EUROPE

NORWAY

UNITARY COUNTRY

BASIC SOCIO-ECONOMIC INDICATORS

INCOME GROUP: HIGH INCOME

LOCAL CURRENCY: NORWEGIAN KRONE (NOK)

POPULATION AND GEOGRAPHY

  • Area: 625 222 km2 (2018)
  • Population: 5.379 million inhabitants (2020), an increase of 0.8% per year (2015-2020)
  • Density: 7 inhabitants / km2
  • Urban population: 83.0% of national population (2020)
  • Urban population growth: 1.0% (2020 vs 2019)
  • Capital city: Oslo (12.7% of national population, 2020)

ECONOMIC DATA

  • GDP: 337.0 billion (current PPP international dollars), i.e. 62 645 dollars per inhabitant (2020)
  • Real GDP growth: -0.7% (2020 vs 2019)
  • Unemployment rate: 5.0% (2021)
  • Foreign direct investment, net inflows (FDI): -3 806 (BoP, current USD millions, 2020)
  • Gross Fixed Capital Formation (GFCF): 27.3% of GDP (2020)
  • HDI: 0.957 (very high), rank 1 (2019)

MAIN FEATURES OF THE MULTI-LEVEL GOVERNANCE FRAMEWORK

According to the Political Constitution, adopted in 1814, Norway is a monarchy with a parliamentary form of government. The King acts as head of state and the prime minister as head of the government. The Parliament (Storting) is composed of 169 members elected for four-year term. Among the 12 Parliamentary Standing Committees, there is the Standing Committee on Local Government and Public Administration, which is responsible for local government legislation (e.g. regional and rural policy; block grants to municipalities and counties; regional planning; government administration; personnel policy for state employees including pay, etc.)

In 1837, local democracy and local self-rule was established and since then, the legal framework has been developed through several laws such as the Local Government Act of 1992 and The Local Government Act of 2018, which state that the role of local democratic bodies is more administrative than legislative. The Norwegian Constitution was amended in 2016 and has now a reference to local self-government. The Constitution stipulates that “the inhabitants have the right to govern local affairs through local democratically elected bodies. Specific provisions regarding the local democratically elected level shall be laid down by law”.

According to the Local Government Act, municipalities and counties can choose between two administrative models. If a municipality chooses the traditional administrative system, the municipal council is the highest municipal body. In this case, the council elects a five-member executive board from among the members of the council. In parallel, an executive officer is appointed to run the municipal administration under the executive board and council. The executive board is responsible for preparing economic and spatial four-year development plans, and for making proposals concerning the budget and other related financial and economic topics. The second alternative gives much more power to the executive board, which runs the municipal administration and has a large decision-making mandate. In this case, no executive officer is appointed, as the members of executive board act as managers of the administration. There is also a third administrative model, formed by the City of Oslo, as the city is divided into fifteen boroughs, each of which has a borough council whose members are elected by direct universal suffrage.

In 1999, the Inter-municipal Companies Act of 1999 established the framework for inter-municipal co-operation. In 2001, the Act of 15 June clarified local government boundaries. In 2002, the Representation of the People Act laid down the rules governing the organisation of general and local elections. Also in 2002, the responsibility for hospitals was moved from the counties to the national government. In 2006, the Freedom of Information Act focused on matters related to access to official information both for national and local authorities. On 1 January 2010, a reform amending Norway’s system of local government entered into force. The reform addressed power-sharing arrangements between the different levels of government. It transferred a number of tasks to county authorities, notably public roads, cultural activities, management of marine resources, operation of vocational schools and environmental protection. In addition, certain responsibilities regarding health and social services were transferred to municipalities.

In 2014, the Ministry of Local Government and Modernisation appointed an expert commission to propose criteria for municipal and regional reforms and to provide recommendations. In 2017, a new subnational structure was proposed to parliament, for both municipalities and counties, as well as the transfer of certain tasks to the new municipalities and regions. The reform was adopted in 2017 and, as a result, since January 2020, there are 356 municipalities and 11 counties (a substantial change from 422 municipalities and 19 counties prior to the reform).

The Norwegian Association of Local and Regional Authorities (KS) represents the bulk of municipalities and counties and plays a significant communication role between the central government and subnational governments. They encourage multi-level communication by promoting regular meetings with the government in order to discuss general issues and financial matters, as well as to arrange meetings with ministries on specific matters (transport, health, occupational safety, refugees, etc.).

