assumptions regarding the functioning of the financial markets, as well as the special characteristics and comparative advantages of the Fund. The strategy is premised on seeking the maximum possible return over time, given a moderate level of risk. The Ministry emphasizes the Fund’s role as a responsible investor. Good long-term financial return is assumed to depend on sustainable development in economic, environmental and social terms, and on well-functioning, efficient and legitimate markets. The market value of the Government Pension Fund is estimated at NOK 5 016 billion at the end of 2013, and NOK 5503 billion at the end of 2014. This represents the combined capital of the Government Pension Fund Global and the Government Pension Fund Norway.
Key figures for the Norwegian economy1)
|NOK billion2) 3)|
|Private consumption||1 175.0||3.0||2.0||2.4|
|Gross fixed investments||598.0||8.0||5.1||4.6|
|Business sector. Mainland Norway||180.9||3.2||1.6||3.7|
|Crude oil and natural gas||604.4||0.9||-5.5||4.2|
|Gross domestic product||2 906.8||3.1||0.8||2.6|
|Mainland Norway||2 200.3||3.4||2.0||2.5|
|Consumer price inflation (CPI)||0.8||2.1||1.9|
|Underlying inflation (CPI-ATE)||1.2||1.6||2.0|
|Unemployment rate (LFS)||3.2||3.5||3.6|
|Crude oil per barrel. NOK2)||649||623||600|
|Current account balance (pct. of GDP)||14.2||11.3||10.1|
- Percentage volume change from the year before.
- Preliminary national account figures.
- Current prices.
Sources: Statistics Norway and Ministry of Finance.
Key figures for the Fiscal Budget and the Government Pension Fund. NOK billion
|2013||Amended Budget 2014|
|1. Fiscal Budget|
|Revenues from petroleum activities||373.9||344.1|
|Revenues excl. petroleum activities||912.0||948.0|
|– Total expenditures||1 058.5||1 115.4|
|Expenditures on petroleum activities||30.0||30.0|
|Expenditures excl. petroleum activities||1 028.5||1 085.4|
|= Fiscal budget surplus before transfers to the Pension Fund Global||227.5||176.7|
|– Net revenues from petroleum activities||343.9||314.1|
|= Non-oil budget surplus||-116.5||-137.5|
|+ Transfer from the Pension Fund Global||116.5||137.5|
|= Fiscal Budget surplus||0.0||0.0|
|2. Government Pension Fund|
|Net transfer to the Government Pension Fund Global||227.5||176.7|
|+ Interest and dividends on the Government Pension Fund||129.4||147.9|
|= Surplus in the Government Pension Fund||356.9||324.6|
|3. Fiscal Budget and the Government Pension Fund Consolidated surplus||356.9||324.6|
Source: Ministry of Finance