## _cr09193 ## Source details **Canonical URL:** [_cr09193](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09193.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09193.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09193.pdf.json) --- ### Executive Summary — overview and overall assessment - Purpose: Assessment of fiscal transparency practices in Norway against the IMF Code of Good Practices on Fiscal Transparency; based on discussions with the authorities and other organizations, the authorities’ response to the IMF fiscal transparency questionnaire, and other sources of information. - Reference: The IMF Manual on Fiscal Transparency (2007) should be consulted for terms and concepts. - Overall assessment: - Norway’s fiscal management system is characterized by a high level of transparency, especially in resource revenue. - Public management is highly decentralized and demands high integrity and well-functioning institutions—these conditions are largely met. - High scores in four assessed areas: - Clarity of roles and responsibilities: institutional framework and division of responsibilities are clear. - Open budget processes: open, highly transparent; Parliament plays central role; budget documents present comprehensive, high-quality information and extensive analysis including long-term fiscal perspectives and sensitivity of projections. - Public availability of information: scope and quality of information made available to the public are very high. - Assurances of integrity: Office of the Auditor General (OAG) undertakes financial and performance audits and corporate control; Statistics Norway produces highly regarded data and analyses. ### Executive Summary — key institutional and structural features - Central government coverage and units: - State budget covers central government of 17 ministries and 180 autonomous agencies, grants/transfers to extrabudgetary units, local governments, and public corporations. - Government Pension Fund–Global (GPF-G) depicted as a central government unit with a separate budget but is formally a central government account with Norges Bank; exception: cash return on the Fund’s assets and its management cost. - Agencies and extrabudgetary units: - Ministerial agencies: staff are civil servants; agency budget included in parent ministry’s budget; parent ministry responsible for policy and performance oversight. - About 27 percent of agencies use accrual basis accounting for internal management purposes. - Agencies cannot borrow; contingent liabilities from agencies’ contracts reported by agencies and absorbed in ministry’s budget if needed. - Extrabudgetary units: staff are not civil servants; some units can borrow and have own revenue sources. - Public corporations and state ownership: - Approximately 3,000 publicly-owned corporations; about 650 correspond to central government and the rest to local governments. - Government classifies companies into four categories (purely commercial; commercial with head office/location considerations; commercial with specific objectives; companies with sectoral policy objectives). - Reporting on largest state-owned companies coordinated by the Ministry of Trade and Industry and consolidated annually in “The State’s Ownership Report.” - Specific counts in policy documents: 46 fully state-owned limited companies, 36 partly-owned limited companies, five state public enterprises, and nine companies organized by special act (which included five state regional health enterprises). ### Executive Summary — principal recommendations (selected) - Provide information on the consolidated central government in budget documents. - Gross budgeting should be the guiding principle for the budgetary central government. - Consider extending the coverage of the accounts, including the capital account in the annual financial statement. - Disclose all government assets and liabilities and the full resource implications of policies and programs. - Include institutional tables in budget documents to enhance transparency. - Strengthen the budget process by disclosing all exceptions to the procedures in the Appropriation Regulations. - Consider extending the accrual-basis accounting pilot (medium term). - Enhance medium-term fiscal planning. - In performance budgeting, encourage ministries to present more concretely specified sectoral objectives in some cases. - Consider more extensive use of internal audit procedures. - Address uncertainty arising from the OAG not expressing an opinion on ministries’ accounts, the consolidated government accounts, and the capital account. --- ### 5. Quasi-fiscal activities (QFAs) carried out by public nonfinancial corporations — main findings - QFAs are limited but not fully costed and presented in budget documents. - Main QFAs identified: - Government requirement that Posten Norge provide certain postal and banking services at below cost terms in remote regions. - Government requirement that Avinor provide airport infrastructure and services at given locations. - Cross-subsidization: - Activities are cross-subsidized by other profitable company activities. - Goods/services provided at below-market costs by other nonfinancial companies are clearly identified and compensated with budget transfers (example: railway services at below-cost rates by NSB). - Arrangements regulating profit transfers: - Ministries formulate dividend expectations for the following three to five years for companies with commercial objectives. - Dividend expectations are indicative; under the LLCA the annual dividend is proposed by the companies’ Board of Directors and adopted by their annual shareholders’ meeting. - In partly-owned companies, state normally represented with one representative in nomination committees; in fully-owned companies the relevant cabinet minister appoints the board. - Public financial corporations and QFAs: - State equity holdings: 34 percent of DnB NOR; 15 percent of Eksportfinans; 80 percent of Kommunalbanken. - DnB NOR and Eksportfinans are fully commercially run. - Kommunalbanken is commercially run but has additional policy objectives providing loans on favorable terms to local governments, implying possible implicit subsidization not identified in the budget. - Subsidized loans also provided by the Student Loan Fund, Innovation Norway, and the State Housing Bank; these activities are identified and assigned appropriations in the budget. - Government–central bank relationship: - Norges Bank operationally independent, no fiscal role; Regulation on Monetary Policy states operational target of annual consumer price inflation of approximately 2.5 percent over time. - Norges Bank not allowed to extend credit directly to the government; annual dividends computed according to a formula and transferred to the government. - PPPs and contracts: - Central government participates in three PPPs in the transportation sector (pilot experience); projects do not involve government guarantees but envisage regular government payments. - Total cost of the three projects estimated at approximately NOK 4.5-5 billion. --- ### 