TERRITORIAL ORGANISATION

MUNICIPAL LEVEL INTERMEDIATE LEVEL REGIONAL LEVEL TOTAL NUMBER OF SNGs (2021)
356 municipalities (Kommuner)
11 counties (Fylkeskommuner) 367
Average municipal size:
15 077 inh.
356 11 367

OVERALL DESCRIPTION: Norway has a two-tier subnational government system, composed of 356 municipalities and 11 counties with no hierarchical link. The city of Oslo is both a county and a municipality.

The central government has a deconcentrated administration at the territorial level. The heads of the regional offices, the county governors (Statsforvalterne), act as representatives of the central government at regional and local levels. In addition to coordinating the activities of other central government bodies at the county level, the county governor supervises local government activities according to the Local Government Act Article 59. As a result of the administrative reform that was carried out in 2019, the number of Statsforvalterne was reduced from 16 to 10.

REGIONAL LEVEL: There are currently 11 self-governing counties. As from 1 January 2020, 11 larger counties replaced the former 18 counties. The rationale behind the administrative reform was to strengthen the regions as functional units and to provide more coherent housing and labour market areas. However, due to a lack of public support for this regional reform, the new Norwegian government passed a new proposition in May 2022, advocating for splitting up three of the new regions. The Parliament has validated the proposition, and therefore from 2024, Norway will have 15 counties.

As of 2021, the smallest county population is 241 235 inhabitants while the population in the biggest county of Viken is above 1.2 million. The average county population size is 487 962 and median size is 419 396 inhabitants. From 2024, following the reorganisation of counties, the smallest county population will be approximately 74 000 (Finnmark), while the population in the biggest county (Akershus) will be just above 700 000. The average county popoulation size will be approximately 360 000 and median size approximately 305 000 inhabitants.

MUNICIPAL LEVEL: Despite of the administrative reform in 2017, which reduced the number of municipalities from 422 to 356, the municipal population size varies considerably: the smallest municipal population is 198 inhabitants while the population in biggest in the capital city of Oslo is nearly 700 000. The average and median sizes amounted to around 15 077 inhabitants (vs 10 331 inhabitants in the OECD on average) and 5 163 inhabitants respectively. In 2021, 49% of municipalities had fewer than 5 000 inhabitants and 21% fewer than 2 000. The key objective of the administrative reform was to ensure high quality and equal services for the citizens in all parts of the country. The goal was also to improve coordinated community development, ensure sustainable and financially robust municipal finances and strengthen local democracy.

HORIZONTAL COOPERATION: Inter-municipal and inter-regional cooperation is very common in Norway. Every municipality is involved in at least one cooperative arrangement and most municipalities are members of several cooperative arrangements. Cooperative arrangements have been particularly common in utility services such as power supply, water and sewerage and public transport. Other areas of cooperation include auditing, emergency clinics, emergency services, educational-psychological services, and child welfare.

The Municipal Act requires that inter-municipal cooperative bodies must have a board and that a formal agreement for the association is prepared to specify the tasks of the cooperative organisation. Local Government Act also allows for a host municipality cooperation. This means that a municipality can entrust the performance of statutory tasks to another municipality (called the host municipality). The host municipality has the responsibility for producing the service according to the agreement made with the two municipalities. A third form of inter-municipal cooperation are the limited companies, this is a common form of cooperation especially in case of municipal business activities.


Subnational government responsibilities

With the exception of Oslo, which is both a county and a municipality, all Norwegian municipalities have the same responsibilities and are required to fulfil the same functions. The municipalities and counties are free to choose the method of service delivery between own production, outsourcing, or inter-municipal cooperation. While decentralisation has been the clear trend in Norway, a major centralisation reform was carried out in 2002 as the hospital services were transferred from counties to the central government. This made hospitals autonomous state health enterprises. Since then, decentralisation has continued in other service sectors. In 2006, the government presented a white paper on the division of powers and responsibilities between the various levels of government. As a result, a reform was introduced in 2010, handing more competences to municipalities and counties. The reform in 2020 transferred several tasks from the central government to counties, including the administration for country road networks, cultural heritage protection, as well as tasks on integration (immigrants), broadband development, fishing ports, innovation, business development, agriculture and forestry matters. As a result of the reform, altogether about 1 850 employees (FTEs) were transferred from the central government to county governments.

