OECD Economic Surveys: Norway 2026

Hansjörg Blöchliger

Yosuke Jin

The Norwegian economy has been running at or slightly above capacity over the past year, although growth continues to lag the OECD average and Nordic peers. Before the Middle East conflict, activity started to accelerate, driven by considerable real wage gains. The labour market remains tight, although the unemployment rate has edged up towards 5%. Inflation has remained stuck above the target for more than a year and started to rise again in early 2026. This, combined with strong wage growth, has prompted the central bank to raise interest rates in May. Public spending is rising, reflecting sharply higher defence spending and increased aid to Ukraine, while in response to the repercussions of conflict in the Middle East taxes on fuel were cut. Mainland GDP has been expanding more quickly than overall GDP as the oil sector continues to soften (Figure 1.1). With oil revenues declining until the Middle east conflict, the share of oil in foreign trade was falling, while manufacturing and non-oil related service exports were gaining momentum. Projections point to continued growth and an inflation spike as energy and import prices rise.

Norway’s strong economic and social fundamentals continue to support high living standards and low income inequality (Figure 1.2). Competitiveness is bolstered by a sound macroeconomic framework; a skilled and productive workforce; and a responsible, well-anchored wage negotiation mechanism with broad societal backing. The fiscal rule governing the sovereign wealth fund provides fiscal policy with guidance for both stability and sustainability of the public finances. These rules also maintain flexibility in case of exceptional circumstances, as demonstrated during the pandemic. Labour‑force participation remains high, which coupled with a high retirement age, is offsetting current spending pressures associated with ageing. Socio-economic status has less influence on educational and health outcomes than in most OECD countries. On top of that, Norwegians enjoy pristine wilderness and excellent air and water quality.

Despite these strengths, and beyond the short-term outlook, several fiscal and structural challenges have become more pressing and are shaping policy for the coming years. The steadily rising share of mainland public spending financed by withdrawals from the sovereign wealth fund—combined with increasing risks of a sudden drop in the fund’s value—has triggered a debate about whether there is a need to complement the fiscal framework, including proposals for a spending rule and more forward‑looking budgeting. Productivity growth has slowed, and Norway’s lead relative to other OECD countries has narrowed over the past two decades. This is partly due to a regulatory environment that can hinder the emergence and growth of innovative firms. Foundational skills as measured by the Programme for International Student Assessment (PISA) have declined to a worrying extent, with widening performance gaps posing risks to future prosperity and equity. Finally, Norway’s integration into global value chains is fostering specialisation, high incomes and affordable consumer goods, but it has also heightened exposure to trade‑policy uncertainty and economic security‑related risks.

The mainland economy picked up in 2025, driven by rapidly growing household disposable income (Figure 1.3). After turning positive in 2024, real wage growth has increased sharply over the past year, supported by high wage norms and lower inflation. Unemployment as measured by the Labour Force Survey remains at around 4.5% (around 2% registered unemployment). Business investment picked up and housing investment ceased to decline in the second half of 2025. Inflationary pressures are rising as energy prices spiked in the wake of the Middle East conflict, and the central bank raised the policy interest rate to 4.25% in May. The fiscal stance is mildly expansionary, notably because of higher defence spending. Fuel excise duties were temporarily lowered in response to the conflict in the Middle East, loosening fiscal policy further. The US administration has imposed cumulative additional tariffs of 15% in 2025 on goods imported from Norway, which were subsequently reduced to 10%, yet exposure is limited as the affected goods only account for 3% of total exports.

Mainland GDP will continue its recovery, albeit at a moderate pace. High oil and gas prices increase export and government revenues substantially, and they may boost profitability in petroleum-related sectors, which play a key role in setting aggregate wages. The direct impact of higher energy prices on inflation will be limited, largely due to the administered electricity price introduced in 2025 and reduced fuel excises. Headline inflation will start falling toward the end of 2026 but is expected to remain above the 2% target, primarily driven by wage costs. Household demand is expected to grow moderately, driven by moderate real wage growth. The unemployment rate will remain constant. Fiscal policy remains expansionary, especially on the back of several relief measures following the Middle East conflict.

The projections are surrounded by unusually high risks, particularly regarding the potential impact of the Middle East conflict on the Norwegian economy. Amid ongoing global trade policy uncertainty, another key concern is that tariff rates could be raised further, affecting Norway’s manufacturing exports. Another concern is the possibility of more widespread restrictions on the export of critical products such as rare earths, which are difficult to substitute, and which could particularly affect Norway’s energy, defence and transport sectors. Inflation expectations may rise further, which may require even higher policy interest rates than currently assumed. Surprises on the upside are also possible. For example, artificial-intelligence-related investment could raise productivity growth in the very near future. A selection of lower-probability but high-impact events that would have a considerable impact on the outlook are described in Table 1.2.