18. Legislation governs asset management, including granting of rights to use — key points - Debt issuance: authorized annually by the Storting; constitutional right to borrow rests with the Storting. - MoF performs borrowing function through the debt office of the Economic Policy department and delegates operational/advisory tasks to Norges Bank. - All debt contracted in the domestic market. - Major part of government financial assets held by GPF-G. - Petroleum Act section 1-1: Norwegian state has proprietary right to sub-sea petroleum deposits and exclusive right to resource management on the Norwegian Continental Shelf. - Privatization and sales: - Privatizations proposed by the Cabinet and require Storting authorization; privatizations must be authorized in the annual budget and covered by general rules on the sale of state assets. - Budget timetable: - Appropriation Regulations: budget proposal submitted within six days of opening of parliamentary session each fall; supplements/additions must be submitted by November 10. - Fiscal year is calendar-year basis. - Detailed government budget preparation calendar: first budget circular sent to ministries in December (t-2), final calendar distributed in March/April before budget year. - Budget preparation process timeline (selected entries preserved verbatim): - December t-2: First budget circular sent to line ministries... - January t-1: MoF receives baseline projections... - March t: First Government budget conference... - August: Second Government budget conference... - October: Budget bill submitted to Parliament. - November: Parliament adopts revenue targets and sector spending limits. - December: Parliament adopts detailed, final budget. - May t: Mid-year budget review, linked to Revised National Budget. - November t: End-year budget revision. --- ### 28. Accounting system is capable of producing accurate in-year reports on central government budget outturns — capabilities and practices - Consolidation and systems: - GAFM receives monthly cash-basis financial reports from agencies and generates monthly consolidated reports on central government budget outturns via an automated consolidation system. - Agencies submit standardized reports in electronic format. - System usage statistics: - Sixty percent of agencies use the financial management system. - 50 percent use the payroll system. - Sixty-five percent of central government agencies use the central government charts of accounts; 35 percent use the Norwegian Standard chart of accounts. - Approximately 27 percent of central government agencies use accrual accounting basis for their internal accounts. - Main suppliers meeting MoF specifications: Agresso, Oracle, SAP, and Formula. - Central government accounts reconciled with budget appropriations and bank statements within four months after year-end. - In-year reporting and timetable: - Budget execution reports not issued separately to the Storting but included in other documents. - Reporting timetable: - First quarter report used as supplementary background for revised national budget. - Mid-year report included in the Budget Bill for the coming fiscal year. - Third quarter report covered in the second revision of the current budget. - Annual financial report issued four months after year-end. - Statistics Norway publishes monthly aggregated expenditure and revenues of central government budgetary units within thirty days of the month-end. - Supplementary budgets and contingency: - Two major supplementary budgets: first in May (with Revised National Budget), second in November. - Contingency appropriation (2008): NOK 10.9 billion, about 1.5 percent of non-oil budget expenditures. - Audit timetable: - Ministries and agencies submit preliminary accounts to the OAG in mid-February. - Consolidated accounts submitted in mid-March; two months allowed to complete the audit. - Central Government Financial Statement presented to the Storting in April. - Result of financial audit submitted to audited entity in May as a concluding audit letter. - Document No. 1 (OAG’s annual report) submitted to the Storting in October; Storting gives final approval to all central government accounts. - Note: OAG does not provide a formal audit opinion on the consolidated annual financial report or the reports of ministries. --- ### 41. Information on gross public debt — availability, coverage, and public reporting - Debt data sources and presentation: - Statistics Norway’s website provides debt data for central, local, and general governments; data published quarterly. - MoF also provides central government data. - Data presented in gross terms, classified by currency, instrument type, and remaining maturity; information on currency swaps is also presented. - Stock of expenditure arrears is insignificant. - Debt reports presented to the Storting annually by MoF, including maturity, type of instrument, lender, and projections of future debt service commitments. - Debt records are reliable and comprehensive. - Non-debt liabilities and assets: - Published information includes pension obligations, guarantee exposure, and contractual obligations. - Government presents annual financial statements to the Storting; capital account includes detailed specifications of funds, shares, securities, loans, and interim accounts. - Some financial assets valued at market value while others at historic cost. - MoF presents separate annual report to the Storting on management of the GPF-G; Norges Bank publishes annual and quarterly reports on GPF-G management. - Long-term public finances: - Routine, in-depth analysis of long-term fiscal trends included in the National Budget; broader analysis every four years in White Paper “Economic Perspectives” (last cited published in January 2009). - 2009 document focused on sustainable public finances, global warming, income disparities, aging, globalization, and the environment. --- ### 58. Tax administration has effective internal monitoring and control — features and assurance - Revenue administrations (Tax Administration and Customs and Excise) are highly computerized; large part of tax returns and customs declarations submitted online. - Tax and Customs administrations are among few government agencies with a formal internal audit system to ensure financial accountability of revenue collection staff and systems. - Legal protection and reporting: - Agencies report to the MoF; relationship governed by the letter of allocation specifying budget, targets, performance indicators, and reporting requirements. - Agencies produce annual internal reports for MoF and annual official performance reports available to the public. - MoF reports on activities of revenue authorities as part of its annual report to the Storting. - OAG external audit: - External audit independent; Constitution requires Storting to elect five auditors; Auditor General Act of 2004 provides detailed provisions. - OAG staff about 500; main activities: financial audit (70 percent), performance audit (26 percent), corporate control (4 percent). - OAG submits annual report (Document No.1) to the