Main responsibility sectors and sub-sectors

SECTORS AND SUB-SECTORS Regional level Municipal level
1. General public services (administration) General administration General administration
2. Public order and safety Comprehensive municipal emergency planning responsibility; Fire protection; Disaster prevention and response
3. Economic affairs / transports Public transport; Trade and industrial policy; Administration for country road networks; Integration (immigrants), broadband development, fishing ports, innovation, business development, agriculture and forestry matters Municipal roads
4. Environment protection Environmental protection Environmental protection; Recycling waste water; Waste collection and removal
5. Housing and community amenities Regional development (planning and business development) Water supply; Planning (including land use planning); Housing, settlements and integration of refugees
6. Health Dental health Primary health care (general practitioners, health centres and emergency rooms); Outpatient health care
7. Culture & Recreation Libraries; Museums; Sports facilities; Cultural heritage protection Cultural facilities; Churches’ maitenance
8. Education Upper-secondary education Access to and facilities in primary schools; Lower secondary education
9. Social Welfare Dental care Nursing homes and home based care for the Elderly; Social assistance and child custody; Kindergarten;


Subnational government finance

Scope of fiscal data: Counties, municipalities, as well as non-market corporations classified within local government and joint parish councils. SNA 2008 Availability of fiscal data:
High
Quality/reliability of fiscal data:
High

GENERAL INTRODUCTION: The Local Government Act determines the rules for the organisation of the municipalities’ and county authorities’ work including their finance plan, annual budget, annual accounts and reporting, debts, etc. Regulations are the same for municipalities and county authorities.

Subnational government expenditure by economic classification

2020 Dollars PPP / inhabitant % GDP % general government % subnational government
Total expenditure 11 790 18.6% 32.1% 100.0%
Inc. current expenditure 10 149 16.0% 31.7% 86.1%
Compensation of employees 5 860 9.3% 56.7% 49.7%
Intermediate consumption 2 567 4.1% 48.7% 21.8%
Social expenditure 870 1.4% 7.1% 7.4%
Subsidies and current transfers 676 1.1% 17.8% 5.7%
Financial charges 172 0.3% 56.8% 1.5%
Others 4 0.0% 3.1% 0.0%
Incl. capital expenditure 1 641 2.6% 34.8% 13.9%
Capital transfers 43 0.1% 5.2% 0.4%
Direct investment (or GFCF) 1 598 2.5% 41.0% 13.6%

% of general government expenditure

  • Total expenditure
  • Compensation of employees
  • Current social expenditure
  • Direct investment
  • 32.1%
  • 56.7%
  • caché
  • 7.1%
  • caché
  • caché
  • caché
  • caché
  • 41%
  • 0%
  • 15%
  • 30%
  • 45%
  • 60% 75%

SNG expenditure by economic classification as a % of GDP

  • Compensation of employees
  • Intermediate consumption
  • Current social expenditure
  • Subsidies and other current transfers
  • Financial charges + other current expenditures
  • Capital expenditure
  • 20% 16%
  • 12%
  • 8%
  • 4%
  • 0%
  • caché
  • 9.3%
  • 4.1%
  • 2.6%

% of general government expenditure

  • Total expenditure
  • Compensation of employees
  • Current social expenditure
  • Direct investment
  • 32.1%
  • 56.7%
  • caché
  • 7.1%
  • caché
  • caché
  • caché
  • caché
  • 41%
  • 0%
  • 15%
  • 30%
  • 45%
  • 60% 75%

SNG expenditure by economic classification as a % of GDP

  • Compensation of employees
  • Intermediate consumption
  • Current social expenditure
  • Subsidies and other current transfers
  • Financial charges + other current expenditures
  • Capital expenditure
  • 20% 16%
  • 12%
  • 8%
  • 4%
  • 0%
  • caché
  • 9.3%
  • 4.1%
  • 2.6%

EXPENDITURE: Subnational governments accounted for a third of general government expenditure in 2020 (a smaller percentage relative to the OECD average in 2020, 36.6%), and for 18.6% of GDP, which is in line with the rest of OECD countries which accounted for an average of 17.1% in 2020. subnational governments are also a major employer, since the municipalities and counties are responsible for more than half of public staff expenditure, and staff expenditure representing half of total subnational government expenditure, one of the highest shares among OECD countries (compared with an average of 34.4% of subnational expenditure in 2020).

DIRECT INVESTMENT: Direct investment at the subnational government level accounts for 2.5% of the GDP (a larger percentage in comparison with the OECD average of 1.9% for 2020) and 41% of general government direct investment (which remains below the OECD average of 54.6%). Most of subnational investments in Norway in 2019 were dedicated to education and economic affairs. Other major categories of investment spending include housing and community amenities, and recreation/culture/religion.