The labour market is easing but remains broadly robust (Figure 1.4). Unemployment according to the Labour Force Survey, which had fallen rapidly during the post‑pandemic recovery, has gradually increased from just above 3% at the beginning of 2022 to around 4.5% by early 2026 (registered unemployment is lower at around 2%). This appears to have been partially driven by rising youth unemployment over the past two years, mostly young people searching for a part-time job while studying. More positively, differences in unemployment between men and women—traditionally small—have narrowed further and are now negligible. Labour force participation has been hovering at around 80% albeit with a slight downward trend. Employment growth over the past decade has been strongest in the public sector, construction and selected service industries, while manufacturing employment has been increasing. Immigration has fallen since its 2022 peak, reflecting both a lower inflow of Ukrainian refugees, the modest growth of the mainland economy, and brighter economic prospects in the origin countries. Unemployment among immigrants remains comparatively low, underscoring the robust state of Norway’s labour market and well-designed integration policies (see below).

Labour‑market shortages, which became more visible during the post‑pandemic recovery, are likely to persist. According to the Labour Force Survey, the combined number of job vacancies and unemployed workers rose sharply in 2021 and has remained broadly stable since. The Beveridge curve—capturing the relationship between unemployment and job vacancies—has shifted outward, reflected in higher vacancy rates (Figure 1.5) (the shift is much less pronounced if registered unemployment data are used). In social and health care, job openings exceed the number of unemployed workers, while in construction the reverse holds true. Skills mismatch is partly responsible for labour market imbalances, as the lack of qualified workers has become more acute in some sectors. In 2024, nearly 70% of employers reported difficulties in finding workers with the right skills, up from 47% in 2019 (Manpower Group, 2025). The digital and green transitions, alongside population ageing will further increase demand for qualified labour. Meeting these needs will require well‑coordinated labour‑market and education policies, including measures to boost the supply of skilled workers in technical and health occupations, as recommended by the Employment Commission in 2021.

After a decade-long decline, and despite a recent dip, employment rates of young people have risen steeply over the past few years (Figure 1.6). The share of the young not in employment, education or training (NEET) is now among the lowest in the OECD. Employment rates among older workers have also risen, largely reflecting the 2011 pension reform, which provides strong incentives to work longer. By contrast, employment rates among prime‑age workers (25–54) have gradually fallen over the past 15 years, from around 86% to 83%. Norway’s labour market is thus distinctive: employment for prime‑age workers falls below OECD averages but for younger and older age groups employment exceeds them. The government aims to raise the employment rate for people aged 20–64 from currently around 80% to 83% by 2035, aligning its ambitions with targets in several EU countries. The long‑term decline in hours worked per employee, reflecting among others the rising share of women in the labour market, accelerated after the pandemic, but has moderated more recently.

A key factor behind low employment rates of prime-age workers is the design of the benefit system, notably for sickness and disability (see also fiscal section). Norway has some of the highest sickness‑absence and disability‑benefit rates in the OECD, and both tend to continue rising (Figure 1.7). Benefit levels are generous and eligibility criteria for both entry to the schemes and receipt of benefits are comparatively lenient, offering a major pathway out of the labour force. Young people can enter the disability system without first receiving sickness benefits, which may have contributed to the doubling of young disability‑benefit recipients over the past decade. Incentives to return to work are weak as effective marginal tax rates – income tax plus the withdrawal of the dedicated in-work benefit (AAP) - are high. Policy has changed little in recent years, apart from a slight strengthening of active labour‑market policies and an extension of the AAP. The government is currently conducting a controlled trial for workers aged 20-35 to assess whether introducing an earned income tax allowance could increase labour supply. The government should embark on a comprehensive reform of the sickness and disability benefit system, as recommended in the 2024 Survey (OECD, 2024). These and other employment and productivity-boosting reforms could raise Norway’s per capita income by up to 8% (Box 1.1).

Before the recent weakening, a relatively tight labour market, coupled with high profitability in manufacturing, has fuelled strong wage growth. Annual wages increased by 5.6% in 2024 and 4.9% in 2025. Wage growth has exceeded outcomes agreed in collective wage settlements in recent years (except in 2023). In 2026, wage growth is expected to slow to around 4% owing to moderate economic growth and expected lower inflation. With both nominal wage growth and inflation declining, real wage growth is expected to remain stable at around 2%. Wage dispersion is very low as the wage formation mechanism favours wage equality across sectors and within firms (Box 1.2).