Storting; does not provide a formal audit opinion on consolidated annual financial report or ministries’ reports. - OAG provides final audit letters on accounts of government agencies but not a formal audit opinion on ministries’ accounts and the consolidated central government. - External scrutiny and Statistics Norway: - External scrutiny of macroeconomic models and assumptions is actively encouraged; Statistics Norway given legislative assurance of independence via the Statistics Act. - Eurostat peer review (June 2007) found Statistics Norway largely or fully meets the European Statistics Code of Practice; Professional Independence, Mandate for Data Collection, and Statistical Confidentiality indicators fully met. --- ### 78. Reporting standard reconciliations as part of fiscal accounts — recommendations and follow-up - Benefit of standard reconciliations: - Improves transparency by demonstrating internal consistency of fiscal accounts; provides greater assurances and enhances credibility. - First-step reconciliation recommended: - Reconcile cash receipts and payments in the appropriation account with the movement in cash and bank balances in the capital account. - Prepare a standard cash flow statement showing operating, investing, and financing cash flows; net of cash flows should agree or be reconciled with changes in cash and bank balances on the capital account. - Net assets reconciliation: - Reconcile change in consolidated net assets of central government from one period to next with consolidated surplus and valuation changes. - Currently carried out for GPF-G but not for consolidated assets and liabilities of the budget and the fund. - Note on implementation: “Since this assessment was made, steps have been taken to implement the recommendations in this paragraph. See footnotes 34 and 35 in paragraph 50.” --- ### 4. Petroleum sector tax regime — structure and administration - Legal framework: - Petroleum Tax Act (13 June 1975 No. 35, last amended December 2005) supplements the General Tax Act; rules produced through normal legislation process and presented to the public. - Royalty on the NCS phased out for last two fields (Oseberg and Gullfaks) in 2005; production sharing contracts not used. - Tax rates and allowances: - Ordinary corporate tax: 28 percent. - Special tax: 50 percent after subtracting an investment-based uplift allowance of 30 percent of investment costs (7.5 percent a year over 4 years). - Storting determines tax rates for petroleum companies during the budget process each year; corporate tax and special tax rates stable since 1992. - Deductions, depreciation, losses: - All relevant expenses deductible: operating expenditures, exploration costs, shut-down and decommissioning costs, R&D. - Linear depreciation over 6 years for production installations and pipelines. - Net financial costs deductible (subject to limit); new rule from 2007 defines deductible net financial costs and attribution rules. - Losses may be carried forward without time limits and, since 2002, earning interest. - Since 2005, companies can claim reimbursement of tax value of certain costs (exploration, decommissioning). - Tax reference prices and transfer pricing: - Norm prices used for crude oil by grade to reduce transfer pricing issues; Norm Price Board subordinated to MPE with at least five members (currently six members including four independent members, one MoF representative, one MPE representative). - Norm prices set quarterly by discretionary judgment; preliminary norm prices presented in writing to companies with opportunity to comment. - Gas sales taxed on actual realized sales price except for associated-party deviations; OECD Transfer Pricing Guidelines must be considered. - Environmental taxes and area fee: - CO2 and NOx taxes levied on NCS activities and deductible from corporate and special tax bases. - CO2 tax reduced starting January 2008 to offset costs of mandatory quota system. - Specific NOx tax imposed since 2007; 3-year exemption from NOx tax included in environmental agreement under conditions. - Area fee: incremental fee for each year after initial exploration period expiration. - State equity participation and SDFI: - Since 1985 the state can keep discretionary share of a production license; government holds shares in 113 production licenses. - Government’s equity share as high as 56 percent historically; usually 20 percent in more recent licensing rounds. - SDFI represents about a third of Norway’s daily petroleum production and total reserves. - Petoro manages SDFI on behalf of central government since 2001; StatoilHydro markets the state’s oil and gas. - SDFI revenues and expenditures included in the budget; Storting approves SDFI’s budget annually. - GPF-G and petroleum revenue integration: - GPF-G (formerly Petroleum Fund) has no separate legal status and is a Norwegian krone account held by the MoF in Norges Bank. - Norges Bank invests corresponding international assets in its own name through NBIM; MoF has overall responsibility and delegates operational management to Norges Bank. - GPF-G inflows: all state petroleum revenues (net of petroleum-related expenditures), net government financial transactions related to petroleum activities, and return on GPF-G investments (net of remuneration to Norges Bank). - GPF-G outflow: sum needed to cover the non-oil budget deficit as measured in the final budget revision (late November/early December). --- ### 12. Investment policies for the GPF-G — governance, strategy, and disclosure - Governance and operational management: - Operational management carried out by Norges Bank; investment guidelines publicly disclosed by MoF. - MoF receives advice from Norges Bank, the ministry’s advisory council on investment strategy, and external consultants. - MoF Asset Management department responsible for MoF duties; NBIM implements strategy and active management. - Benchmark portfolios are “virtual portfolios” defined by instrument types, countries, and currencies. - MoF limits include allocation between equities and fixed income, maximum ownership interest in individual companies, and a tracking error relative to the benchmark. - GPF-G invests only in foreign financial assets. - Strategic allocation and planned changes: - Current strategic allocation: 40 percent fixed income instruments and 60 percent equities. - MoF plans to invest up to 5 percent of the GPF-G in real estate over time (which will reduce allocation to fixed income). - MoF plans to increase maximum ownership limit in individual companies from 5 percent to 10 percent. - Ethical guidelines and stewardship: - Ethical Guidelines established in 2004; two policy instruments: exercise of ownership rights and exclusion of companies. - Exclusions decided by MoF based on publicly available recommendations from an independent Council on Ethics. - Transparency and reporting: - MoF and Norges Bank publish comprehensive reports: quarterly and annual reports, audited financial statements, lists of holdings, returns by asset class and currency, excess returns relative to benchmark, management costs. - MoF