Subnational government expenditure by functional classification

2019 Dollars PPP / inhabitant % GDP % general government % subnational government
Total expenditure by economic function 12 056 17.6% - 100.0%
1. General public services 1 007 1.5% 14.1% 8.3%
2. Defence 0 0.0% 0.0% 0.0%
3. Security and public order 131 0.2% 15.5% 1.1%
4. Economic affairs/transports 1 402 2.1% 32.7% 11.6%
5. Environmental protection 485 0.7% 75.3% 4.0%
6. Housing and community amenities 556 0.8% 95.3% 4.6%
7. Health 1 646 2.4% 27.2% 13.7%
8. Recreation, culture and religion 723 1.1% 53.7% 6.0%
9. Education 2 650 3.9% 67.4% 22.0%
10. Social protection 3 457 5.1% 24.5% 28.7%

SNG expenditure by functional classification as a % of GDP

  • General public service
  • Defence
  • Public order and safety
  • Economic affairs / Transport
  • Environmental protection
  • Housing and community amenities
  • Health
  • Recreation, culture and religion
  • Education
  • Social protection
  • 20% 16%
  • 12%
  • 8%
  • 4%
  • 0%
  • 1.5%
  • 2.1%
  • 2.4%
  • 3.9%
  • 5.1%

SNG expenditure by functional classification as a % of SNG expenditure

  • General public service: 8,35%
  • Defence: -
  • Public order and safety: 1,09%
  • Economic affairs / Transport: 11,63%
  • Environmental protection: 4,02%
  • Housing and community amenities: 4,61%
  • Health: 13,65%
  • Recreation, culture and religion: 5,99%
  • Education: 21,98%
  • Social protection: 28,68%

SNG expenditure by functional classification as a % of GDP

  • General public service
  • Defence
  • Public order and safety
  • Economic affairs / Transport
  • Environmental protection
  • Housing and community amenities
  • Health
  • Recreation, culture and religion
  • Education
  • Social protection
  • 20% 16%
  • 12%
  • 8%
  • 4%
  • 0%
  • 1.5%
  • 2.1%
  • 2.4%
  • 3.9%
  • 5.1%

SNG expenditure by functional classification as a % of SNG expenditure

  • General public service: 8,35%
  • Defence: 0%
  • Public order and safety: 1,09%
  • Economic affairs / Transport: 11,63%
  • Environmental protection: 4,02%
  • Housing and community amenities: 4,61%
  • Health: 13,65%
  • Recreation, culture and religion: 5,99%
  • Education: 21,98%
  • Social protection: 28,68%

Following the Nordic tradition, the local public sector in Norway is a major provider of welfare services, which explains why education, health and social sectors account for the bulk of subnational government expenditure. The most important budget item is social protection, which accounted for 5.1% of GDP (a level well above the OECD average of 2.2% of GDP) and almost 29% of subnational government expenditure (also well above the OECD average of 14.1%). As far as education is concerned, Norway is in line with the OECD average both as a share of GDP (3.9% of GDP in the OECD in 2019) and as a share of subnational government spending (24.3%). Despite the fact that hospitals are under central government, health is an important subnational expenditure sector, accounting for 2.4% of GDP and 13.7% of subnational government expenditure. Subnational governments are responsible for more than 27% of the general government expenditure in this area. Finally, subnational governments are active in economic affairs and transport, especially since they hold the responsibility of local roads maintenance, however, it remains a smaller share in subnational government spending relative to the OECD average (13.6% in 2019) and as a share of the GDP (2.2%).

Subnational government revenue by category

2020 Dollars PPP / inhabitant % GDP % general government % subnational government
Total revenue 11 285 17.8% 32.4% 100.0%
Tax revenue 4 086 6.5% 23.5% 36.2%
Grants and subsidies 5 359 8.5% - 47.5%
Tariffs and fees 1 507 2.4% - 13.4%
Income from assets 284 0.4% - 2.5%
Other revenues 49 0.1% - 0.4%

% of revenue by category

  • 75% 60%
  • 45%
  • 30%
  • 15%
  • 0%
  • 36.2%
  • 47.5%
  • 13.4%
  • 2.5%
  • 0.44%
  • Tax revenue
  • Grants and subsidies
  • Tariffs and fees
  • Property income
  • Other revenues

SNG revenue by category as a % of GDP

  • Tax revenue
  • Grants and subsidies
  • Tariffs and fees
  • Property income
  • Other revenues
  • 20% 16%
  • 12%
  • 8%
  • 4%
  • 0%
  • 6.5%
  • 8.5%
  • 2.4%

% of revenue by category

  • 75% 60%
  • 45%
  • 30%
  • 15%
  • 0%
  • 36.2%
  • 47.5%
  • 13.4%
  • 2.5%
  • 0.44%
  • Tax revenue
  • Grants and subsidies
  • Tariffs and fees
  • Property income
  • Other revenues

