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Norway doing well under low oil prices Ambassador Aas describes $800 billion Sovereign Wealth Fund; Norway kept taxes on citizens, uses those to fund most public services TIM BRADNER For Petroleum News
How did Norway do it? This northern European nation is rich in oil and gas, like Alaska, and has its own version of a Permanent Fund. But despite the worldwide collapse in oil prices Norway is thriving today.
Its savings fund, which Norwegians call their Sovereign Wealth Fund, has a value of $800 billion and was formed in 1996, 20 years after Alaskans formed their Permanent Fund.
Norway’s Ambassador, Kare R. Aas, spoke at the Anchorage Chamber of Commerce Make it Monday forum May 15 and fielded questions about why Norway is doing so well and Alaska might soon not be.
One reason why Norway’s fund grew so much quicker, and bigger, than Alaska’s is that most of the Nordic country’s oil revenues went into the fund compared with a small part of Alaska’s oil revenues.
Thirty percent of oil royalties in Alaska go to the Permanent Fund with 70 percent to the state general fund, along with 100 percent of oil taxes.
Taxes on citizens kept in Norway Norway also kept its taxes on citizens, Aas said, and supports most of its expansive set of public services with those. Alaska repealed its income tax in 1981 and has few taxes citizens pay.
Norway’s income tax is steep, averaging 35 percent of income, the ambassador said, and is graduated so that higher income Norwegians pay more. There are also sales taxes.
“We even have a ‘car’ tax. It effectively doubles of the cost of a car, so that a $30,000 car costs about $60,000 after the tax,” he told the chamber audience.
Draw on fund limited On its Sovereign Wealth fund, Aas said that the government is able to draw up to 4 percent of the fund market value each year but in practice draws much less. Last year saw the highest draw, he said, at 2.5 percent of market value. “There is a strong political and social consensus not to use the fund for government, but to save it for future generations,” Aas said.
In contrast, the Permanent Fund earnings bill now before Alaska’s state Legislature in Juneau would draw 5.5 percent annually from the Alaska Permanent Fund.
Mainly offshore Aas gave a quick overview of Norway’s oil and gas producing sector. The industry, which is mainly offshore, developed first in the Norwegian sector of the North Sea, the southernmost of four of the country’s offshore producing areas.
As industry stepped north, learning as it went, the Norwegian Sea was explored and its discoveries developed followed by the Barents Sea South even farther north, and finally the northernmost, Barents Sea North.
The delineation of the Norway-Russia boundary in the Barents Sea put to rest uncertainties that had lasted for years and has benefitted both nations, Aas said. Oil and gas supplies 20 percent of Norway’s government revenues and 15 percent of its Gross Domestic Product, Aas said.
Today Norway exports 2 million barrels a day of oil, which Alaska once did, and also supplies 30 percent of Europe’s demand for natural gas.
Technical capabilities developed Meanwhile, the technical capabilities of Norway’s oil and gas service industry was developed and petroleum services and equipment are now Norway’s second largest export behind oil and gas, the ambassador said.
Aas was asked about Norway’s oil and gas tax policies. Those are high, the ambassador said, but they are also stable “and very predictable,” for industry, he said. Members of the audience drew contrasts with Alaska’s frequent changes in taxes.
“There are sometimes complaints from companies who say the taxes are too high, but we tell them we can always find a new company,” Aas said.
Tax modification discussions That said, there is now discussion in Norway about modifying the taxes in response to regional economic effects caused by the downturn in energy prices. Unemployment is rising in some regions where oil and gas is a big part of the local economy, and adjustments in taxes are being talked about as a way of stimulating activity and jobs.
But Norway has also been careful to support diversification of its economy and today its maritime-support and other technology industries are strong. Tourism is booming, too. One of the reasons that Norway does well is 71 percent of Norwegian women are in its workforce and they are highly educated, Aas said.
Fish farming is strong too, and is a $10 billion industry. Norway produced 1.3 billion tons of farmed fish last year and exported them to 260 nations. Aas made no apologies for Norway’s farmed fish despite Alaskans’ love for wild-caught salmon. He said Norwegian salmon farmers are very careful about minimizing environmental impacts of salmon farms.
Aas was in Alaska to help Alaskans of Norwegian descent celebrate their annual “Sons of Norway” day. Lisa Falskow, president and CEO of the World Affairs Council, who moderated the chamber discussions, said there are 28,000 Alaskans of Norwegian descent. Falshow herself is the Royal Norwegian Honorary Consul in Alaska.
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