reports annually to the Storting on financial performance, fiscal sustainability outlook, changes in investment strategy, implementation of ethical guidelines, and risk assessments. - Risk assessment: - Budget documentation includes oil price sensitivity analysis (example: impact of a change in oil prices of NOK100 per barrel relative to baseline). - MoF’s 2007 report assessed potential risks to rate of return using Monte Carlo simulation and backward-looking stress-testing. --- ### Appendix II — Summary Tables (selected assessments and numeric entries preserved) - Clarity of roles and responsibilities: Overall summary assessment: Largely observed. - Recommendation: Provide information on consolidated central government in budget documents; include institutional tables. - Legal, regulatory, and administrative framework: Overall summary assessment: Observed. - Comment: Regulatory framework clear and comprehensive but no budget system law; scope for discretionary exceptions to basic regulations. - Open budget process (preparation): Overall summary assessment: Observed. - Comment: Budget forecasts and macro assumptions clearly presented; room for improvement on consolidated central government operations and medium-term fiscal planning. - Public availability of information: Overall summary assessment: Observed (3.1); Largely Observed (3.2); Observed (3.3). - Note: Budget classification not fully consistent with international standards; net budgeting applied in some areas. - Assurance of integrity: Overall summary assessment: Largely observed (4.1); Largely observed (4.2); Largely observed (4.3). - Note: OAG submits annual report but does not provide formal audit opinion on consolidated annual financial report or ministries’ reports; absence may cause uncertainty. --- ### Central Government (CG) — key budget and reporting entries (selected) - CG budget estimates: Included in budget/report documents: Yes; Available to the public: Yes. Para. ref.: 47; Code ref.: 2.1.1. - CG Budget forecasts: Included in budget/report documents: Yes. In budget documents. Available to the public: Yes. Para. ref.: 21; Code ref.: 2.12. - Macroeconomic assumptions: Included in budget/report documents: Yes. In Budget documents. Available to the public: Yes. Para. ref.: 21; Code ref.: 3.13. - CG Tax Expenditures: Included in budget/report documents: Yes. Estimate of cost Methodology is explained. Available to the public: Yes. Para. ref.: 40; Code ref.: 2.1.3. - CG QFAs: Included in budget/report documents: No. Some QFAs identified in budget documents. Available to the public: No. Para. ref.: 5; Code ref.: 2.1.3. - CG Contingent liabilities: Included in budget/report documents: Yes. Available to the public: Yes. Para. ref.: 39; Code ref.: 2.13. - Analysis of fiscal risks/sensitivity analysis: Included in budget/report documents: Yes. In great detail in budget documents. Available to the public: Yes. Para. ref.: 25; Code ref.: 3.15. - Sustainability Analysis: Included in budget/report documents: Yes, in the budget documents. Available to the public: Yes. Para. ref.: 25; Code ref.: 3.1.1. - CG Debt: Included in budget/report documents: Yes. Published in Statistics Norway’s website and in documents presented to the Storting; data includes debt composition by currency, maturity, type of instrument. Available to the public: Yes. Para. ref.: 41, Box 5; Code ref.: 2.1.4. - CG Financial Assets: Included in budget/report documents: Yes. Published in Statistics Norway’s website and financial statements. Available to the public: Yes. Para. ref.: 43, Box 5; Code ref.: 2.1.4. - General government budget estimates: Included in budget/report documents: Yes Presented in the budget, compiled by Statistics Norway. Available to the public: Yes. Para. ref.: 3, 47, Box 5; Code ref.: 2.1.5. - CG Final Accounts: Included in budget/report documents: Yes, result of financial audit is submitted to the Storting nine months after the end of the fiscal year in OAG’s annual report Document No. 1. Available to the public: Yes. Para. ref.: 31, 50; Code ref.: 3.4.2. - Consolidated general government Final Accounts: Included in budget/report documents: No. Available to the public: No. - CG Monthly/quarterly reports on fiscal outturn: Included in budget/report documents: Yes. Three quarterly reports submitted to the Storting. Statistics Norway produces monthly and quarterly CG revenue and expenditure reports. Available to the public: Yes. Para. ref.: 29, Box 5; Code ref.: 3.4.1. - General government Monthly/quarterly reports on fiscal outturn: Included in budget/report documents: No. Only annual report produced by Statistics Norway. Available to the public: Yes. Para. ref.: Box 5; Code ref.: 3.4.1. *Source: Executive Summary and chapters 5, 18, 28, 41, 58, 78, 4, 12, 23, Appendix II and Central Government sections of _cr09193.* ### Executive Summary ### Executive Summary ### Overview and purpose - Assessment of fiscal transparency practices in Norway against the IMF Code of Good Practices on Fiscal Transparency. - Based on: discussions with the authorities and other organizations, the authorities’ response to the IMF fiscal transparency questionnaire, and other sources of information. - The IMF Manual on Fiscal Transparency (2007) should be consulted for further explanation of terms and concepts discussed. ### Overall assessment - Norway’s fiscal management system is characterized by a high level of transparency, especially in the area of resource revenue where Norway is a leader. - The public management system operates in a highly decentralized fashion and demands a high degree of integrity and well-functioning government institutions—these conditions are largely met. - Norway scores high in the four areas of fiscal transparency assessed: - Clarity of roles and responsibilities: The institutional framework and division of responsibilities are clear. - Open budget processes: The budget process is open and highly transparent, with the parliament playing a central role. Budget documents present comprehensive, high-quality information and extensive analysis including in-depth coverage of long-term fiscal perspectives and sensitivity of the projections to underlying assumptions. - Public availability of information: The scope and quality of the information made available to the public are very high. - Assurances of integrity: The Office of the Auditor General (OAG) undertakes financial and performance audits and corporate control; Statistics Norway produces scope and quality of data and analyses that are highly regarded. ### Key institutional and structural features - Central government structure and budget coverage: - The state budget covers the central government, consisting of 17 small ministries and 180 autonomous agencies, as well as grants and transfers to extrabudgetary units, local governments, and public corporations. - The Government Pension Fund–Global (GPF-G) is depicted as a central government unit with a separate budget but is formally a central government account with Norges Bank; the exception is the cash return on the Fund’s assets and its management cost. - Agencies