SNG revenue by category as a % of GDP

  • Tax revenue
  • Grants and subsidies
  • Tariffs and fees
  • Property income
  • Other revenues
  • 20% 16%
  • 12%
  • 8%
  • 4%
  • 0%
  • 6.5%
  • 8.5%
  • 2.4%

OVERALL DESCRIPTION: Grants and subsidies are the main source of subnational government revenue, accounting for 47.5%subnational government, which is higher than the OECD average (41.2% in 2020). In the same vein, the share of taxes is 36.2% of subnational government revenue, which is smaller than the OECD average (42.4% in 2020). The revenue structure differs considerably between municipalities and counties in Norway. Counties are more dependent on central government grants, while tax revenue and user charges are more important for the municipalities.

TAX REVENUE: The primary source of subnational government tax revenue is the shared personal income tax (PIT). In 2020, it represented (86.6% of subnational government tax revenue, 31.4% of subnational government revenue and 5.6% of GDP). It is interesting to note that the PIT revenue is collected by the municipalities for the central government, counties and themselves.

Each year, the Parliament decides the maximum income tax rates of central, municipal and county levels. For 2019, the total maximum income tax level has been set to 22%. For municipalities, the maximum income tax rate is 11.55%, and for counties it is 2.6%. Therefore, the central government rate is 7.85%. Municipalities and counties are allowed by law to set rates lower than the maximum regulated rate, but in practice all municipalities and counties use the maximum rate. This is probably because subnational governments do not want to signal to the central government that their transfer funding is too generous.

The same applies to the wealth tax, which is the third source of subnational government tax revenue. There is however one exception, since 2019, with Bø municipality, which decided to reduce the rate for the municipal share of the wealth tax from the maximum of 0.7% down to 0.2% (effective from the fiscal year 2021).

Property tax is only levied at the municipal level and comprises both residential and business properties. In 2006, the Property Tax Law was changed and, since 2007, property tax can be levied on non-urban areas. In 2020, property tax revenue represented 12.6% of subnational government tax revenue and 0.8% of GDP, which is lower than the OECD average in 2020 (1.0% of GDP).

GRANTS AND SUBSIDIES: The central government system of transfers comprises both block and earmarked grants. All grants that are not included in the block grant system (General Grant Scheme) are conditional grants, since they must be spent on a specific program or a specific purpose. The most important ones are related to education, health and care for the elderly and the disabled, and for refugees and immigrants.

The General Grant Scheme is an important source of revenue for subnational governments (created in 1986, it replaced some 50 earmarked grants). The General Grant Scheme has both an equity dimension and a regional political dimension. This system has two main objectives; firstly, to equalize the economic opportunities across local governments given the large differences between municipalities and between counties, in both the level of income from local taxes and in the level of expenditure needed, and secondly, to promote regional policy goals, as well as the transfer of resources to the local public sector. The system includes both grants and tax equalisation. General grants take into account both structural cost differences between municipalities (expenditure equalisation) and differences in tax bases (income equalisation). General grants are defined using indicators on demographic aspects, social characteristics, population size and population density. The rural and urban characteristics are also taken into account. The discretionary grant is part of the general grant. It compensates municipalities and counties for special local conditions that are not otherwise compensated for by the General Purpose Grant Scheme. The Ministry of Local Government and Regional Development distributes the discretionary grant directly to counties and determines the distribution of municipalities' discretionary grant by county. The county governors further distribute the discretionary grant to municipalities, based on guidelines provided by the Ministry of Local Government and Regional Development. The counties of Northern Norway receive a County Grant at the regional level. There are also discretionary grants distributed to the counties at the regional level.

OTHER REVENUE: Revenue from service fees and charges represented 13.4% of subnational government revenue in 2020, a figure that is in line with the OECD average of 13.3%. For the municipalities, the revenues from user charges come mainly from utilities such as water, sewerage and garbage collection, but also from day care and care for the elderly. User charges cannot be applied in primary and secondary education. Property income share, which includes interest and dividends, is higher than the OECD average in 2020 (2.0% of the subnational government revenue), reflecting how important holdings of financial assets in the electricity market are for local governments.

