1. BUDGETING IN NORWAY 27 th Annual Meeting of Senior Budget Officials Sydney, June 5 th 2006 Teresa Curristine, Budgeting and Public Expenditures Division, Public Governance Directorate, OECD

2. 2 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

3. 3 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

4. 4 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

5. 5 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

6. 6 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

7. 7 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

8. 8 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

9. 9 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

10. 10 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

11. 11 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

12. 12 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