and extrabudgetary units: - Ministerial agencies: staff are civil servants; agency budget is included in the parent ministry’s budget; parent ministry responsible for policy and performance oversight. - About 27 percent of the agencies use accrual basis accounting for internal management purposes. - Agencies cannot borrow; contingent liabilities from agencies’ contracts are reported by the agencies and absorbed in the ministry’s budget if needed. - Extrabudgetary units: wide range of mandates, often operate closely with ministries; staff are not civil servants; some units can borrow and have own revenue sources. - Public corporations and state ownership: - Approximately 3,000 publicly-owned corporations exist; about 650 correspond to the central government and the rest to local governments. - The government classifies companies into four categories (purely commercial; commercial with head office/location considerations; commercial with specific objectives; companies with sectoral policy objectives). - State ownership forms and regulation include LLCA, PLLCA, State-owned Enterprises Act, and company-specific special acts. - Reporting on largest state-owned companies is coordinated by the Ministry of Trade and Industry and consolidated annually in “The State’s Ownership Report.” - Specific counts referenced in policy documents: 46 fully state-owned limited companies, 36 partly-owned limited companies, five state public enterprises, and nine companies organized by special act (which included five state regional health enterprises). ### Main recommendations and areas for improvement - The report identifies several areas where improvements could be made; principal recommendations include: - (i) Provide information on the consolidated central government in budget documents. - (ii) Gross budgeting should be the guiding principle for the budgetary central government. - (iii) Consider extending the coverage of the accounts, including the capital account in the annual financial statement. - (iv) Disclose all government assets and liabilities and the full resource implications of policies and programs. - (v) Include institutional tables in budget documents to enhance transparency. - (vi) Strengthen the budget process by disclosing all exceptions to the procedures in the Appropriation Regulations. - (vii) For the medium term, consider extending the accrual-basis accounting pilot. - (viii) Take steps to enhance medium-term fiscal planning. - (ix) In performance budgeting, encourage ministries in some cases to present more concretely specified sectoral objectives. - (x) In principle, consider more extensive use of internal audit procedures. - (xi) Address uncertainty arising from the fact that the OAG does not express an opinion on the accounts of ministries, the consolidated government accounts, and the capital account. ### Scope of the report and accompanying material - The report has two parts: a description of practice prepared by Fund staff and an IMF staff commentary on fiscal transparency in Norway. - The report also includes an assessment of practices against the Guide on Resource Revenue Transparency; detailed assessment is presented in Appendix I and a summary of findings and recommendations in Section III (IMF staff commentary). - The report includes boxes and appendices with detailed descriptive material (e.g., Box 1 General Government in Norway; Box 2 Public Corporations) and summary tables. *Source: Executive Summary, _cr09193.* ### 5. Quasi-fiscal activities (QFAs) carried out by public nonfinancial corporations ### 5. Quasi-fiscal activities (QFAs) carried out by public nonfinancial corporations ### Quasi-fiscal activities and cost presentation - QFAs are limited, but they are not fully costed and presented in budget documents. - Main QFAs: - Government requirement that Posten Norge provide certain postal and banking services at below cost terms in remote regions. - Government requirement that Avinor provide airport infrastructure and services at given locations. - Cross-subsidization: - These activities are cross-subsidized by other profitable activities of the companies. - Goods and services provided at below-market costs by other nonfinancial companies are clearly identified and compensated with budget transfers (example: railway services at below-cost rates by NSB). ### Arrangements regulating profit transfers from state enterprises to the budget - Government policy aims at ensuring a predictable dividend policy for state-owned companies. - Dividend expectations: - Ministries formulate dividend expectations for the following three to five years for companies with commercial objectives. - Based on prevailing circumstances, expectations for annual dividends are set. - Expectations are indicative; under the LLCA the annual dividend is proposed by the companies’ Board of Directors and adopted by their annual shareholders’ meeting. - Corporate governance notes: - In partly-owned companies, the state is normally represented with one representative in the nomination committees for the boards of directors. - In fully-owned companies, the relevant cabinet minister appoints the board. ### Government relationships with the central bank (Norges Bank) - Norges Bank is operationally independent and has no fiscal role. - Legal and operational framework: - Functions and relationship with government are stipulated in the Norges Bank Act. - Guidelines for conduct of monetary policy are specified by Royal decree in the Regulation on Monetary Policy. - The regulation states that the operational target of monetary policy shall be annual consumer price inflation of approximately 2.5 percent over time. - Interaction with Ministry of Finance (MoF): - Before Norges Bank makes any decision of special importance, the matter shall be submitted to the MoF. - The MoF has the formal right to instruct the Bank; if exercised, the MoF would submit a report for information to the Storting indicating this instruction, and Norges Bank would provide its opinion. - In practice this situation has never happened and is considered implausible. - Fiscal operations: - Norges Bank is not allowed to extend credit directly to the government and it does not support the activities of public financial corporations. - Annual dividends are computed according to a formula and transferred to the government. - Norges Bank charges a fee for services provided to the government and remunerates government deposits at the policy rate. ### Public financial corporations and QFAs - Public financial corporations carry out only limited QFAs. - State equity holdings (ordinary shares) in three financial institutions: - 34 percent of DnB NOR - 15 percent of Eksportfinans - 80 percent of Kommunalbanken - Operational character: - DnB NOR and Eksportfinans are fully commercially run. - Kommunalbanken is commercially run but has additional policy objectives, including providing loans on favorable terms to local governments, which may imply implicit subsidization of loans not identified in the budget. - Other subsidized lending: - Subsidized loans are provided by the