Subnational government fiscal rules and debt

2020 Dollars PPP / inh. % GDP % general government debt % SNG debt % SNG financial debt
Total outstanding debt (consolidated?) 13 388 21.2% 39.6% 100.0% -
Financial debt 11 793 18.6% 39.8% 88.1% 100.0%
Currency and deposits 0 - - 0.0% 0.0%
Bonds / debt securities 3 468 - - 25.9% 29.4%
Loans 8 325 - - 62.2% 70.6%
Insurance pensions 0 - - 0.0% -
Other accounts payable 1 595 - - 11.9% -

SNG debt by category as a % of total SNG debt

  • Currency and deposits: -
  • Bonds/Debt securities: 25,9%
  • Loans: 62,18%
  • Insurance pensions: -
  • Other accounts payable: 11,91%

SNG debt by level of government as a % of GDP and as a % of general government debt

  • 50% 40%
  • 30%
  • 20%
  • 10%
  • 0%
  • 21.2%
  • 39.6%
  • % of GDP
  • % of GG Debt

SNG debt by category as a % of total SNG debt

  • Currency and deposits: 0%
  • Bonds/Debt securities: 25,9%
  • Loans: 62,18%
  • Insurance pensions: 0%
  • Other accounts payable: 11,91%

SNG debt by level of government as a % of GDP and as a % of general government debt

  • 50% 40%
  • 30%
  • 20%
  • 10%
  • 0%
  • 21.2%
  • 39.6%
  • % of GDP
  • % of GG Debt

FISCAL RULES: The local budgets are regulated by the Local Government Act. The main requirement is operational budget balance. In the budget, current revenue must cover current expenditures, interest payments and regular instalment of debt.

DEBT: The central control of local government borrowing and budgeting was relaxed in 2001. Since then, the detailed fiscal monitoring and control has applied only to local governments that have violated the balanced-budget-rule (BBR). Local governments subject to control are placed in a register (ROBEK). For any registered municipality or county municipality, either the county governor or the Ministry is to review the legality of the budget resolution passed by the municipal council or the county council. Municipalities can have yearly deficits, but they must balance the budget within 2 years. Municipalities and county municipalities in ROBEK are also subject to state control of borrowing and long-term leases. The debt-to-GDP ratio of Norwegian subnational governments is 21.2%, which is higher than the OECD unitary country average (14.5% in 2020). In 2020, subnational government financial debt was primarily made up of loans (62.2%) and bonds (25.9%).

Kommunalbanken (KBN) is a state-owned limited company and the largest provider of debt financing to Norwegian municipalities. KBN is defined as a state instrument, having a public policy mandate from the central government to provide low-cost financing to the Norwegian local government sector. KBNs operations are strictly regulated and the agency may only lend to Norwegian local governments, counties and inter-municipal companies, and against a local government guarantee. KBN is the largest provider of credit to local authorities in Norway, commanding a market share of approximately 50%. More than 97% of municipalities and counties have loans with KBN.

KBN began lending to green investments in the local government sector in 2010, and in 2013 KBN was one of the first European issuers to launch a public USD green bond earmarked towards green projects. KBN offers green loans to municipalities, county authorities, municipal companies, inter-municipal companies and other types of companies with a municipal guarantee. Eligible borrowers will get a discounted interest rate for projects that help reduce greenhouse gas emissions, improve energy efficiency or represent an adaptation to climate change.



The impact of the COVID-19 crisis on subnational government organisation and finance

TERRITORIAL MANAGEMENT OF THE CRISIS: The central government has the main responsibility for policy responses to COVID-19. The Ministry of Health is responsible for preparing the laws needed to manage the crisis. National agencies who implement the laws act independently of the government. The Ministry of Health steers them only indirectly with instructions and financing. The Directorate of Health, which is an executive agency and professional authority under the Ministry of Health and Care Services, is in charge of overall coordination of the health and care sector’s efforts and implements necessary measures during an emergency. On 31 January 2020, the Directorate of Health was delegated responsibility for coordinating the health sector response to COVID-19.

Municipal authorities, who organise and finance primary health care services, have been responsible for COVID-19 measures at the primary care level, whereas the central government is responsible for measures at the hospital level. There are four regional health authorities, overseen by the Ministry of Health and Care Services, who run all public hospitals in Norway. Municipalities and their Chief Medical Officers have the autonomy to decide measures to limit the epidemic in their own areas. In the beginning of the crisis in March 2020, some municipalities closed schools and kindergartens before the government made the same decision at a national level. Furthermore, some municipalities banned non-residents from entering and imposed a fourteen-day quarantine for residents entering from outside.

