? A change of government is highly probable ? A change of government should be fairly neutral to the FX and bond markets. A change will come The 2013 parliamentary election is scheduled to be held in Norway on 9 September. Polls point in the direction of a change of government with an overwhelming majority to the four centre /right-wing opposition parties. The polls actually point to a majority to the Progress Party and the Conservative Party alone. A coalition between the Conservative and the Progress Party with Erna Solberg (Conservative) as prime minister and where Siv Jensen (Progress Party) may become minister of finance is a likely outcome of the election. The spending rule will rule The Progress Party is not in favour of the spending rule (non-oil deficit to be on average 4% of the Pension fund) and this together with promises of both tax cuts and increased public spending has created some concern about whether a change of government could lead to a significantly more expansionary policy. We believe, however, that a change of government will only have a minor effect on overall spending and consequently GDP (short term at least), interest rates and the NOK. The Conservative Party is a are firm ?believer? in the spending rule and will most likely not give in to the Progress Party on this question. Add to this that the Progress Party do not want to be regarded as irresponsible. In an alternative budget proposal for 2013 made last fall the party presented calculation made by Statistic Norway indicating that their budget proposal would have marginal effects on NOK and interest rates.. But short term the spending rule does not matter much Actually in the short term the spending rule does not matter that much. This year the level of the non-oil deficit is NOK 20 bn below the rule. If it is decided to bring spending back to the rule in 2014, the deficit can increase by more than 2% of mainland GDP from 2013 to 2014. That is, regardless of government, totally unrealistic simply because the economy is near normal capacity utilisation. We have no reason to believe there is significant difference between the different government alternatives in adjusting fiscal policy to what the economy can handle. Somewhat higher spending with a new government perhaps There are, however, some arguments for a somewhat more expansionary fiscal policy with a new government. The outgoing government will present a 2014 budget proposal before the new government takes over. It could be that the old government presents a budget where it is hard for the new government to make any cuts without a lot of political noise. To deliver on any of its key issues, such as tax cuts, the new government then has to change the budget in an expansionary direction. It is also possible that the new government will lift some spending on infrastructure out of the budget (define it as investment), which could make the policy in reality more expansionary than what it appears to be. It is, however, also an argument that a centre/right-wing government policy would add less to the overall growth in demand than the outgoing left-wing government. The Conservative/Progress Party will lower wealth and heritage taxes which have a smaller effect on overall demand in the economy than increased government spending on welfare which is the current government?s priority. Spending will increase regardless of government In conclusion a change of government will most likely come. But we see no reason to change the view on the business cycle, Norges Bank or NOK significantly. Fiscal policy will be expansionary the coming years regardless of government. The outlook for the economy and the view on how much room there are in the economy for more activity will decide how expansionary the budget will be. There is no reason to expect significantly difference in view on that between the different government alternatives.
↧