Student Loan Fund, Innovation Norway, and the State Housing Bank. These activities are identified and are assigned appropriations in the budget. ### Government relationships with the private sector and regulatory environment - Legal harmonization and business environment: - Much of the Norwegian legal framework is harmonized with the EU, in line with Norway’s participation in the European Economic Agreement. - According to the International Finance Corporation’s Doing Business Index (2008), Norway is rated 11 out of 178 countries in the composite index of the ease of doing business. - Transparency and access: - Government laws and regulations are widely accessible to the public through the internet. - The Public Information Act guarantees public access to public administration documents. - Government initiatives to reduce costs of doing business include a website centralizing access to government information and a website containing all requirements to start a new business. - Administrative simplification: - An assessment of the cost of complying with government’s informational requirements is underway with the objective of identifying areas for simplification. ### Fiscal management relationships among branches of government - Roles and powers: - Article 75 of the Constitution empowers the Storting to impose taxes, duties, customs and other public charges; raise loans in the name of the Kingdom; supervise the economic affairs of the Kingdom; appropriate moneys necessary to meet government expenditure; and appoint five auditors (Office of the Auditor General, OAG) to examine the government’s financial statements (Statsrekneskapen). - The financial statements are to be presented to the five auditors within six months after the end of the fiscal year. - There are no legal restrictions on the Storting’s authority to make budgetary proposals or amendments. - Budget process: - The Storting has adopted Appropriation Regulations (revised 2005) which spell out key parameters of the budgetary process, and the authorities of the executive in this regard. - The Storting delegates implementation of its fiscal powers to the executive through the annual budget. ### Fiscal management relationships among levels of government - Structure and responsibilities: - Norway has three tiers of government: the central government, 18 counties, and 431 municipalities. - The general framework for subnational government activity is provided by the Local Government Act, while responsibilities of councils and municipalities are defined by various sector laws. - Counties are responsible for secondary education and regional development, including regional transport, business development, dental health service, and culture. - Municipalities have responsibilities within primary education, kindergartens, care for the elderly and disabled, fire prevention, local transport, waste collection, sanitation, and water. - Revenue and equalization: - Almost half of subnational revenues come from taxes, mostly from the income tax shared with the central government. - Other revenue sources are grants from the central government (both a general and an earmarked grant) and charges and fees. - The global revenue allocation of the local governments is preliminarily determined by the Storting in June each year, and finally determined in the budget in the fall. - The agreed general grant is distributed among the local governments through a formula-based mechanism. - Differences in tax capacity across municipalities are partially equalized, while expenditure needs differences are fully equalized through the general grant. - Fiscal rules and oversight: - Subnational governments are required to adopt a budget where the operating balance plus debt repayments are at least zero. - An ex-post deficit has to be compensated within two years, or alternatively the repayment period can, by application, be extended to 10 years. - Subnational governments placed in a public registry of subnational governments require county governor’s (up to four years) and central government’s approval (up to a total of ten years) of further borrowing. - Intergovernmental consultation: - There are quarterly consultations between the state and the Association of Local Governments, but no formal negotiations regarding budgets. ### Legal and administrative framework for fiscal management - Regulatory framework: - The Appropriation Regulations cover key principles and procedures for the budget process in the Storting and serve some of the same purposes as budget system laws in other countries. - The Regulations are very brief, comprising only 5 pages, and many important aspects of budget management are left to lower-level regulations or to ad-hoc decisions. - The Regulations stipulate that the Storting can decide to make exceptions from the Regulations in individual cases. - Exceptions and discretion: - The clause authorizing individual exceptions creates scope for discretionary decisions regarding the treatment of specific budget items or issues. - There is no consolidated list of exceptions to the Appropriation Regulations, and exceptions are not always clearly specified in the annual budget. - Additional regulations: - The Government has issued Regulations on Financial Management in Central Government (RFMCG), and the MoF has issued supplementary Provisions on Financial Management in Central Government. - The RFMCG authorizes the MoF to make discretionary exceptions from basic rules. - The MoF has delegated administration of exceptions from the RFMCG to the Government Agency for Financial Management (GAFM). - The GAFM has authorized 57 exceptions to these regulations, the majority to allow budget organizations to maintain separate bank accounts for specific foreign exchange operations, such as EU grants and embassy operations. - Local government and accounting: - Local government financial management is regulated by the Local Government Act, and in regulations passed by individual local governments. - Accounting standards for local governments are maintained by an association of municipal finance professionals. ### Tax legislative framework and administration - Legislative basis: - The legislative basis for tax collection is clear and comprehensive. - All taxes are soundly based in law, and their policy basis is clearly explained when laws or their modification are proposed to the Storting. - The main tax rates are set by the Storting annually as part of the budget process. - Minor changes to the tax regime are introduced every year, with most common changes applying to excise taxes. - The tax regime has remained mostly unchanged for a number of years. - Discretion and stability: - Further stability of the tax regime is ensured by very limited room for discretion by tax officials, although they must make decisions on tax law interpretations under the legal control of the judiciary. - Tax administration structure: - Revenue administration at central government level is conducted by the Tax Administration and the Customs and Excise Administration. - Both entities comprise a central directorate