The oil and gas price surge following Russia’s war of aggression against Ukraine temporarily boosted exports, but this has been unwinding until the Middle East events (Figure 1.8). The current account surplus was declining in line with lower oil revenues, after having peaked at nearly 30% of GDP in 2022. Despite the sharp reduction in the share of oil and gas in export revenues from 2022 to 2025, the sector continues to account for roughly half of total exports. While the Middle East conflict may temporarily change the picture, the role of oil and gas in the economy is set to diminish further over the next decades. “Peak petroleum” was likely reached as early as 2001, and Norway must prepare for scenarios involving declining production volumes and lower export revenues over the next 25 years (see fiscal section). The long‑standing downward trend in the share of manufacturing exports has reversed for the first time in more than two decades (although part of this is mechanical as the share of oil and gas in total exports has fallen). Trade openness—measured as the average of imports and exports relative to GDP—has remained resilient.

Trade with Europe has increased over the past decade, mainly due to higher oil and gas exports (Figure 1.9, panel A). Import origins have shifted little: the share from Europe outside the Nordic region has risen slightly, while those from Asia and the Americas have declined (Figure 1.9, panel B). Yet bilateral trade shares obscure deeper structural changes, notably Norway’s expanding role in global value chains (GVCs). Although the share of gross exports going to Europe has stayed broadly stable for two decades, the share of Norwegian value added ultimately consumed in Europe has fallen markedly. Similarly, the share of value added imported from Europe has declined more sharply than total imports. While deeper GVC participation delivers important benefits, it also increases exposure to external shocks, underscoring the need for appropriate policy responses (see chapter on global value chains).

Norway is relatively insulated from changes in U.S. trade policy, even though U.S. tariffs rose sharply in 2025 (Figure 1.10). The United States accounts for less than 4% of Norway’s total exports; machinery and transport equipment - whose exports have surged in recent years - and seafood together make up just under half of this share, while oil and gas represent about 19%. Within seafood exports, salmon dominates, whose production is driven mainly by domestic supply‑side factors such as environmental conditions and catch quotas. Seafood producers can also divert exports to alternative markets, limiting the impact of developments in individual destinations on overall production. More broadly, Norges Bank surveys indicate that international trade tensions have had little effect on Norwegian firms’ investment plans so far (Norges Bank, 2025).

In May 2026 Norges Bank increased the policy rate by a ¼ percentage point to 4.25%, after it had lowered them in two steps in the course of 2025 (Figure 1.11). As interest rate differentials vis‑à‑vis major trading partners narrowed and the U.S. dollar weakened, the prolonged depreciation of the krone has come to a halt and the currency has even strengthened since early 2026 (Box 1.3). Real interest rates—calculated using measures of inflation and inflation expectations—rose from around ‑1% in 2021 to approximately 1.5% by end‑2025 and continue to drift upward. Norges Bank estimates the neutral real interest rate—consistent with a closed output gap, inflation at target, and neither expansionary nor contractionary policy—at between 0.25% and 1.5%, up from ‑0.3% in 2019 (Almlid and Asshoff, 2025). As such, given the estimated natural rate, monetary policy remains somewhat restrictive.

After a rapid post‑pandemic decline, disinflation stalled in 2025. Inflation began to edge up again at the start of 2026 and more so after the energy price hike following the outbreak of the Middle East conflict. Both headline and core inflation hover around 3%, slightly above levels observed a year earlier and well above the 2% target (Figure 1.13). While the initial inflation surge was driven by sharp increases in import prices, domestic price pressures have become increasingly important, potentially indicating the emergence of second‑round effects. Inflation remains broad‑based with domestic goods and services the main drivers of price growth. Recent cuts in administered prices—such as childcare fees and the “Norgespris” electricity tariff—help suppress price inflation. According to Norges Bank’s modelling, around 50% of the contribution to CPI adjusted for tax changes and excluding energy products (CPI‑ATE) inflation stems from unit labour costs, reflecting strong wage growth in the domestic services sector. In contrast, the role of the exchange‑rate channel has become negligible.

Norges Bank projects that inflation will stay considerably higher through 2026 than projected in early 2026 and to reach the 2% target only beyond 2027 (Figure 1.14). More generally, since the second half of 2025, expectations regarding the pace of disinflation have considerably moderated. As such, Norges Bank raised interest rates and should be ready to tighten further, especially if expectations risk becoming de-anchored. The introduction of the administered “Norgespris” electricity scheme is expected to stabilise and suppress the energy component of the CPI, contributing to a smoother inflation profile going forward. However, there is a risk that inflationary pressures will emerge in other areas, which may complicate monetary policy going forward.

