The state budget for next year is NOK 1,883 billion. 410 of them come from the Oil Fund. Thus, more than every fifth kroner of the government’s expenses is covered by the return of the fund. 15 years ago, the same number was every 20 kroner. Nevertheless, we are well below the operating rule for oil money use, which is 3 per cent of the fund. But a chalk line of 3 percent of a fund that is constantly rising to new heights can hardly be said to be a limiting factor anymore. The chalk line is not restrictive A quick calculation shows how this has played out so far this year: In January 2023, the value of the oil fund was around NOK 12,400 billion. The chalk line for oil money use would have been NOK 372 billion at that time. On state budget day, i.e. 6 October 2023, the value of the oil fund was just over NOK 15,000 billion. The chalk line has moved to NOK 450 billion in nine months. So by sitting on their hands and doing nothing, the government has almost magically got almost NOK 80 billion more to “rode with” – without breaking the rules of action. The magical extra billions are only due to the formidable growth in the fund. Norway can continue into Sleeping Beauty for a while longer – and not have to reflect on how enormously dependent we are on the oil money to make the budget go up. The Norwegian economy surfs on, defying price growth and interest rate increases. An enormous vulnerability But the magic billions also reveal an enormous vulnerability in budget policy. When it can swing up so much, it might as well swing down just as much another year. Oil Fund CEO Nicolai Tangen has warned against this vulnerability many times, and tries to remind us and the politicians at regular intervals that one cannot expect that the oil fund will continue its ascension into eternity. On the contrary, the fund can suddenly drop a lot. If, over a relatively short period of time, the fund falls by 30-40 per cent, for example, which is not at all unrealistic, we will probably be quickly awakened from our thorny sleep. The question becomes what we are going to do then. Because if the oil fund suddenly “only” amounts to 9,000 billion, for example, we cannot use more than 270 oil billion without breaking the rules of action. Then we will struggle mightily to get the budget to go up. The fund has surpassed everything When then Prime Minister Jens Stoltenberg presented the code of conduct in 2001, no one in their wildest imaginations had imagined that the fund could ever become as large as it is now. Three percent of the high figures we are talking about now is an incredible amount of money. We don’t need to be particularly restrictive. On national budget day, there will always be a lot of criticism of the government’s priorities. Some of the criticism will typically be about the government not being responsible and spending too much money. The truth is that the challenge of high oil money spending has grown greater over time, regardless of the color of the government. It is not difficult to understand that as long as the rule is as it is, governments – regardless of political persuasion – will want to spend as much as possible within the framework of responsibility. In that context, former deputy central bank governor Jan Qvigstad and economics professor Michael Hoel have recently proposed an additional rule for the use of oil money. The rule is quite intuitive and simple: expenses must grow in line with income. Sooner or later, expenditure growth in the Norwegian economy must decrease. Until then, we can sleep in the safe embrace of oil wealth. But every dream has an end, and every adventure its conclusion. Sleeping Beauty was awakened with a kiss. What will wake Norway from its deep sleep?
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We continue deeper into Sleeping Beauty – Utterance
