The Norwegian government faces soaring fiscal expenses next year but will not use its sovereign wealth fund to cover the shortfall as this could lead to higher inflation and interest rates, the finance ministry said.
Norway’s $1.2 trillion wealth fund, the world’s largest, invests proceeds from Norway’s petroleum industry abroad, and the state aims to spend no more than 3% of its value in an average year.
“The spending of petroleum income must be reduced out of concern for the economy and the strong inflation,” the finance ministry said in a statement released late on Sunday.
“Increased spending of petroleum revenue would put additional upwards pressure on inflation and the interest rate path, which could in turn result in higher unemployment.”
Costs linked to welcoming refugees, ongoing public construction projects, benefit payments and household power subsidies will rise by some 100 billion crowns ($9.78 billion) in 2023 when compared to the original budget for 2022, it said.
The government’s revenue from taxes and other sources of income outside of the oil industry will rise far less, leaving a gap of tens of billions of crowns, it added.
How this gap will be bridged will be unveiled when the government presents its 2023 budget on Oct. 6, it added.
Norway’s minority centre-left government must seek support in parliament for its budget proposal from the Socialist Left Party, which favours higher taxes. ($1 = 10.2256 Norwegian crowns) (Reporting by Terje Solsvik, editing by Gwladys Fouche)