– It is not a disaster, but it does not help to bring down the interest rate. The budget could have been even tighter, says economics professor Ola Honningdal Grytten.
The government will spend NOK 460.1 billion in the state budget. That is almost 28 billion more than last year, calculated in 2025 kroner, but well below the action rule.
Finance Minister Trygve Slagsvold Vedum (Sp) promises real wage growth for everyone, increased safety and security and tax and duty cuts totaling NOK 17.5 billion if the government’s budget proposal is adopted.
– Too high oil money use
Grytten, who is a professor of economic history at the Norwegian School of Economics, believes that the government should settle on a more moderate level.
He points out that there is some redistribution in the budget, but that it is marginal. Among other things, he refers to the tax cuts for those earning less than a million, which the professor believes “were not worth the trouble”.
On Monday morning, Vedum said NRK that the income tax for those who earn less than NOK 1 million will be reduced slightly with next year’s state budget.
Here we are talking about NOK 10,000 in tax relief for those with an income of NOK 200,000, NOK 4,800 for those with an income of NOK 700,000, and a few hundred shillings for those close to a million.
More optimistic than Norges Bank
Nils Kristian Knudsen, interest rate and currency strategist at Handelsbanken Capital Markets, points out that the budget appears to be more expansive than expected.
– Norges Bank expected a budget stimulus of 0.3 per cent, while the government’s proposal here is 0.5 per cent. So far, it looks like the government is spending a little more money than the central bank assumed, he says.
This may mean that you get a high interest rate for longer, but Knudsen emphasizes that you must have more information about how the money is distributed in order to be able to estimate how the budget may affect the economy.
– The answers lie in the details, he says.
The Minister of Finance will present the government’s proposal for next year’s state budget at 10 a.m. on Monday.
Interest rate cuts may take even longer
– It is a more stimulating state budget than the one Norges Bank based on in its report in September. The government expects growth twice as high as the bank assumed, and higher inflation, says chief economist Elisabeth Holvik at Sparebank 1.
Thus, she believes a cut in the key interest rate will come in March at the earliest – and perhaps even later.
– In a situation where Norway struggles to lower interest rates, while neighboring countries manage to do so, it is clear that this is one of the explanations. We have the oil fund, and the government uses so much of it in the state budget, says Holvik.
The chief economist also does not believe that the budget can be good news for the krone exchange rate. She says that what would have been most useful now in order to strengthen the krone are measures that lift productivity growth in the economy.
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