Unleash the billions, it’s spring

Spring has become a time when the billions are unleashed. It happened last year, when the revised budget for 2022 unleashed NOK 30 billion of new oil money. This year, the amount is close to 60 billion.

Will it be 90 billion in spring 2024?

Gone is autumn’s fear of higher interest rates. Not even a year ago was the government afraid of higher interest rates. The specter of interest only appeared to the government at the end of August last year, but it now seems to have hidden itself again.

In the Revised national budget, the government writes:

“Price growth is higher than in several decades, and significantly higher than forecast last autumn. In such a situation, there is a need for a tightening economic policy. Norges Bank has increased the key interest rate and estimates further interest rate increases in the future. Fiscal policy should play along with monetary policy.”

Yes, that’s how it should be.

But then it is added: “At the same time, fiscal policy must also take care of other considerations.”

The national budget must be used to allocate scarce resources for priority purposes. But the overall arrangement of fiscal policy has only the task of contributing to a balanced development in the economy. This means contributing to a combination of high resource utilization and low inflation.

The budget has become noticeably more expansive than planned last autumn. It is poorly adapted to the situation the government describes. Inflation and capacity utilization in the economy are higher than the government envisioned last autumn. It should mean a tighter budget, not a more expansive one. The entire burden of bringing down inflation is now eased onto Norges Bank and the country’s borrowers.

In the budget assumptions last autumn, the government badly missed the price and wage development in 2022, and what now appears to be the development this year. The government knew that when the budget was considered last autumn, but it neglected it.

Full price and wage compensation is now proposed in the central government’s expenditure, also on those items where this has not been incorporated as an automatic system.

In the Revised national budget, it is explained how it is the practice for around 40 per cent of the budget’s expenditure to be automatically regulated with the ongoing price and wage growth. This applies in particular to pensions and other benefits that are linked to the national insurance basic amount (G). If the estimated wage and price increase at a social security settlement on 1 May turns out to be too low, it will be compensated the following year. It happened last year, and it therefore results in an extra high pension settlement this year.

For the remaining 60 per cent of the expenditure on the state budget, any wage and price adjustments must be adopted. The government proposes to do so. The agricultural settlement also bears the stamp of full compensation for higher inflation.

It will not be possible to break an inflationary spiral if full compensation is provided in all parts of the economy for increased prices and costs. When the state, which makes up over 60 per cent of the economy, does that, at the same time as companies pass on increased costs to prices and wage earners demand wage increases higher than projected price growth, we may be heading into a very scary development. Indexing can once again become the norm.

The social security settlements’ practice of compensating retrospectively when price and wage growth in the previous year was too low is an unfortunate practice that should be discontinued. Such compensation is not available for wage earners.

The principle that the basic amount must be regulated by the average of price and wage growth will lead to pensioners receiving higher supplements than wage earners when wage growth is lower than the price rise. It shouldn’t be like this. Wage growth should be the ceiling of what is given in social security settlements.

Anyone who has done a bit of ski jumping knows how difficult it is to get back in when you have come out of the jump crookedly. It happened with the budget for 2023. The Center Party’s fiscal policy spokesperson Geir Pollestad recently admitted in an interview with VG that the budget process last year was arduous and messy. Now the situation is different, says Pollestad. The mood in the Center Party is good.

Yes, the atmosphere tends to be good when the billions are poured out. It can quickly turn bad again when interest rates rise more and remain at a high level for longer.

For the record: I receive a pension from Nav and thus benefit from generous G regulations.

(Terms)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using links, which lead directly to our pages. Copying or other forms of use of all or part of the content may only take place with written permission or as permitted by law. For further terms see here.