BUDGETING IN NORWAY

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BUDGETING IN NORWAY

• 27th Annual Meeting of Senior Budget
  OfficialsSydney, June 5th 2006
• Teresa Curristine,
• Budgeting and Public Expenditures Division,
• Public Governance Directorate, OECD

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Three things to know

• Prosperous country with large oil reserves
• In 2004, ranked 3rd among OECD countries in terms
  of GDP per capita
• In 2005, UN index named Norway most liveable
  country in the world
• Relatively large public sector
• Public sector expenditure makes up 56 of
  mainland GDP
• Wide Political Consensus
• History of minority governments

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In Brief.

• Successful management of oil assets
• Medium-term deficit rule
• Strong role for Cabinet in budget process
• Strong formal role for Parliament
• Decentralised public administration
• Slow progress with government-wide system of
  performance

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Successful Management of Oil Assets

• Avoided mistakes of some other oil-rich nations
• Established Government Pension Fund - Global
  (previously called Petroleum Fund )
• Unique example of long-term budgetary planning

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Fiscal rule

• Medium-term deficit rule, stating that
  structural non-oil budget deficit should be kept
  at 4 (the assumed long-run real rate of return)
  of the assets of the Government Pension Fund
• 4 rule never actually adhered to
• Widespread political consensus

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Strong Role for Cabinet

• Cabinet Government
• Cabinet plays central role in budget formulation
• Two annual cabinet budget conferences
• Relatively weak formal role of Ministry of Finance

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Role of Parliament

• Formally strong role for Parliament
• Unlimited power to propose amendments to budget
• Power curbed by party discipline and type of
  government
• Ministry of Finance provides objective
  information to Parliament
• But some members of opposition are calling for
  more independent information

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Decentralised Public Administration

• Decentralised
• Local government plays large role in public
  service delivery
• Central government Nordic model Small ministries
  and larger number of agencies
• Over 97 of central government employees work in
  agencies
• High degree of flexibility for government
  agencies
• Few restrictions on choice of inputs
• Can carry over funds
• Extensive flexibility to recruit, hire and
  dismiss non-senior civil servants

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Decentralised public administration(continued)

• Individual ministries responsible for monitoring
  and control of agencies spending activities
• Ministry of Finance has few formal controls over
  ministries - limited steering capacity
• Informal system works on consensus and tradition
• Requires high degree of trust between actors

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Slow Progress with Government-Wide System of
Performance

• Few central requirements
• Largely left to individual ministries and
  agencies
• Sporadic implementation by ministries
• Limited capacity at ministry level
• Heavily dependent on agencies for information
• Varying quality of information

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Direct/Activity-based performance formula
budgeting

• Introduced in areas of education and health
• Increased activity and reduced waiting lists
• Problems due to
• Increased expenditure and exceeding spending
  limits, especially in health
• Perverse incentives
• Questions about quality of service delivery

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Conclusion

• Modern budget system
• Unique in terms of management of oil assets and
  long-term budgeting
• Strong role of Cabinet
• Formal versus informal roles of Parliament and
  Ministry of Finance
• System based on wide political consensus