“The most crucial task is to closely monitor the economy to maintain low unemployment, control rising prices, and ensure that wages outpace inflation, allowing for better living conditions,” stated Finance Minister Jens Stoltenberg on Wednesday as he unveiled his proposed state budget for the coming year. This budget will enter negotiations with parties including the Socialist Left, Red, and the Green Party before final adoption, indicating potential for further revisions.
Key Changes Ahead
The government’s proposal introduces several measures that could directly impact household finances:
- Increased diesel costs: The road usage tax on diesel is set to rise by NOK 0.25 per liter, alongside an increase in gasoline fees, which will adjust in line with a 2.2 percent price hike.
- Phasing out the free ferry scheme: The government plans to discontinue the free ferry service for routes with fewer than 100,000 annual passengers. Instead, they are promising reduced fares for these connections to islands and remote communities.
- The “tax lottery” for young adults: Those aged 20 to 35 will have a chance to receive a tax deduction on their taxable income, with 100,000 randomly selected individuals benefiting from a reduction of NOK 125,000. This initiative, backed by NOK 500 million, aims to encourage more young people to enter the workforce.
- Changes to electric vehicle taxation: Starting January 1, the VAT exemption threshold for electric cars will significantly decrease from NOK 500,000 to NOK 300,000. Consequently, any price exceeding NOK 300,000 will incur VAT charges. The government also announced plans to eliminate this exemption entirely by 2027, with a VAT rate of 25 percent.
- Electricity tax adjustments: A proposed reduction in electricity taxes, amounting to NOK 4 billion, will set a fixed price of 4.18 øre per kilowatt-hour throughout the year.
- Public transport discounts: A new policy will allow individuals with documented disabilities to travel for free on public transportation. Conversely, the discount for spouses linked to the honor discount will be eliminated, a move the government states reflects current family structures.
- Electricity pricing measures: The government will maintain an electricity price of 40 øre per kilowatt-hour before VAT, anticipating an expenditure of NOK 11.5 billion next year to support this and other electricity aid programs.
- Healthcare adjustments: From August 1, 2024, individuals aged 16 and 17 will no longer need to pay a deductible for GP visits. However, the deductible for specialist health services will rise by NOK 40, from NOK 403 to NOK 443. Also, the fee for missed appointments is set to increase, while the maximum deductible is proposed to rise to NOK 3,406 by 2026, reflecting price growth.
- Income tax reductions: The government suggests an overall cut of NOK 4.3 billion in income tax next year, disproportionately benefiting higher earners:
- For individuals earning between NOK 177,600 and NOK 671,600, the average tax cut will range from NOK 200 to NOK 800.
- Those with incomes between NOK 671,600 and NOK 1,167,600 will see cuts averaging between NOK 1,000 and NOK 1,400.
- Higher income earners will gain an average tax reduction of NOK 2,000.
- Changes to wealth tax: The threshold for wealth tax will increase from NOK 1.76 million to NOK 1.9 million. The government will also adjust property valuations, raising their assessed values without altering overall tax revenue.
- Union membership deductions: For union members, the tax deduction for union dues will rise from NOK 8,250 to NOK 8,700.
- Student debt relief limited: The government will limit student debt forgiveness to 88 municipalities, a significant reduction from the initially planned 189.
- Kindergarten costs held steady: The maximum price for kindergarten will remain frozen at NOK 1,200 next year, unchanged from this year, without adjustments for inflation. The provision for free kindergarten for third children and programs in Finnmark and Nord-Troms will continue.
- Continued SFO benefits: The government will maintain the provision of 12 hours of free school care per week for children in grades 1 through 3.
- Reduced parental deductions: Parental deductions will be cut to NOK 15,000 for the first child and NOK 10,000 for each additional child, down from NOK 25,000 and NOK 15,000, respectively. The government argues that expenses for kindergartens and SFO have sharply decreased.
Anticipating Moderate Price Growth
The draft state budget also outlines optimistic projections for Norway’s economic trajectory in the upcoming year:
- The government forecasts a price growth rate of 2.2 percent, a decline from this year’s figure of 2.8 percent.
- They predict real wage growth, indicating that salary increases will outpace inflation.
“Activity is set to grow at a pace faster than last year, with unemployment remaining low. We expect the current inflationary pressure to gradually ease, alongside prospects for sustained real wage growth,” the government commented in the budget overview.
(© NTB)