Prime Minister Jens Stoltenberg pledged to build Norway’s welfare system, financed by the nation’s $750 billion oil fund, as he trails in the polls behind an opposition that’s promised tax cuts.
Stoltenberg, who is seeking an unprecedented third four-year term in September elections, said western Europe’s biggest oil producer needs a more developed system of public benefits as his Labor-led coalition raises spending by 19 percent in 2013.
“The main mission of the campaign is to tell voters why ours is the best government to lead Norway in the future, both when it comes to economic challenges and when it comes to further developing the Norwegian welfare state,” Stoltenberg said yesterday in an interview in Oslo. “It’s absolutely possible to win three elections in a row in Norway and that’s what I’m going to campaign for.”
Norway, where survey unemployment was 3.5 percent in April and manufacturing labor costs are almost 70 percent above the European Union average, is grappling with signs of overheating as its oil wealth drives up asset prices. Stoltenberg and his main rival, Conservative Party leader Erna Solberg, have both sought to entice voters with campaign promises that risk stoking demand further in the $480 billion economy.
Norway’s gross domestic product, excluding income from offshore industries, will grow 3 percent in 2013, the central bank estimates. That compares with a 0.4 percent contraction in the euro area, the European Commission said in May.
Norway’s government uses money from its sovereign wealth fund, the world’s biggest, to pad its budget. Though use of the fund is limited to 4 percent, the amount of money that figure represents is growing. The oil fund has quadrupled in size since 2005 and will grow a further 42 percent by 2020, the government estimates.
“As long as they have this massive oil fund, which has been growing steadily, it’s not difficult for a politician to make that promise,” Thina Saltvedt, an analyst at Nordea Bank AB, said in a phone interview. “Too much spending, especially when the rest of Europe is not growing fast, could overheat the economy.”
Such policies risk putting pressure on the central bank, which is struggling to set rates to keep credit growth in check without fueling krone appreciation. The bank left its benchmark deposit rate at 1.5 percent in June.
“You could cause inflation and then have to increase rates faster, which would end up strengthening the krone,” Saltvedt said. That’s “not what the industry wants,” she said.
Norway’s krone is 32 percent overvalued versus the dollar, according to a gauge of purchasing power by the Organization for Economic Cooperation and Development.
The krone gained 0.2 percent against the dollar as of 9:25 a.m. in Oslo and traded as high as 5.9212, its strongest since June 20, according to intraday prices tracked by Bloomberg. It rose 0.12 percent versus the euro to 7.8149.
Stoltenberg’s approval rating as prime minister declined to 36 percent in June, from 43 percent in March, according to a Respons Analyse poll in Aftenposten. Support for Solberg, who leads a bloc that also comprises the anti-immigration Progress Party, was unchanged at 50 percent.
Norwegians are set to oust Stoltenberg just because they want a change, according to Johannes Bergh, an election researcher at the Institute for Social Research in Oslo.
“Voters aren’t all that disappointed,” he said by phone. “It’s more that they’re fatigued with the current government.”
Stoltenberg, who spoke on the second anniversary of Norway’s July 22 terrorist attacks, faced calls for his resignation last year after a formal probe revealed the government’s failure to prevent the 2011 hate killings by Anders Behring Breivik that left 77 dead.
Breivik was sentenced in August to 21 years in prison with an option to extend his term.
A June 22 poll for Dagens Naeringsliv showed support for Stoltenberg’s Labor Party slipped 0.3 point to 29.8 percent, versus a 0.4 point gain for the Conservatives to 29.1 percent.
“There’s been a general move towards the right in Norwegian politics for about a decade,” Bergh said. “People are willing to experiment with the parties on the right.”
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