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  Basic statistics of Norway (2010)
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  Executive summary - Key recommendations
  Norway continues to benefit from its well managed petroleum wealth and sound macroeconomic policies, achieving levels of well-being and social cohesion that have remained high by international standards. The strength of the economy and prudent supervision have helped the financial system to weather the financial crisis well, though high household debt and elevated house prices pose a risk. In the wake of the global slowdown and the euro area turmoil, the macroeconomic policy challenge has shifted towards preserving the momentum of growth in the context of the flexible inflation target and the well established fiscal framework. Public expenditure rose during the crisis and income redistribution remains extensive, in line with Norway’s tradition. Ensuring that public spending is delivered in economically efficient ways remains a priority.
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  Assessment and recommendations
  Norway’s economy was protected from the worst of the recession induced by the 2008-09 financial crisis and should escape relatively unscathed from the current euro area turmoil. This resilience owes a lot to the improvement of the terms of trade and the prudent management of petroleum wealth, which has led to a very strong fiscal position. Norway scores high in international comparisons of material well-being, but also shows up well in other comparisons such as community, environment and safety, and overall life satisfaction.
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  Value for money and public spending
  Norway attaches importance to efficiency and value for money in public spending, especially because of its high overall level. Reasonable guidelines for pursuing efficiency are in place and in some areas, for example tax collection, measures of efficiency show good performance. Information systems are increasingly in place that allow benchmarking of performance, especially across local government, but increased attention to outcome indicators is required as well. But the guidelines are not always followed in practice and the traditional Norwegian reliance on good sense and trust needs to be reinforced with strengthened arrangements for formal evaluation of projects and policies. Lengthening the time horizon for overall budgetary planning could help to improve the longer-term focus on value for money.
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  Tax reform in Norway
  Norway’s dual income tax system achieves high levels of revenue collection and income redistribution, without overly undermining economic performance and while paying attention to environmental externalities. It treats capital and labour income in different ways: capital income is taxed at a single low rate, while labour income is taxed at progressive rates. However, effective tax rates on savings vary widely across asset classes. The favourable treatment of owner-occupied housing relative to financial savings should be reduced, preferably by taxing imputed rents at the standard 28% statutory rate. The wealth tax implies very high effective tax rates on savings, indicating that it either gives rise to tax avoidance or significantly inhibits growth. The government should investigate the issue and, if the growthequity trade-off is too unfavourable to growth, phase out or lower the wealth tax. To restrain tax avoidance by the wealthy, the base of the gift and inheritance tax should be broadened. Overall, the reform package recommended in this chapter would improve the allocation of capital and increase work and investment incentives. It could be designed to be broadly neutral in regard to income redistribution and public revenue.
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