The Norwegian Fiscal Policy Framework


The Government Pension Fund Global and the fiscal rule have since 2001 set out the plan for the phasing-in of petroleum income and investment returns to the Norwegian economy. The Government Pension Fund Act stipulates that the State’s net cash flow from the petroleum industry shall in its entirety be transferred to the Government Pension Fund Global, and that resources in the Fund can only be transferred to the budget pursuant to a decision by Parliament.

Since 2001 the following rule has guided withdrawals from the Fund (handlingsregelen):

  • Transfers from the Fund to the central government budget shall, over time, follow the expected real return on the Fund.
  • Significant emphasis is placed on evening out economic fluctuations to contribute to sound capacity utilisation and low unemployment.

At the inception of the fiscal rule, the expected real rate of return of the Government Pension Fund Global was set at 4 percent. Based on analysis from the Thøgersen commission, the Mork commission, and Norges Bank, the expected real rate of return was reduced to 3 percent in the spring of 2017.

The fiscal policy framework ensures preserving the real value of the Fund for the benefit of future generations. At the same time, the Fund and the fiscal rule insulates the budget from short-term fluctuations in petroleum revenue, and leaves space for fiscal policy to counteract economic downturns. In the event of large movements in the value of the Fund or in factors that affect the structural non-oil fiscal deficit, the change in the use of petroleum revenue shall be smoothed over several years, based on an assessment of the real rate of return of the Fund a few years ahead.

Even though the fiscal policy framework is especially well-suited to the particular challenges Norway faces in managing its large petroleum wealth, the fiscal rule resembles that in use in other European countries. The rule stipulates that the government expenditure shall, over time, equal government revenues from the mainland economy and the expected future real return from the Fund. Several countries, including countries in the EU, have fiscal rules that imposes limits on the budget balance.

The Revised national budget 2018 implies a structural, non-oil deficit of NOK 225.5 billion, equivalent to 2.7 per cent of the value of the Government Pension Fund Global.

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