Norway: Fuel Price Crisis in Oil-Producing Country
While the Norwegian government is sitting idly by, the Swedes are cutting both food VAT and fuel prices. Experts think it’s not a good idea.
Roar Kristiansen has made the trip across the Swedish border to Hemavan to fill up with fuel in both his car and in cans.
“It’s good that they’re lowering the price in Sweden. Then we Norwegians drive here and fill up. I’m filling up the cans here as you can see.”
Sweden is halving food VAT from 12 to 6 percent and lowering taxes on gasoline and diesel.
The price of gasoline will be cut by one Swedish krona per liter, while the price of diesel will be 40 øre cheaper per liter. The cut applies from May to December.
“I’m moving to Sweden soon. If only they had lowered the electricity price too,” laughs Kristiansen.
At the same time, the price of diesel in Norway is 30 kroner ($3.19) per liter in some places. The price of gasoline is well into the 20s (over $2.13). This is due to the war in the Middle East.
Merethe Hundnes has also done so. She thinks it’s crazy that Norway doesn’t also cut taxes.
“Everything is so expensive. I think they can help where they can,” she says and adds:
“There will be more to Sweden. I easily go here to shop.”
Yet the government is holding back on introducing measures.
“I can understand people’s frustration. Norway is a rich country and we have a lot of money on our books. We can afford to do it, but then you have to question whether it’s wise,” says social economist and associate professor at BI, Ivar Gaasland.
A Political Question
The food VAT in Norway is 15 percent and brings 25–30 billion ($3.2 billion) kroner into the treasury every year.
The social economist does not trust the Swedish approach in Norway.
“It is not particularly effective for the economy. It is also uncertain whether it is accurate.”
“This means that a possible VAT reduction would benefit the industry and not consumers. A reduction in the tax on food imports to Norway would be a better solution,” Gaasland believes.
He highlights Sweden’s EU membership, different competition among food chains and political priorities as the reasons behind the VAT cut.
“It’s a political question. Politicians often do what is popular, and not necessarily what is good for the economy.”
It Stings
“I think it’s pure madness, actually. It doesn’t matter. Considering what resources we actually have in the country. I don’t think it’s justifiable.”
That’s what Frode Lyngstad says. He lives in Halsa in Meløy municipality in Nordland, and reacted strongly to diesel prices hitting 30 kroner per liter on Monday.
“So it stings. It does,” says Lyngstad.
He believes that Norway should do as the Swedes do.
This is what UiO professor Steinar Holden says when asked why the Swedes are cutting:
“Sweden has good state finances and they can afford to reduce food VAT and taxes on gasoline and diesel. Norway can also afford to reduce food VAT and taxes, but the government says that they do not currently believe it is necessary.”
Like Gaasland, he points out that it is simply a matter of political priorities.
“The difference between Sweden and Norway is largely due to the political parties in government in the different countries.”
How Relevant Are the Measures for Most People?
“Reduced taxes on gasoline and diesel will have a high accuracy in compensating those who are hit by high gasoline prices, but it will also help to keep gasoline consumption up.”
“This suggests that any compensation is given in other ways, such as a reduction in other taxes and fees,” he adds.
Must Not Copy Sweden
The Center Party disagrees with the experts and believes that Norway should definitely look at its “sweet brother”.
The party has long advocated lowering food VAT in Norway. They are also in favor of lowering taxes on fuel in the interim period.
“The Center Party has always been in favor of lower taxes,” says party leader Trygve Slagsvold Vedum.
He even opens up about supporting a proposal from the Conservative Party.
“We will of course look at that proposal. We will also take as many steps as possible to reduce fuel costs, and also help the Norwegian construction industry.”
On Tuesday, the Conservative Party proposed temporarily suspending the road toll to ease price pressure.
According to fiscal policy spokesperson Nikolai Astrup, this will lead to a cut of four kroner for gasoline and three kroner for diesel.
“These are immediate measures that will strengthen people’s everyday economy,” says Astrup.
But Finance Minister Jens Stoltenberg does not believe that Norway should do as Sweden does.
“You should not always copy Sweden. We can learn from other countries, but Sweden, for example, has a significantly worse electricity subsidy scheme than what we have in Norway. They have much higher unemployment, so it is not that we should copy Sweden, but learn from Sweden for better or worse.”
Source: NRK (in Norwegian)