Heavily Taxed Norway, Has $1t Fund

[GMDino]

From the link:

Quote:"I don't think anyone expected the fund to ever reach $1 trillion when the first transfer of oil revenue was made in May 1996," said Chief Executive Officer Yngve Slyngstad of Norges Bank Investment Management, which operates the fund.

"Reaching $1 trillion is a milestone, and the growth in the fund's market value has been stunning," he added.

http://www.huffingtonpost.com/charles-heck/we-are-all-millionaires-n_b_4906237.html

Quote:For many years the Norwegian government has allocated all of its net oil and gas revenue to the oil fund - and maintained relatively high income, consumption and gasoline taxes. Thus the government budget is not at all dependent on current petroleum revenues. In preparing the annual government budget, roughly speaking, projected non-oil revenues can fall short of projected expenditures with the gap to be filled by the average real return on the oil fund’s investments (not current petroleum revenue). When this guideline was set in 2000, the average real return was imagined as 4% of the market value of the fund. The guideline was to be interpreted flexibly, depending on economic circumstances. Given the rapid rise in the value of the fund (and lower real returns), the policy debate is tending toward a lower guideline - perhaps 3%. With an oil fund 1.5 times larger than Norway’s GDP, the 4% guideline would mean 6% of GDP!


The relative restraint of Norwegians with regard to tax reductions now means that in the future taxes will not need to rise (or other expenditures decline) as much as they otherwise would to cover pensions and other costs of an aging population, a long-term financial challenge for almost all governments in Europe and North America. To heighten recognition of this long-term benefit of the fund and protect it from raids for other purposes, its formal name was changed in 2006 to Government Pension Fund Global. This giant fiscal reserve is not earmarked for any specific obligations, but the new name highlights its imagined long-term purpose. Once again, the Norwegian government is in an astonishingly strong financial position.

The choices along the way that have brought about this very impressive collective accomplishment grow out of the functioning of Norwegian society and governance (and some good luck), but that is a story for another day.

Restraint in demanding tax reductions reflects a relatively strong sense of the importance, competence and integrity of the Norwegian government as an active instrument of the national political community, also reflected in the Norwegian government’s direct participation in oil and gas development - another story for another day.

Looks like the government and the people started looking ahead, planned accordingly, and are in good financial shape for the future.

Amazing that people could work together like that!