Regulatory reforms—particularly those aimed at strengthening competition—could help ease inflationary pressures and support a faster return of inflation to target. Competition limits firms’ price setting power and their ability to pass higher costs onto consumers, thereby helping to contain wage–price dynamics. This is especially relevant in Norway’s grocery sector, where a small number of large providers dominate the market and concerns about elevated price levels have been longstanding (OECD, 2024) Norway’s agricultural sector, which supplies a substantial share of inputs to the retail sector, is also largely exempt from competition rules and remains heavily shielded from foreign competition. By contrast, sectors exposed to international markets are more likely to transmit cost reductions or productivity gains to consumers (Andrews, Gal and Witheridge, 2018) (see also chapter on global value chains). Against this backdrop, fostering competition could help to moderate price growth and support monetary policy (see the in‑depth chapter on regulation).

Norges Bank’s mandate is currently under review, as occurs every eight years. Ahead of the evaluation by the Ministry of Finance, Norges Bank published a report on the monetary policy framework (Norges Bank, 2026). The report concludes that Norway’s experience with flexible inflation targeting has been broadly positive. Compared to other central banks, Norges Bank has put more weight on stabilising the real economy and inflation is not expected to be back on target before 2029 (Figure 1.14, panel A). Such a prolonged period of inflation risks undermining central bank credibility and de-anchoring inflation expectations. In this context, the revised mandate should reaffirm the 2% inflation target and possibly strengthen inflation targeting as the primary objective of monetary policy. Preserving the Bank’s operational independence is essential for effective inflation targeting and to allow for timely adjustments of policy interest rates and other instruments to ensure price stability. Other approaches to achieving the inflation target, such as proposals to rely solely on wage bargaining, risk lacking the nimbleness needed to ensure price stability. Against this background, transparency and clear public communication about how the bank is meeting its inflation objectives, the trade‑offs involved and the transmission of monetary policy remain critical to sustaining democratic accountability and policy credibility, as described in the 2026 Economic Survey of New Zealand.

The financial system looks broadly resilient, with households and firms maintaining solid debt‑servicing capacity. Following a marked slowdown during the monetary tightening of 2023 and 2024, credit growth to firms stabilised in 2025 (Figure 1.15). Lending to households—particularly mortgages—has picked up again since mid‑2024, supported by the easing of financial conditions. The number of bankruptcies (or insolvencies) has declined slightly after its post‑pandemic rise, indicating improved corporate robustness. Overall, financially sound households and firms continue to enjoy access to credit. Nevertheless, vulnerabilities remain, especially if interest rates were to climb in the wake of the Middle east conflict. The growing interconnectedness between banks and other financial institutions increases the potential for adverse financial conditions and economic shocks to propagate through the system (Norges Bank, 2025).

Banks are profitable and liquid, and credit losses, while edging up, remain low (Figure 1.16). High interest income underpins profitability, expected to remain high as monetary policy has been tightened. Risk premia have declined somewhat, deposit‑to‑loan ratios remain stable, and banks meet both regulatory and internal capital and liquidity requirements by a large margin. However, weak construction activity and high financing costs continue to weigh on commercial real estate (CRE) firms. While banks’ exposure to CRE debt remains a vulnerability, Norges Bank’s stress tests indicate that the largest banks would be able to absorb substantial losses while maintaining lending to households and businesses (Norges Bank, 2025).

Macroprudential policy has been eased slightly since the 2024 Economic Survey. At the start of 2025, the maximum loan‑to‑value ratio for mortgages was raised from 85% to 90%, following a moderate decline in household debt‑to‑income ratios. Other key macroprudential buffers have remained unchanged: the countercyclical capital buffer has been held at 2.5% since spring 2023, and the systemic risk buffer at 4.5% since the beginning of 2021. Given that household debt in GDP remains high and has begun to rise again, further easing of household‑oriented financial conditions would be unwarranted. In summer 2025, Norway implemented the European crypto‑assets regulation to strengthen oversight of stablecoins, although the domestic fintech sector remains small.

Norway is strengthening the resilience of its financial infrastructure against cyber threats, with emphasis on safeguarding the national payment system. Digital payments account for around 98% of all transactions and even more in value terms, as cash is typically used for small purchases. With threat assessments pointing to an increased risk of cyberattacks from both organised crime and hostile state actors, the authorities want to reinforce contingency arrangements for the financial sector (Norges Bank, 2025). A working group appointed by the Ministry of Finance recently issued recommendations to bolster the security of digital payments. These include ensuring sufficient national control over critical payment-system functions, enhancing the robustness of the domestic payment platform BankAxept - which can process payments without access to the financial infrastructure for a week - and deepening cooperation with Nordic and European counterparts. As part of broader preparedness efforts for digital system failures, the government and Norges Bank recommend households to hold sufficient cash to cover essential expenses for one week (Government of Norway, 2024). The legal right to use cash has also been reinforced and banks are required to maintain adequate levels of cash in case of an emergency.

