Next year, 460 billion fresh oil kroner will be injected into the Norwegian economy. With that, Finance Minister Trygve Slagsvold Vedum (Sp) keeps his foot firmly planted on the gas pedal, and gives even more traction to the economy into the election year. This is happening at a time when the government expects a breakthrough year for the Norwegian economy in 2025, while price growth is still expected to be some way above the target. Spending so much money may not be the best strategy if you want quick interest rate cuts. This is something the Minister of Finance is fully aware of. But he seems to have made a choice: It is easier to spend more money and stimulate the economy, than to tighten and help Norges Bank start interest rate cuts. Nothing to brag about Although the government stays well within the code of conduct for the use of oil money, it is not exactly something to brag about – it is expected that they do. The reason why we can continue in this way is quite simple: The oil fund has grown strongly over many years, which has meant that the politicians have escaped tough priorities. The operating rule states that we cannot use more than 3 percent of the fund over time. But when the fund is constantly growing, 3 percent is no longer a particularly tight limit. During 2024 alone, the growth in the oil fund has made it possible for the government to spend over NOK 100 billion extra, without them having to do anything special for it. It is this growth that has made room for so much extra spending, without requiring new priorities or cuts. A well-hidden addiction One thing is that we spend more oil money in kroner and øre every year, which seems quite logical. But that does not necessarily show how dependent we are on the oil money. We see this dependence more clearly elsewhere – in a steep curve far down in the budget documents. This shows the proportion of the national budget that is financed with oil money. Simply put, this percentage shows how much of the budget is covered by oil money, and that proportion is constantly increasing. In 2008, approximately 7 per cent of the money in the state budget came from the oil fund. In 2012, it increased to around 10 per cent, or one in ten kroner. And since then, the proportion has continued to increase. We are now approaching a level where almost one in four kroner comes from the oil fund. This shows how we have gradually become more dependent on the oil money without it necessarily being so obvious. Doesn’t agree with the long lines This summer saw the government’s perspective message which draws the long lines forward for the Norwegian economy. Challenges highlighted are an aging population, increased pension costs and a green transition that requires large investments. It calls into question whether this ever-increasing use of oil money is sustainable in the long term. If we continue to increase our dependence on oil money to finance the state budget, what happens the day the oil fund’s return is no longer enough? Comes with a price In the short term, spending can keep the wheels turning, but it comes with a price. Norges Bank is clear that high spending can help keep inflation up, which in turn can lead to higher interest rates for a longer period of time than desired. It will affect both businesses and consumers with increased loan costs and less room for action. The use of money makes up all the problems the politicians would prefer to push into the future, when today we spend such large sums without having to make difficult choices. The challenges are pushed on, and can become much more difficult to handle when the oil money is no longer as big a lifeline. High stakes before the election In a year’s time there will be a general election, and for the current government it will be a great advantage if the interest rate cuts are well under way by then, so that people notice that the economy is getting easier and expenses are going down. But with this budget, it seems that the government, rather than waiting for interest rate developments over which they have limited control, is choosing to do what they can to stimulate the economy now. They are clearly hoping that it will give people a sense of financial relief before the election. But in reality they are playing a high game. Published 07.10.2024, at 09.10
ttn-69
He obviously does not long for interest rate cuts – Statement
