The coalition government of Norway proposes to raise tax on its aquaculture and renewable energy industries which make profits from natural resources, Norway’s “common property”. Unusually, Norway has an deficit in next year budget.
The government of Norway on September 28 announced that it proposes to tax renewable energy producers and the aquaculture industry because they make profits from Norway’s natural common resources. The government needs to finance an increase of expenses in next year budget.
The government expects to increase tax revenues by 33 billion kroner (3.1 billion dollars) annually, to be distributed to local and county authorities.
Expenses next year for Norway’s administration are expected to grow by 100 billion kroner (9 billion dollars), due to the electricity subsidy for households covering energy price increases – about 40 billion kroner -, social welfare allowances, public construction projects and the integration of Ukrainian refugees.
Norway’s budgets usually show a surplus, of about 10 to 20 billion kroner according to the minister of Finance Trygve Slagsvold Vedum. But the budget for next year has a deficit because income is not growing as fast as expenses, which officials consider it justifies the need to find tens of billions of kroner more.
The minister of Finance justified the only other way than raising tax was to cut spending in welfare, pensions, health, or police which was “not compatible with the society we wish Norway to be.” It is therefore “appropriate to collect more of the profits from industries that are based on natural resources which are our common property,” says Mr Vedum.
Distributing profits natural resources
To do so, the government wants to increase tax on hydropower and introduce a resource rent tax on aquaculture and wind power. This tax is sort of a property tax that companies pay when they use natural resources and make money out of it.
The aquaculture industry for instance uses natural resources that belong to society, fjords and sea areas, to grow farmed salmon which are considered as resource rent. The state issues aquaculture licences that provide a protected right to operate indefinitely. The resource rent enjoyed by the aquaculture industry is estimated at 11.8 billion kroner (1.1 billion dollars) for 2021, according to Statistics Norway.
For the aquaculture, the effective rate of the resource rent tax would be set at 40 percent from January 2023. It would apply to the production of salmon, trout and rainbow trout over 4,000 metric tonnes a year, which should exclude two thirds of the farming companies, for expected tax revenues of up to 3.8 billion kroner (354 million dollars) annually.
Rumors about a “salmon tax” to compensate the state deficit worried coastal authorities, communities and the farming industry.
The farming industry has been furious about the government’s proposal. Geir Ove Ystmark, head of Seafood Norway, Sjømat Norge, the national association for the fisheries and aquaculture industry, considered that the government “will turn off the lights along the coast”. “They are slaughtering Norway’s future most important industry. This is a gift to our competitors abroad,” he told the Norwegian newspaper VG.
Norway Prime Minister Jonas Gahr Støre and the minister of Finance, announced the measures on Wednesday morning without announcing in advance matters discussed during the press conference.
Aquaculture is Norway’s second largest export industry and such an announcement shook the stock market. The Oslo Stock Exchange main index fell sharply and was down 1.7 percent at closing time on Wednesday. On Thursday night, the Seafood index lost 24.8 percent compared to Wednesday morning before the announcement.
Norwegian billionaire Gustav Magnar Witzøe, 29, who inherited to SalMar, one of the world’s largest producers of farmed salmon, in 2019 had threatened to leave the country with his wealth if a rent property tax were to be implemented. SalMar’s shares plunged 30 percent on Wednesday.
Parliament member Rasmus Hansson, the first Green Party representative elected in the Storting in 2013, praised the tax on aquaculture as the “farming industry has been able to put huge sums in its pockets because it gets to use nature belonging to the community.”
The largest contribution would come from increasing resource rent tax on hydropower
The introduction of a “salmon tax” is making a lot of noise, but it would nevertheless generate a small part of the 33 billion kroner the government is expected to add for 2023.
The proposal for onshore wind power would implement the same resource rent tax as for aquaculture, applied to wind farms that have more than 5 turbines or installed capacity of at least 1 MW. It could bring approximately 2.5 billion kroner a year, according to the government.
“After many years of increasing inequality, it is vital that those who have the most, and in many cases have gained significantly more in recent years, contribute more. An important part of this will be to ensure that the values that come from our natural resources must be distributed more equitably than today,” said the prime minister.
The government also wants to set an temporary tax on wind power and hydropower, an electricity “high price contribution.” This extraordinary tax would account for the first source of tax revenue in the set of measures and could collect around 16 billion kroner (1.5 billion dollars) a year. It would mainly consist of a 23 percent tax of the part of the price that exceeds 70 øre (7 cents) per kWh.
While “high electricity prices make it difficult for many” at the moment, it also provides “significant extra income levels for those who produce and sell the electricity,” justified the prime minister during the press conference.
Energy producers have indeed benefited from the recent surge of electricity market prices while inflation in Norway increased 6.5% on September compared last year. But energy companies consider taxation will make the energy crisis last longer and will create uncertainty for investing in renewable energy. For Mr Vedum, companies will remain profitable, but profit will be reduced.
The announcement comes as Norway is trying to transition away from fossil fuels to renewable energy. However, “oil money must be reduced,” the press release says, referring to Norway’s Oil fund, the country’s gigantic financial reserve valued at almost 12 trillion kroner (1.1 trillion dollars) which finances almost 20 percent of the government budget.
The second largest contributor to the increase of tax revenue would be the resource rent tax for the hydropower industry, increasing from 37 percent to 45 percent per year. Tax revenues are estimated here at 11 billion kroner annually.
Local and county authorities that benefit from selling licence power to the energy companies will also see a deduction in grant next year, saving the government 3 billion kroner in 2023.
The renewable energy and aquaculture tax proposals from the coalition government still need to be approved in the Storting, Norway’s parliament.