After a decline following post‑pandemic tightening of financial conditions, household debt‑to‑income ratios - driven overwhelmingly by mortgages - have begun to rise again. They remain above pre‑pandemic levels and the highest in the OECD (Figure 1.17, panel A). Debt‑to‑income ratios have however fallen, reducing overall household vulnerability (Norges Bank, 2025). The interest burden and the debt‑service ratio are easing, and Norges Bank assesses that households have been able to service their debt and cover normal living expenses by a solid margin. Nonetheless, housing demand remains elevated. Over the past two decades, house prices have increased more in Norway than in any other Nordic country, recently surpassing those in Sweden (Figure 1.17, panel B). With real incomes improving and the maximum loan‑to‑value ratio raised from 85% to 90%, new mortgage lending has begun to expand again. The favourable tax treatment of owner‑occupied housing contributes to high prices through capitalisation (see fiscal section).

Housing supply remains tight (Figure 1.18, panel A). Although residential construction appears to have stopped falling, overall activity remains subdued (Norges Bank, 2025). Between 2021 and 2024, household formation outpaced growth in residential construction in all regions, with the gap particularly pronounced in the largest urban areas. Building permits and home completions have declined since 2022, though they recovered somewhat in 2025. As a result, the housing cost burden has continued its long‑term upward trend and is now among the highest in the OECD (Figure 1.18, panel B).

The relatively low responsiveness of supply to demand points to structural constraints on new construction (although rising construction costs also play a role). As highlighted in the previous Survey, stringent green‑belt protections, zoning restrictions and the prioritisation of agricultural land have significantly limited the availability of land for construction (OECD, 2024). Local governments, particularly in the capital region, have begun to respond by easing height limits, fostering development near public transport hubs and streamlining urban‑planning procedures. These initiatives are welcome and should be pursued further, complemented by a review of green‑belt policies and an easing of restrictions on converting agricultural land for other uses. Table 1.4 summarizes past recommendations and actions taken to foster a strong and resilient economy.

Norway’s fiscal framework is strongly shaped by the petroleum sector, allowing the country to run substantial mainland-economy budget deficits. Oil and gas revenues are transferred in full to the sovereign wealth fund (the “Fund”), which is drawn upon for setting the budget. A fiscal rule stipulates that transfers from the Fund to the budget shall, over time, equal the expected real return of the Fund, currently estimated at 3% (4% before 2018). The Fund has both a stability and sustainability objective, allowing fiscal policy to intervene quickly and boldly in times of crisis. This was the case in 2020 when pandemic-related measures required violating the long-term norm. Over the past 10 years, the Fund’s value has risen sharply in the wake of large oil revenues and, increasingly, returns on assets. However, the growing pressure on the Fund to finance mainland spending, the diminishing contribution of petroleum revenues and the risk of sudden and sustained falls in the value of the Fund have sparked debates over possible amendments to the fiscal framework. This includes proposals to complement the structural balance rule with a cash‑flow rule or adopt a spending rule.

The budget surplus moderated to 12.7% of GDP in 2024 and 10.4% in 2025, after the record-breaking 25% in 2022 (Figure 1.19). The structural non-oil deficit rose from 9.9% of potential mainland GDP in 2024 to 11.6% in 2025, implying an expansionary fiscal stance over the past two years. Some fiscal slippage occurred, driven mainly by additional defence spending and financial support for Ukraine. The share of total spending financed through withdrawals from the Fund has risen sharply to 24% in 2025 - up from only 3% in 2001 - with the withdrawal rate reaching 2.7%. This rate represents a benchmark deemed consistent with achieving the 3% rule in the long term. It reflects a cautious approach aimed at ensuring that spending adjustments can be gradual in the event of significant changes in the Fund’s value and to have the flexibility to increase spending substantially in the event of a crisis (Ministry of Finance, 2025). By end‑2025, the Fund’s total value had reached NOK 21,500 billion, equivalent to around 400% of GDP or roughly USD 370,000 per resident.

The 2026 budget projects an increase in the structural non‑oil deficit to around 13% of potential mainland GDP (Figure 1.20, panel A). The withdrawal rate from the Fund will remain below the 3% guideline of the fiscal rule, though slightly above the 2.7% threshold the authorities consider prudent (see above). Modest spending growth in 2026 reflects the strong carry‑over from commitments made in 2025, notably the multi‑year agreement to increase support for Ukraine. As most of this support is spent abroad, its impact on domestic demand is expected to be limited. Infrastructure spending, particularly for transport, will remain high, despite the low and even negative benefit-to-cost ratio of many projects. Defence expenditure is projected to rise to 3.4% of GDP, up from less than 2% in 2023. While heightened security and emergency preparedness justifies increased defence spending, rapid expansion could exceed the armed forces’ absorption capacity, bidding up prices, undermining cost control and effectiveness (Norwegian Institute for Defense Research, 2025). Defence spending should therefore focus on effective implementation, achieve a balance between investment and operating costs and strengthen expenditure control, as emphasised by the Fiscal Council (Advisory Council on Fiscal Policy Analysis, 2026). In March 2026, the parliament endorsed a package of subsidies and tax reductions to help households cope with rising energy prices. The fiscal cost of such energy subsidy schemes, including “Norgespris”, amounts to around 25bn kroner or more than 1% of total public spending in 2026.