and regional offices operating under a functional organization. - The Tax Administration has three specialized offices: the Oil Taxation Office (OTO), the large taxpayers office, and the foreign taxpayers office. - The current Tax Administration structure, effective from January 1, 2008, is the result of a major restructuring; functions were redefined and the number of local offices was reduced to five regional offices. - Local tax collection: - Collection of local taxes is carried out by the municipalities. - Municipalities collect income and payroll taxes and transfer the central government’s share to the central government accounts on a daily basis. - Collection of these taxes is a source of some ambiguity since tax collectors belong administratively to the municipalities but the central government’s tax share of the income tax is 75 percent. - Taxpayer identification: - Taxpayer identification numbers (TIN), for individuals and businesses, have been in place for several years. ### Taxpayer rights, appeals, and compliance - Appeals system: - A new system of appeals was introduced in 2008. - First instance: taxpayer can appeal a tax assessment to the Tax Administration. - Subsequent appeal: can be elevated to a regional appeal board; there are separate appeal boards for VAT, and for large and foreign taxpayers. - Under certain conditions, appeal board decisions can be further elevated to a national appeal board. - Tax assessments and appeal board decisions can also be reconsidered by the ordinary justice system. - The system is seen as providing fair treatment of taxpayers. - Representation and compensation: - Taxpayers have a right to use independent representation in dealings with the tax administration, but at their own expense. - If the appeal is successful, the tax administration may decide to compensate the taxpayer’s expenses, including representation. - Other features: - Norway has a system of advanced rulings. - Information on taxpayer liabilities and administrative procedures is posted on the internet. - Tax payments are in general not negotiated; there is scope for negotiation where the taxpayer has difficulty meeting payment and a payment arrangement is granted, but very few taxpayers meet the requirements for being granted a payment arrangement. - The tax system relies on self-assessment for most taxes. - For personal income and payroll taxes, a tax return is prepared by the tax administration based on third party information and sent to taxpayers for verification and possible amendments before final assessment. ### Public consultation and transparency in policymaking - Consultation processes: - Prior to drafting formal legislation, there is typically an extended period of public consultation, seeking views from experts and submitting White Papers to the Storting. - According to the “Instructions for Official Studies and Reports,” all propositions to the Storting, with a few specified exceptions, are circulated for general review to all public and private institutions and organizations involved. - The period for review is normally three months and cannot be shorter than six weeks. - Budget consultations: - Regarding the budget, the Storting and parties arrange open hearings and seminars where external speakers are invited as part of the Storting’s work on the budget; speakers may also invite themselves. - These discussions do not extend to tax policy proposals. ### Contractual arrangements and PPPs - Public access and disclosure: - Terms of contracts between the government and public or private enterprises, including public-private partnerships (PPPs), are publicly available through annual propositions and documents to the Storting. - PPP practice: - The central government participates in three PPPs in the transportation sector considered to be a pilot experience. - Existing PPPs do not involve government guarantees but envisage regular government payments to the operators. - PPPs are more common at the local level; many local PPPs involve a special purpose vehicle owned by the local government rather than private-sector counterparts. - There are no formal rules on the use of PPPs. - Cost estimate: - The total cost of the three projects is estimated at approximately NOK 4.5-5 billion. *Source: _cr09193 - 5. Quasi-fiscal activities (QFAs) carried out by public nonfinancial corporations* ### 18. Legislation governs asset management, including the granting of rights to use ### 18. Legislation governs asset management, including the granting of rights to use ### Legal framework for asset management and debt issuance - Debt issuance is authorized annually by the Storting. - The constitutional right to borrow rests with the Storting, which approves an authorization for the MoF to borrow on behalf of the Norwegian state on the basis of an annual proposition. - MoF performs this function through the debt office of the Economic Policy department. - The criteria for the contracting of loans are presented in an annual document to the Storting. - The MoF delegates defined tasks of operational and advisory nature to the Norges Bank. - All debt is contracted in the domestic market. - A major part of the financial asset of the government are held by GPF-G. - Pursuant to section 1-1 of Petroleum Act, the Norwegian state has the proprietary right to sub-sea petroleum deposits and the exclusive right to resource management on the Norwegian Conti[nental] Shelf. ### Privatization and sales of state assets - Privatizations are proposed by the Cabinet, and require authorization by the Storting. - Share purchases are also authorized by the Storting. - Privatizations must be authorized in the annual budget and are covered by general rules on the sale of state assets. - The government typically contracts the services of a financial consultant to advise on the best way to conduct the process in each specific case. - Proceeds from the sale of shares, as well as costs in [text truncated in source]. ### Timetable for budget submission and parliamentary calendar - The Appropriation Regulations stipulate that the budget proposal shall be submitted within six days of the opening of the parliamentary session each fall, and that any supplements or additions to the initial proposal must be submitted by November 10. - Amendments to the budget during its implementation shall be summarized in a separate proposal for a new final budget. - The fiscal year is set on a calendar-year basis by the Appropriation Regulations. - The detailed government budget preparation calendar is determined each year and specified in the annual budget circular. - A first budget circular is sent to the ministries in December, more than a year before the budget year. A final calendar is distributed in March/April before the budget year. - The budget process within government is considered to be an internal matter for the government; the Freedom of Information Act includes specific exceptions for documents related to this process. ### Budget preparation process (main steps and timing) - December t-2: First budget circular sent to line ministries, requesting