Remarks by Angel Gurría, OECD Secretary-General
Norway’s new government has taken over responsibility for a prosperous, well-managed economy, where people are generally happy – indicators of both material and non-material welfare are at high levels. Intelligent use of wealth from petroleum resources and active use of monetary policy within the flexible inflation-targeting framework have insulated Norway from the worst of the financial crisis-induced recession and supported the recovery. There are challenges in a number of areas, which are taken up in this Survey.
Monetary policy and financial stability. Flexible inflation targeting has worked well in the face of the financial turmoil of the past decade. The authorities have been rightly concerned about rising house prices and the vulnerability of highly-geared households. Policy interest rates have been somewhat higher than would have otherwise been warranted because of this. Signs of a cooling housing market may be due to guidance on loan-to-value ratios and perhaps also to anticipation of tighter capital requirement for banks. Norway has adopted a counter-cyclical buffer, to strengthen the banking system in case of severe shocks, before others. Its operation will involve some learning by doing and, while not being concerned with fine tuning, should also give the central bank a little more room for manoeuvre in its use of policy rates.
Fiscal policy. The new government continues to follow the cross-party consensus on keeping the structural non-petroleum budget deficit to 4% of the value of the Government Pension Fund Global (GPFG) over the business cycle; a structural non-petroleum deficit of around 3% of the GPFG is budgeted for 2014. The real return on the assets of the GPFG has often been less than 4%. Despite the benefit of petroleum revenues, overall taxation levels are quite high. A reduction in Norway’s relatively high taxation, beyond the steps taken in the 2014 budget, with concomitantly lower public spending growth, could increase economic dynamism. With greater attention to prioritisation and spending efficiency, there will still be room for increasing public expenditure in some areas. Full transparency in public finances is important for maintaining consensus and effective planning.
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Promoting entrepreneurship. Current prosperity has tended to disguise a slowing of underlying productivity growth. To sustain growth in living standards as petroleum production declines, a thriving culture of entrepreneurship is necessary to spot and exploit opportunities, and to raise risk-capital and other resources. Public support for innovation should be based on good framework conditions in regulatory and competition policy, with direct support being carefully managed.
Education, skills and the labour market. Education and labour market policy have important parts to play in setting the incentives for people to develop necessary skills and to participate fully in economic activity, while maintaining the co-operation and solidarity characteristic of Norway. The combination of the flat wage structure, highly subsidised tertiary education and large numbers of people taking early retirement through disability may not be appropriate for encouraging the development and effective use of those skills.
For further information please contact the Norway Desk at the OECD Economics Department.
The Secretariat’s draft report was prepared for the Committee by Paul O’Brien and Yosuke Jin, with statistical assistance from Josette Rabesona, Valéry Dugain and Hermes Morgavi under the supervision of Patrick Lenain.