In the long run, the government anticipates significant fiscal challenges. Long-term projections suggest that the fiscal gap or structural budget deficit could widen by around 6% of mainland GDP by 2060 (Figure 1.20, panel B). Age‑ and health‑related expenditure is projected to increase by roughly 4% of GDP, while revenues - largely reflecting lower transfers from the Fund due to an expected decline in its value relative to mainland GDP - are projected to fall from around 2030 onward. Considerable uncertainty surrounds these projections, particularly regarding oil revenues and returns to the Fund. The government identifies higher productivity growth, increased employment, greater efficiency in the public sector and improved management and taxation of Norway’s natural resources as the key policy levers to address emerging fiscal pressures. However, it does not quantify the expected impact of these reform areas on spending, revenues, or the fiscal balance. Table  1.5 summarises past recommendations and actions taken to raise the effectiveness of fiscal policy and public spending.

Overall, Norway’s long-term fiscal profile is shaped by the expected contraction of petroleum revenues and the decline in the value of the Fund as a share of GDP (Figure 1.21). In a baseline scenario of the OECD’s long-term model with no policy changes, the fund is assumed to reach its highest value in 2033 before gradually declining to around 110% of GDP in 2060. The structural non-oil budget deficit will amount to around 5.6% of the Fund’s value in 2040 (against 3% of the current fiscal rule). The scenario of following the 3% fiscal rule would require fiscal consolidation efforts of between 0.15% and 0.4% of GDP per year, especially over the coming decade. In a scenario assuming a faster green transition and lower demand for Norwegian oil, the Fund’s value will decline more rapidly. On the other hand, in a reform scenario where the reforms described in Table 1.3 are realised, the Fund declines more slowly. The relatively small impact of reforms highlights the overwhelming role of the Fund and oil revenues for developments in the Norwegian economy. The fiscal impact of recommended reforms is shown in Box 1.4.

The 3% fiscal rule, which sets a limit on withdrawals from the Fund to cover the structural non-oil deficit, is at the core of Norway’s fiscal framework, enjoying a high degree of political acceptance. The rule has provided Norway with fiscal space unmatched in almost any other country. However, this space has largely been used to expand spending programmes rather than reduce taxes. Public spending as a share of mainland GDP has risen almost continuously over the past two decades and is now the highest in the OECD, well above levels in the other Nordic countries (though adjusting for the taxation of welfare transfers would reduce this share by around 5 percentage points) (Figure 1.22). Moreover, the rule creates incentives to use cyclically-high revenues, especially following re-evaluations of Fund assets, to finance new structural spending, contributing to a pro-cyclical fiscal stance. High and rising public expenditure may weigh on productivity and employment. Further spending pressures are likely to emerge, including from higher defence and climate‑related costs, alongside intensifying age‑related expenditure. Against the backdrop of diminishing fiscal space and limited scope for raising additional revenues, the government should complement the fiscal framework with a structural spending rule (or plan) to limit spending growth, contain spending excesses and to smooth spending over time. Several Nordic neighbours and Ireland offer useful models for designing spending rules (Box 1.5).

Norway is virtually the only OECD country without a medium‑term expenditure framework (MTEF). The central government budget is prepared only for the upcoming fiscal year, limiting consideration of the future fiscal implications of current or planned policies. Discretionary revisions to budget items and negotiated agreements are frequent (Advisory Council on Fiscal Policy Analysis, 2026). This type of short‑termism is often justified by the high unpredictability of Norway’s budget, given its reliance on volatile petroleum revenues. There is also a concern that multi‑year spending paths could become expenditure floors rather than ceilings. However, a one‑year horizon makes it difficult to assess long‑term consequences of policy initiatives. To strengthen medium‑term planning, the government has launched medium-term budget projections for the years 2027–2029 (Ministry of Finance, 2025). Well‑designed medium-term budgeting clarifies the government’s priorities within an overall expenditure ceiling and ensures time consistency between policy decisions and fiscal consequences (OECD, 2025). As such it enhances the effectiveness of the fiscal framework and improves budget discipline. Norway could benefit from adopting an approach like Sweden’s (Box 1.6).