Regional and local authorities, and especially their chief medical officers, coordinate local policies with the state authorities. The county governors monitor local plans for infection control, and give assistance if necessary, and is the appeal body for municipal decisions pursuant to the Infection Control Act. County governors keep the Norwegian Board of Health Supervision informed about the conditions in the county. The Norwegian Board of Health Supervision is responsible for ensuring that the municipal, county and state activities are in accordance with the Infection Control Act. The Norwegian Association of Local and Regional Authorities has helped coordinate the measures with the central government and municipalities and counties.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The central government has been responsible for economic support to municipalities, counties, individuals, businesses and other parties during the COVID-19 crisis. In 2020, subnational governments received NOK 18 billion in extra compensation due to the pandemic. For 2021, this support amounted to NOK 16 billion, and in 2022, so far, a total of NOK 1.7 billion has been allocated in compensation to subnational governments. For instance, counties received NOK 3 100 million compensation for reduced revenue from public transport. The county governors distribute some of these funds to municipalities according to their needs, and the central government also directly distributed earmarked grants to municipalities, reserved for municipal purchases of maintenance services on municipal buildings and constructions (including roads).

In April 2021, the central government launched a NOK 2 billion grant scheme to municipalities and counties for local support to business. The package is called “COVID-19 Umbrella scheme for liquidity support for undertakings in municipalities hit by the pandemic”. The EFTA Surveillance Authority has approved the scheme as a temporary state aid mechanism. In December 2021, the scheme was extended until 30 June 2022. The aid ceiling per undertaking is currently NOK 18.3 million to NOK 23.4 million. The aid amount per supported business is calculated using a set of predefined eligible costs or losses, according to local schemes. Aid intensities are subject to municipal discretion but up to 100% of the costs or losses can be covered by the grant. In addition, the equity capital of Kommunalbanken (KBN) has been increased by NOK 750 million “to help the markets to function as well as possible and to prevent municipalities’ refinancing of short-maturity securities from contributing to further stress in the markets”.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: According to a government working group appointed to estimate the economic impact of COVID-19 on municipalities and counties, there are both direct and indirect expenditure and revenue impacts related to the crisis. The direct expenditure impacts include expenses for infection control equipment, testing and test capacity, compensation to own employees while indirect impacts include fewer assignments in practical assistance in the care sector and closed cultural and leisure facilities. Revenues were impacted directly (lower user fees as a result of closed kindergartens and after-school clubs, and loss of ticket revenues for public transport) and indirectly through reduced income from port activities and parking.

In total, the working group estimates that net additional expenses and loss of income for subnational governments equalled about NOK 14 billion in 2020. Of this, the financial consequences for municipalities was estimated at about NOK 10 billion and NOK 4 billion for the counties. For the municipalities, about half of the estimated additional expenses and loss of income could be identified in health and care services, 20% in primary and lower secondary schooling, and the remaining were divided between culture, sports and port, as well as some other services. For the counties, the economic consequences were mainly related to reduced ticket revenues in public transport. For the first half of 2021, the working group estimates that the total net additional expenses and loss of income for the subnational government sector is approximately NOK 9.3 billion (NOK 6.7 billion for municipalities and NOK 2.6 billion for the counties).

ECONOMIC AND SOCIAL STIMULUS PLANS: The revised budget of the central government for 2021 focused on promoting recovery and inclusion by aiming at reducing the long-term economic effects of the crisis and helping those that are still hard-hit. Spending of oil revenue was estimated at 402.6 billion NOK, almost 90 billion more than was originally proposed in the 2021 budget. Extraordinary economic support measures related to the pandemic accounts for a large bulk of the increase.

In early 2022, the economic crisis caused by COVID-19 is largely over according to the Norwegian government. Therefore, the national economic policy focuses mainly on avoiding that the fiscal policy leads to an overheated economy. At the same time, the government wants to normalise fiscal policy, support those affected by the crisis and facilitate job creation, enable green transition, and improve skill prospects. The 2022 budget proposes measures to safeguard sustainable growth, which also means that no specific economic stimulus packages will be needed. In January 2022, the central government estimated that economic growth will be above normal also in 2023 and 2024.

Bibliography


Socio-economic indicators

Source Institution/Author Link
World development indicators World Bank
World population prospects United Nations
Demographic and Social Statistics United Nations
Unemployment rate by sex and age ILOSTAT
Human Development Index (HDI) United Nations Development programme; Human Development Reports
Statistics Norway Statistics Norway

Socio-economic indicators

Source Institution/Author
World development indicators World Bank
Link: https://data.worldbank.org/indicator/
World population prospects United Nations
Link: https://population.un.org/wpp/
Demographic and Social Statistics United Nations
Link: https://unstats.un.org/unsd/demographic-social/index.cshtml
Unemployment rate by sex and age ILOSTAT
Link: https://ilostat.ilo.org/data/
Human Development Index (HDI) United Nations Development programme; Human Development Reports
Link: http://hdr.undp.org/en/content/human-development-index-hdi
Statistics Norway Statistics Norway
Link: https://www.ssb.no/en

