Economic Policy Reforms 2019

Norway

GDP per capita is among the highest in OECD, both in terms of total and mainland GDP. However, growth in GDP per capita has slowed in recent years due to declining labour utilisation.

Inequality, as measured by the Gini coefficient, remains well below the OECD average, but has increased in recent years. The share of national income going to the poorest surpasses the OECD average. Greenhouse gas emissions per capita are below the OECD average, but have failed to decrease over the past two decades.

Progress on 2017 priority areas includes further reduction of the tax burden and a shift in the tax mix from income taxation towards VAT; education reform; measures to curb policy-induced early retirement; and progress in reforming support for the agricultural sector. Norway's priority to increase competition in product markets, particularly to reduce the high public ownership, has been dropped, though this issue should remain on watch.

Sustaining Norway's high and inclusive living standards through substantial redistribution and high wages requires further efforts to cut back tax burdens and maximise the efficiency of public spending, such as in public-infrastructure investment (included as a new priority) and agricultural support. Strengthening educational outcomes and removing disincentives to work at older age are key to maintain the economy’s competitiveness in light of its high labour costs.

Growth performance, inequality and environment indicators: Norway

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases.

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Policy indicators: Norway

Source: Panel A: OECD, PISA Database; Panel B: OECD, Revenue Statistics Database.

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Beyond GDP per capita: Norway

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

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Norway: Going for Growth 2019 priorities

Lower the tax burden and shift the mix. Lower taxation as a share of GDP and a shift towards indirect taxation would encourage business enterprise and productivity growth.

• Actions taken: Measures have included lowering of the corporate-tax rate from 24% to 23% in 2018 (with a parallel cut in the ordinary rate of personal income tax). The lowest value-added tax rate was further increased, from 10% to 12% in 2018.

• Recommendations: Proceed with plans for further tax-rate cuts, while broadening the tax base through, for instance, additional measures to counter base erosion and profit shifting. In addition, make greater use of property taxation and consumption taxes.

Strengthen education. Performance in secondary education is middle ranking and completion rates in upper secondary vocational and tertiary education are low.

• Actions taken: Curriculum overhaul is underway in primary and secondary schooling and a programme to improve the status and quality of teachers continues. In higher education, a series of mergers was completed in 2017 and a three-phase performance agreement process is underway.

• Recommendations: Monitor closely, and adjust if needed, the outcomes of the new measures for teachers. Reduce the number of schools to achieve economies of scale. Raise school and teacher accountability. Include the graduation rates in the formula for performance-based funding for higher education. Link further student support to completions.

Reduce policy-induced early retirement. Sickness leave and disability benefits still serve as pathways to early retirement along with biases in the public-sector pension system.

• Actions taken: Following a stakeholder agreement in March 2018, a public-sector pension reform is underway that will reduce incentives for early-retirement. Other reforms include new guidance for doctors on sick leave (2017) and new rules on eligibility for the Work Assessment Allowance (2018).

• Recommendations: Ensure the pension reforms are not diluted by concessions for certain groups. Further tighten access to sickness and disability schemes through more “third party” assessment and stronger enforcement of back-to-work plans. Consider reducing the generosity of payment for long-term sickness absence and lengthen the employer-financed phase of sick leave.

Reduce producer support to agriculture. The highly protected agriculture sector discourages the efficient use of resources and exemplifies inefficient public spending.

• Actions taken: Protective clauses for forestry-based farms and small farms have been removed in 2017. More ambitious proposals to free-up price setting and permit corporate ownership did not pass through parliament.

• Recommendations: Put import tariffs and cash subsidies for farmers on a downward trajectory and remove legislative biases that favour agriculture. Strengthen the links between policy objectives and pay-outs for cultural and environmental support mechanisms.

1Improve project selection in transport infrastructure. Too many projects go ahead that rank poorly on economic criteria.

• Recommendations: Strengthen the influence of cost-benefit analysis in project selection and improve checks against cost inflation after projects are selected.