Sanjeev Nanda
Norwegian Tax System
Norway has been brought up quite a bit in the American media as of late. Why is this small (population of less than 5 million people) Scandinavian country such a popular topic of conversation?
First off, Norway is being used by many advocates of health care reform in the United States as an example of how health care should be delivered in a country. Everyone is covered by universal health care in Norway.
Second, many people point to Norway as a shining example of how a government should manage its finances. Norway is in phenomenal shape in terms of its finances, with the country being able to boast of an extremely low unemployment rate (3.0%) and approximately $400 billion dollars USD in its government pension fund.
Michael Moore included a 10 minute segment on Norway as an extra on his “Sicko” DVD. Moore extols the virtues of the Norwegian system, giving a long laundry list of all of the perks that Norwegian citizens are entitled to.
The country of Norway is one of the wealthiest in the world per capita, and they also have one of the highest standards of living of any country in the world. How is this possible, and how is the government able to provide so many perks to its citizens?
Norway has significant resources (they are one of the world’s largest exporters of oil, natural gas and seafood) and the government has majority or full ownership of the largest operators in the Norwegian oil fields, and that any “surplus wealth” from Norwegian petroleum income is invested straight into the government pension fund.
Norwegian government has large ownership stakes in many important companies that operate in the country – as a matter of fact, the government has majority stakes in nearly 1/3rd of all publicly-listed companies in the country.
Here are some of the major components of the Norwegian tax system. Most of this information is from a publication from KPMG called “Tax Facts Norway 2009: A survey of the Norwegian Tax System”.
1. Income Tax.
Income tax is charged at a flat rate of 28% on net income.
A 9% surtax is charged on gross income if you earn between the equivalent of $73,641 – $119,662 USD, while a 12% surtax (on gross income) is charged if you earn anything over that.
In addition, taxpayers must make social security contributions based on whatever they make over $6,612 USD. 7.8% of any salary made over this amount goes towards social security contributions. Pension income is charged at a lower 3.0% rate.
2. Value Added Tax.
A Value Added Tax (or VAT) is charged on the sale of most goods and services in the country.
The general rate is 25%. A reduced rate of 14% applies to the sale of food and drink, while an even lower rate applies to hotel lodging, cinema shows, public transportation services and broadcasting charges.
The 14% rate does not apply to eating out at a restaurant. So, if you decide to take the family out for a dinner that ends up costing the equivalent of $100 USD, be prepared to pay an extra $25 in taxes (before the tip, of course).
3. Wealth Tax / Net Asset Tax.
Norwegians must pay an annual “wealth tax” on their net “worldwide assets”.
There is an exemption (up to the equivalent of $78,483 USD), with any amount over that being subjected to a 1.1% “wealth tax”.
In order to figure out how much you would pay, take the total worth of your assets (house, cash in the bank, etc) and subtract any liabilities (mortgage, etc).
As mentioned, there is an exemption up to 470,000 NOK (which works out to $78,483 USD) – any amount over that, and you are paying a 1.1% wealth tax.
As far as I am aware, this includes houses, cash in the bank, etc.
4. Property taxes.
Norwegian municipalities can choose to impose a property tax of between 0.2-0.7% on the total “fiscal value of the property”. Not all Norwegian municipalities choose to levy this tax.
5. Death / Inheritance Tax.
Children, foster children and parents of the deceased pay a progressive rate for an inheritance or death tax. Here are the USD equivalents:
First $78,483 – Nothing
Next $55,105 – 6%
Anything Over $133,589 – 10%
“All other beneficiaries” pay this rate:
First $78,483 – Nothing
Next $55,105 – 8%
Anything Over $133,589 – 15%
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These are five major taxes that apply to the average citizen of Norway.
There are obviously also corporate taxes (which is a flat rate of 28% of taxable profits), but we won’t get into that here.
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According to Forbes magazine, Oslo, Norway is the 14th most expensive city in the world to live in, just behind Paris and Milan.
As a whole, Norway is one of the most expensive countries in the world to live in, according to various cost of living indexes.
Source: KPMG.no – Tax Facts Norway 2009: A survey of the Norwegian Tax System
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