Fiscal data

Source Institution/Author Link
OECD (2020) Subnational governments in OECD countries OECD
OECD Revenue Statistics Norway OECD
OECD National Accounts Statistics OECD
Government Finance Statistics Eurostat
REGOFI Database OECD

Fiscal data

Source Institution/Author
OECD (2020) Subnational governments in OECD countries OECD
Link: https://stats.oecd.org/
OECD Revenue Statistics Norway OECD
Link: https://stats.oecd.org/
OECD National Accounts Statistics OECD
Link: https://stats.oecd.org/
Government Finance Statistics Eurostat
Link: https://ec.europa.eu/eurostat/web/government-finance-statistics
REGOFI Database OECD
Link: https://stats.oecd.org/

Other sources of information

Source Institution/Author Year Link
Division of counties and Ålesund municipality and amendments to the Division Act (new county division and new county names) Ministry of Local Government and District Affairs 2022
Kommuneproposisjonen 2023 Norwegian Government 2022
National Convergence and Reform Programmes European Commission 2020
Reform of local government Government of Norway 2020
Local government reforms in Norway KS 2020
Norwegian Association of Local and Regional Authorities (KS) Norwegian Association of Local and Regional Authorities (KS) 2020
The Norwegian Local Government Sector The Norwegian Agency for Local Governments 2020
Meld. St. 6 (2018–2019) Notice to Stortinget Tasks for new regions Ministry of Local Government and Modernisation 2019
Building Conditions in Norwegian Local Governments: Trends and Determinants Arnt O. Hopland ; Sturla F. Kvamsdal 2017
Local government in Norway Borge, L.-E. 2016
Division of Powers European Committee of Regions 2016
Local and regional democracy in Norway CG/2015 (28)5FINAL Council of Europe 2015
Fiscal adjustment and balanced-budget-rules: Evidence Lars-Erik Borge and Arnt O. Hopland 2014

Other sources of information

Source Institution/Author Year
Division of counties and Ålesund municipality and amendments to the Division Act (new county division and new county names) Ministry of Local Government and District Affairs 2022
Link: https://www.regjeringen.no/no/dokumenter/prop.-113-ls-20212022/id2912355/
Kommuneproposisjonen 2023 Norwegian Government 2022
Link: https://www.regjeringen.no/contentassets/2f60518f30d743ac9d4d15e610ad2c0c/no/pdfs/prp202120220110000dddpdfs.pdf
National Convergence and Reform Programmes European Commission 2020
Link: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/european-semester-timeline/national-reform-programmes-and-stability-or-convergence-programmes/2020-european_en
Reform of local government Government of Norway 2020
Link: https://www.regjeringen.no/en/topics/kommuner-og-regioner/kommunereform/reform-of-local-government/id2548429/
Local government reforms in Norway KS 2020
Link: https://www.ks.no/om-ks/ks-in-english/local-government-reforms-in-norway/
Norwegian Association of Local and Regional Authorities (KS) Norwegian Association of Local and Regional Authorities (KS) 2020
Link: https://www.ks.no/om-ks/ks-in-english/
The Norwegian Local Government Sector The Norwegian Agency for Local Governments 2020
Link: https://www.kbn.com/en/investor/investing-in-norway/
Meld. St. 6 (2018–2019) Notice to Stortinget Tasks for new regions Ministry of Local Government and Modernisation 2019
Link: https://www.regjeringen.no/en/dokumenter/meld.-st.-8-20182019/id2620206/
Building Conditions in Norwegian Local Governments: Trends and Determinants Arnt O. Hopland ; Sturla F. Kvamsdal 2017
Link: https://openaccess.nhh.no/nhh-xmlui/bitstream/handle/11250/2465779/A13_17.pdf?sequence=1
Local government in Norway Borge, L.-E. 2016
Link: http://forumpartnerships.archiv.zsi.at/attach/NO_04_B_MLGRD_LocalGovernment.pdf
Division of Powers European Committee of Regions 2016
Link: https://portal.cor.europa.eu/divisionpowers/Pages/default.aspx
Local and regional democracy in Norway CG/2015 (28)5FINAL Council of Europe 2015
Link: https://www.coe.int/en/web/congress/-/local-and-regional-democracy-in-norway
Fiscal adjustment and balanced-budget-rules: Evidence Lars-Erik Borge and Arnt O. Hopland 2014
Link: https://www.sv.uio.no/econ/english/research/centres/ofs/news-and-events/events/dokumenter/Borge18feb14.pdf

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