Spending reviews are an integral part of Norway’s budget planning and aligned with the budget process. However, their scope has mostly been too narrow to generate substantial efficiency gains or constrain overall spending. Moreover, spending reviews appear to be followed up only to a limited extent by the government and Parliament. By contrast, countries such as the United Kingdom and Ireland have implemented comprehensive spending reviews every few years to identify savings across the whole of government and to reallocate resources toward priority programmes and objectives (OECD, 2024). In this context, it is encouraging that in 2024/25 the Norwegian government carried out a spending review of sickness and disability benefits—a large expenditure area—and has shown willingness to implement some of its recommendations. Going forward, the government should continue to undertake comprehensive spending reviews and implement their findings.

Although relatively young, partly due to continued labour immigration, Norway is not insulated from the economic and fiscal pressures from population ageing. Life expectancy and self‑reported health status are among the highest in the OECD for both men and women, reflecting a combination of healthy lifestyles and high‑quality health services. However, public spending on pensions as a share of GDP is around the OECD average and higher than in other Nordic countries (Figure 1.23, panel A). Rising life expectancy and declining birth rates will push up the old‑age dependency ratio in the coming decades, placing increasing pressure on pension, health and long‑term care systems (Figure 1.23, panel B). The government identifies the shrinking share of younger cohorts and growing age‑related costs as key drivers of the long‑term increase in public expenditure by 2060 (Ministry of Finance, 2024).

The government has taken important steps to address the rising fiscal costs of ageing. The 2011 pension reform in the private sector, followed by a similar reform in the public sector in 2018, strengthened incentives to remain in work, significantly increasing employment rates among individuals aged 62 and over and helping to mitigate future ageing‑related expenditure pressures (Figure 1.24). Norway already has a comparatively long working life, with a statutory retirement age of 67. In 2023, the government and the social partners agreed to phase out certain early‑retirement schemes. As life expectancy continues to rise, Parliament adopted a settlement in 2024 to gradually increase age limits in the pension system by one month per year—equivalent to adjusting the retirement age by roughly half of the gain in life expectancy—for cohorts born from 1964 onwards. The reform also raises the upper pensionable age in the public sector from 70 to 72. The government plans to implement these measures in 2030 or 2031.

Norway allocates an above‑average share of public resources to state aid and subsidies, and such spending has grown considerably in recent years, especially for agriculture and climate‑related measures (Figure 1.25). While well‑intentioned, many schemes generate unintended side effects. The “Norgespris” electricity subsidy, which shields all households from high prices, weakens incentives for energy saving and discourages investments in low‑emission electricity generation (Advisory Council on Fiscal Policy Analysis, 2026). The tax subsidy for electric vehicles contributes to congestion in major cities and complicates land‑use planning aimed at containing urban sprawl and promoting development around public transport hubs (see housing‑market section). Public support for innovative firms is distributed through numerous agencies, often without clear objectives, a demonstrated market failure, or systematic monitoring. The government has begun reviewing innovation‑support schemes, tightening conditions, reducing overall support and streamlining the governance framework by consolidating agencies. These efforts should continue.

Norway has the highest agricultural support levels in the OECD, with producer transfers averaging 47% of gross farm receipts in 2022–24, down from 69% in the early 2000s (Figure 1.26). More than half of support is linked to production—particularly per‑head livestock payments—while border protection and market regulations continue to sustain higher domestic prices. These coupled measures are among the most economically distorting and tend to depress productivity and harm the environment. They may also stifle downstream competition, including in the grocery and retail sectors (see in‑depth chapter on regulation). Recent policy priorities emphasise more targeted climate and environmental schemes, now accounting for nearly one‑third of the agricultural budget. However, the distributional impact of agricultural subsidies remains unclear, particularly regarding support for remote and northern regions. Against this backdrop, the government should further reduce agricultural support and better align it with productivity and environmental objectives, as recommended in the 2024 Survey (OECD, 2024).

The high and rising level of sickness and disability benefits poses a particular problem to the public finances. While such spending has declined in comparable countries, it goes the other way in Norway (Figure 1.27). Sickness and disability spending makes up around 22% of total public spending or more than 8% of mainland GDP. Sick‑leave provisions are very generous, often offering full wage compensation. Prolonged absences not only weigh on public finances but also increase the risk of labour‑market detachment. The government should carefully assess the role of the sickness and disability system for work incentives. It should implement policies that both reduce fiscal cost and increase overall labour participation, including by adjusting replacement rates, stronger employer participation, enhanced early intervention and independent medical assessments, as recommended in the past Survey (OECD, 2024).

