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Norway’s tax system has increased inequality, report finds

Income inequality has increased in Norway as a result of changes to the country’s tax system under successive Erna Solberg governments, according to a statistical analysis.

Norway’s tax system has increased inequality, report finds
PM Erna Solberg at a conference in Munich, Germany earlier this year. Photo: AFP

The analysis, conducted by Statistics Norway (SSB), looked at the distributive effect of taxation under six years with Solberg as head of government in comparison with 2013, the year the Conservative PM came to power.

“Changes to both income and inheritance tax as well as changes to indirect taxation are all pulling in the direction of less distribution (of wealth),” SSB researcher Thor Olav Thoresen told news agency NTB.

Budgets since 2013 have consistently made cuts to tax. Overall, tax has been reduced by 25.5 billion kroner, including a reduction in income tax from 28 to 22 percent, NTB reports.

It is this particular change which has had the biggest impact on overall income inequality, according to the SSB analysis.

In order to make up for lost state revenue resulting from the income tax cuts, a change was made in 2016 introducing a graded tax code (trinnskatt or bracket tax) in place of a surtax for the highest earners (topskatt).

The decision to reduce the income tax rate was broadly supported in parliament in keeping with a reduction in business tax, also from 28 percent to 22 percent, in keeping with the OECD average, according to NTB’s report.

Less popularly, Solberg’s government has also scrapped a levy on inheritances and cut wealth tax (formuesskatten).

But the latter change has had little effect on income equality, the SSB report concludes.

“We expected the effect from wealth tax changes to be greater. The reason is that these tax reductions have encompassed a number of households with low incomes but high wealth,” Thoresen told NTB. That could include persons with temporarily low incomes due to investment losses, he said.

But the effects of the tax cuts have been greatest amongst those with the highest wealth, as expected, NTB writes.

Hadia Tajik, deputy leader and finance spokesperson with the opposition Labour party, criticized taxation under the Conservatives..

“The richest have been given 100 times more in tax cuts than the lowest-paid under Erna Solberg. If you want less inequality, tax policies have to be distributive. That’s the fairest way, and gives a better basis for the country to create value,” Tajik said.

The SSB analysis takes only personal taxation into account and does not include social welfare, which has been strengthened under Solberg, Conservative spokesperson for finance Henrik Asheim said.

“The tax system has many purposes and makes many considerations. It’s not just a question of distribution, but also ensuring it pays to work, that new companies are created and that tax is paid on things we don’t like,” Asheim told NTB.

In a previous study of the redistributive effect of tax policies under eight years of the centre-left governments which preceded Solberg, SSB found that changes to tax rules increased the distributive effect.

READ ALSO: Here is Norway's budget proposal and what it means for you

OIL

Why Norway’s earnings dropped in 2020 despite steady taxes from individuals

Did Covid-19 take a chunk out of your income last year? You’re not alone. The pandemic also cost Norway ten percent of its tax earnings. But the revenue loss can’t be spotted when looking at payments from regular tax payers.

Why Norway's earnings dropped in 2020 despite steady taxes from individuals
Photo: Giorgio Grani on Unsplash

While the state’s reduced income is linked to the Covid-19 pandemic, and the measures to combat the spread of the virus, individuals last year actually paid more tax than the year before. 0.8 percent, to be precise.

Yet the Norwegian tax revenue amounted to 858 billion kroner, 85.8 billion euro, last year, a 9.1 percent decrease from 2019, according to official figures from Statistics Norway (SSB).

Plummeting oil prices

The main driver of the decline is the reduced income from taxes on petroleum. The industry only paid 28 billion kroner, about 2.8 billion euro, in taxes last year. A staggering 80 percent drop from the 134 billion kroner paid the year before.

The petroleum industry is by far Norway’s largest economic sector. And, like all oil-exporting countries, Norway has been hard-hit by the sudden drop in demand ­– coupled with a global glut – for petroleum, noted, among others, by the OECD.

The impact of the pandemic on the international petroleum and crude oil market was undeniable when the barrel price plummeted from 45 dollars in March last year, to a record low at under 25 dollars in April. And all through the pandemic it fluctuated below 45 dollars, before eventually making a recovery in December, according to the overview from Business Insider.

Support investments

To help the industry weather the storm, Norway slashed its taxes and fees.

“Oil and gas industry is an important resource for Norway,” said Minister of Finance Jan Tore Sanner in a May press release.

“It is therefore important for the government to contribute to upholding the activity in the oil and gas industry and the suppliers to this industry in order to ensure that they make it through the Covid-19 crisis,” he continued.

The goal was to free up an additional 100 billion kroner, 10 billion euro, for investments.

Increased activity

The approach seems to have been successful. A recent report by the Norwegian Petroleum Directorate (NPD, ‘Oljedirektoratet’), concludes that activity on Norway’s continental shelf was bustling last year, despite the problems plaguing the industry in the rest of the world.

“While 2020 has been an unusual year in many ways,” said Director General Ingrid Sølvberg in NPD in a press release, “investments on the Shelf are at the same level as previous years.”

Fossil-dependent

Not everyone shares the enthusiasm, however.

Member of Parliament Kari Elisabeth Kaski from the Socialist Left Party thinks the investment level may increase Norway’s reliance on the fossil energy sector. This is particularly problematic, she believes, in a time where more resources and attention ought to be directed towards sustainable and green energy solutions.

“The reality is that one has given subsidies of such a magnitude that investments in oil have exceeded expectations,” she told newspaper Aftenposten in January.

“This makes Norway more dependent on oil, an unwise direction for Norway to take in the recovery of this crisis,” she continued.

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