Executive summary

Adjusting to lower oil incomes and monitoring the property-market boom

Norway has very high material living standards and scores well on other aspects of well-being, thanks to a mix of natural resources wealth, good policy making and inclusive and egalitarian social values, including active efforts to break down barriers to women’s careers. However, the substantial oil-price falls since 2014 have been a reminder of Norway’s exposure to external risks and consequently the importance of a flexible and competitive mainland economy. Norway continues to experience strong property-price momentum, raising concerns for macroeconomic stability. Also, the long-standing fiscal rule risks being inappropriately expansionary.

Bolstering competitiveness on a wide range of fronts

Norway lost some competitive edge in the past 10-15 years and trend productivity growth has been slowing. Improving the framework conditions to address these issues is key. Recent reform initiatives by the current government are welcome and should continue. Taxation needs to be scaled back and better tuned to growth, and public-sector efficiency reforms need to be pursued vigorously. Furthermore, campaigns to reduce bureaucracy need to continue. Some sectors, notably agriculture, need to be less sheltered from international competition. Agriculture and rural policy needs to focus more strongly on economic sustainability.

Improving skills to help productivity and inclusiveness

Reforms that enhance skills are also important for economic success and social well-being. Further improvements to both compulsory and tertiary education in terms of quality and efficiency are essential. Tertiary-education policy needs to examine the structure of provision and the incentives that drive student decisions on what to study and the pace of study. Programmes addressing the longstanding problems of the sickness and disability system that discourage labour supply need to continue.

MAIN FINDINGS	KEY RECOMMENDATIONS
Ensuring price and financial stability
Continued increases in property prices and mortgage lending poses risks.	Should house-price growth remain uncomfortably high, consider tightening macroprudential measures while closely monitoring and reviewing their effectiveness.
Avoiding pro-cyclicality in fiscal policy, ensuring efficient tax and public spending
Fiscal policy has been persistently expansionary but is still well below what the fiscal rule will allow.	Keep the deficit well below the fiscal rule to avoid unwanted fiscal expansion by providing guidance that sets a speed-limit on increases in the structural non-oil deficit.
Norway’s tax burden is among the highest in the OECD, hindering economic diversification and international cost competitiveness.	Consistent with the government’s policy of reducing taxation, use the ample fiscal space to lower the tax burden and shift away from income taxation towards indirect taxation. Reduce tax distortions in housing by either scrapping mortgage-interest relief or by increasing property taxes on housing as a proxy for implicit rent.
Creating room for lighter taxation requires renewed attention to public-spending efficiency.	Bring more private-sector provision to public services, including in education and health care where outsourcing remains underutilised. Continue to press for mergers among small municipalities.
Boosting productivity through a more supportive business environment, and stronger competition
Weak capacity to compete on cost amplifies the need for good business framework conditions on other fronts. Despite best-practices in many aspects of business regulation and market competition, Norway lags behind markedly in some areas.	Cut corporate and personal income taxation further in the tax mix. Expedite campaigns to cut red tape.
	Press on with de-regulation, for instance in shop-opening hours. Continue network-industry reform, particularly in post and rail services.
	Reduce import tariffs and direct subsidies to farmers. Remove legislative biases that favour agriculture. Encourage diversification of economic activity in rural areas by improving general framework conditions.
Output growth and inclusiveness through deepening skills and encouraging labour supply
Substantial public resources are spent on education but outcomes are not exceptional – Norway’s PISA score is middle ranking and it has comparatively few internationally top-ranking universities – and there is room for efficiency improvements in the pace of study and the structure of provision.	Continue to improve primary and secondary teacher training and tackle low upper-secondary completion rates. Make school-performance data more readily available. Pursue the Skills Strategy to strengthen the link between skills development and economic growth.
	Continue to promote mergers among higher education institutions. Pursue plans to include the graduation rates in the formula for performance-based funding.
	Further target incentives and financial support to students who complete their courses on time. Steer student choices, for instance, via loan discounts for subjects with high demand.
Employment rates are impressively high but there are nevertheless weak points.	Press on with reform to sick leave and disability benefit. Rectify early retirement biases in public-sector pensions. Liberalise temporary working.
Environmental sustainability
Greenhouse-gas emissions are already low owing to through emission-free hydroelectricity generation.	Use the most cost-efficient mechanism to further reduce emissions, in particular work further on reducing disparities in greenhouse-gas taxation.