The fiscal costs of climate adaptation and mitigation are rising as Norway experiences more frequent extreme weather events such as storms and floods. In 2024 following rainstorm Hans, insurance payouts for weather‑related damages reached a record high, although total losses still amount to less than 1% of GDP, well below the EU average of 4% (OECD, 2025). The climate action plan, last updated in 2023, sets out cross‑sectoral measures to address risks and vulnerabilities, as summarised in the previous Survey (OECD, 2024). The 2026 budget continues to prioritise infrastructure investment - especially improved water management and flood protection - and funds municipal adaptation and mitigation projects, which is welcome. To curb emissions, subsidies through the climate and energy fund (Enova) remain important, though they were reduced in 2026. Support for carbon capture and storage (CCS) is accelerating, highlighted by the opening of the first storage site in summer 2025. However, cost per tonne of CO₂ reduction at the site currently exceed 150 Euro, considerably more than the price of an emission certificate (70-75 Euro per tonne in March 2026) (Cleantechnica, 2025). Since further domestic emission reductions tend to be expensive, and since per-capita carbon emissions have fallen below the OECD average, the government has begun to increase spending for international climate measures, such as the Rainforest Initiative. Past recommendations and actions taken in climate policy are shown in Table  1.7.

Norway’s tax system is heavily geared toward revenues from natural‑resource or rent taxation (Figure 1.28). More than half of corporate income tax (CIT) receipts are resource‑based, generated by the oil sector (whose revenues are channelled to the sovereign wealth fund rather than the state budget), electricity production from hydro and wind, and aquaculture. The standard CIT rate is 22%, below the OECD average, reflecting a long‑standing policy objective to keep corporate taxation low since in a small open economy the incidence tends to fall on labour. The share of consumption taxes is modest, partly due to numerous exemptions in the value-added tax (VAT) system. As such, the VAT revenue ratio –comparing actual VAT revenues with what would be raised if all consumption was taxed at the standard rate and with full compliance - is just slightly above the OECD average (OECD, 2024). Norway is among a few OECD countries to levy a net wealth tax. While they have a considerable redistributive effect, net wealth taxes could discourage investment, particularly in small or family‑owned firms, as taxing capital can result in negative after‑tax returns on investment (OECD, 2018) (see also thematic chapter on business regulation).

The carbon tax has risen by around 30% over the past two budget periods, which is welcome. Since March 2026, emissions that are already taxed under the European Emission Trading Scheme (ETS) are, generally, exempt from the domestic carbon tax. To cope with rising energy prices in the wake of the Middle East conflict, the government temporarily reduced or abolished fuel and carbon taxes, valid until the end of August (see above).

The government is preparing a comprehensive reform of Norway’s tax system. End 2025, the government mandated a Commission to design a broad tax reform aimed at ensuring a competitive tax environment for Norwegian businesses (Government of Norway, 2025). The mandate highlights that the tax system should be redesigned in a way that is less discouraging for investment and employment. It also says that the Commission should specify preferred tax reductions. Against this background, reforms could reduce taxation on labour income and capital, in line with recommendations in the 2024 Economic Survey of Norway (OECD, 2024). While distributional objectives will need to be considered, they may be more effectively achieved through non-tax instruments such as benefits targeted at low-income households. A gradual phase in and transitional arrangements may help build political support for the reform.

A comprehensive tax reform should include the taxation of housing. Norway has one of the most generous housing‑tax regimes in the OECD: mortgage interest payments are deductible, while the imputed rental income from owner‑occupied housing is not taxed; capital gains on primary residences and income from renting them are exempt; and owner-occupied houses and holiday homes are treated favourably in the net wealth tax. In a context of restricted housing supply, as in Norway, these advantages are largely capitalised into higher house prices (see financial section). International experience suggests that phasing out mortgage‑interest deductibility can help moderate house prices, improve affordability and broaden access to homeownership (OECD, 2024). Denmark, France, the Netherlands and the United Kingdom have all scaled back mortgage deductibility gradually. In 2025, Switzerland adopted a combined ten‑year phase‑out of imputed‑rent taxation and mortgage deductibility, while introducing a new tax on second homes.

A housing‑tax reform could be complemented by a shift from net‑wealth taxation toward immovable property taxation and a re-introduction of inheritance taxes. Property‑based taxes in Norway remain well below the OECD average, largely because municipalities may choose whether or not to levy them (Figure 1.29). Among immovable‑property taxes, land taxes are particularly efficient as they generate comparatively few economic distortions, support land‑use planning by limiting urban sprawl, and align well with Norway’s existing system of resource rent taxation (Blöchliger, 2015). Moving from wealth to immovable property taxation would, however, require adjustments to intergovernmental fiscal arrangements, as wealth taxes are levied at the central‑government level, while immovable‑property taxation is a municipal responsibility. Reforms will also have to consider that immovable property taxation is less redistributive (or less progressive) than the taxation of net wealth.

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