four-year, baseline expenditure projections, as well as proposals for new policy initiatives. - January t-1: MoF receives baseline projections from line ministries. - February: MoF receives proposals for new policy initiatives. - March t: First Government budget conference decides on key budget ceilings, and aggregate ceiling for new priorities, ministry policy initiatives. - August: Second Government budget conference decides on new policy initiatives. - October: Budget bill submitted to Parliament. - November: Parliament adopts revenue targets and sector spending limits. - December: Parliament adopts detailed, final budget. - May t: Mid-year budget review, linked to Revised National Budget. - November t: End-year budget revision. ### Macroeconomic framework and budget forecasts - The National Budget provides a comprehensive and detailed description and discussion of the macroeconomic and macrofiscal framework. - Macroeconomic estimates are based on the macroeconomic model MODAG, developed and maintained by Statistics Norway in collaboration with the MoF. - Tax estimates are based on the model LOTTE, also maintained by Statistics Norway. - The National Budget contains detailed discussions of model assumptions and estimates, including disclosure of the reliability of previous estimates and comparisons to estimates from other sources. - Expenditure estimates tend to be quite realistic, but revenue estimates are more variable. - According to the MoF, there has been a tendency to underestimate cyclical variations, leading to over-estimation of non-oil revenues during downturns and under-estimation during periods of high growth. - During 2004–06 the deviation between approved budgets and final outturns was consistently less than 1 percent on the expenditure side, but non-oil revenues were significantly higher than projected, and there were large differences in oil revenue. ### Medium-term policy basis and fiscal policy guideline - A statement on medium-term fiscal policy objectives is included in the budget document. - Macro-fiscal objectives are largely governed by the fiscal policy guideline. - The key asset management objectives for the GPF-G are referred to in the budget documents and discussed in greater detail in a separate annual White Paper. - The main fiscal policy objectives, including the relative priority of different sectors, are chiefly determined at the first government budget conference; major policy initiatives are discussed and approved at the second conference. - Once sector ceilings are established, line ministries are responsible for achieving objectives within ceilings while the MoF ensures estimates are realistic without intervening in detailed priorities. ### The Fiscal Policy Guidelines (summary) - Endorsed by parliament in 2001 (Report No. 29 to the Storting) and became effective with the 2002 budget. - The guidelines hold the structural non-oil central government deficit over time to 4 percent (equal to the expected long-run rate of return in real terms) of the assets in the GPF-G at the beginning of the fiscal year. - The structural non-oil deficit excludes the budget’s oil-related revenues and expenditures, and adjustments are made for: - cyclical fluctuations in mainland economic activity, - deviations of transfers from Norges Bank from estimated normal transfer levels, - deviations of net interest payments from trend, - technical accounting changes and extraordinary items that do not influence underlying budget balance developments. - The guidelines allow temporary deviations over the business cycle, or in the event of extraordinary changes in the value of the GPF-G. - Objectives of the guidelines: intergenerational equity; insulating the annual budget from shifts in oil revenues while allowing fiscal stabilization; mitigating Dutch disease effects by investing GPF-G assets abroad entirely. - The structural non-oil deficit was above 4 percent of GPF-G assets from 2002 to 2005 and has subsequently been below the 4-percent path. - The government submitted a supplementary budget for 2009 that increased the structural non-oil deficit above 4 percent of the GPF-G assets, while retaining a sizable overall budget surplus. - Factors contributing to success: simplicity, flexibility, high transparency, broad political consensus, and strong institutions, governance, and accountability. ### Fiscal targets, costing of initiatives, and medium-term estimates - The 2001 fiscal policy guideline: Over time, the structural, non-oil central government budget deficit shall correspond to the expected real return on the Government Pension Fund - Global. - The guideline emphasizes stabilizing the economy and allows automatic stabilizers and room for discretionary fiscal policy. - The guideline is not embedded in any legal instrument and does not have a formal legal status. - Summary budget documents provide a clear specification of all major revenue and expenditure initiatives, with explicit costing of all major expenditure proposals and revenue estimates (including foregone revenues). - The Budget Bill includes estimates for aggregate changes for the 2009–11 budgets, compared to 2008, specifying main activities driving these changes. - Medium-term estimates do not include policy changes that are planned or which may be introduced in future years and are presented in a fairly aggregate format not explicitly related to the budget classification. - Proposals to introduce more formal medium-term budgeting and multi-year appropriations have been considered and rejected due to the perceived risk that medium-term spending estimates may become floors rather than ceilings. ### Fiscal sustainability analysis - The National Budget provides comprehensive discussions of long-term fiscal sustainability, with emphasis on the projected increase in pensions and health care and the decline in petroleum revenues. - Long-term macroeconomic and fiscal projections are presented every four years; the latest edition cited was issued in January 2009. - Under the scenario based on current policies, there will be a widening annual fiscal gap, which will reach some 3¼ percent of mainland GDP in 2060. - The analysis discusses sensitivity to oil prices, returns on financial assets, and labor productivity, and their impacts on the projected fiscal position. - A medium-term fiscal sustainability analysis shows that the government’s fiscal leeway in the coming decade or so is limited by a need for fiscal consolidation. ### Coordination of budgetary and extrabudgetary activities - Mechanisms for coordination and management of budgetary and extrabudgetary activities are defined for most sectors; non-reported extrabudgetary operations seem to be limited. - The budget does not provide a consolidated definition or specification of extrabudgetary activities. - Inflows of petroleum revenues and the transfer from the GPF-G to cover the budget’s non-oil deficit are channeled through the budget, but cash returns on the financial assets (interest and dividends) of the GPF-G, as well as the management fee, are not. - Statistics Norway identifies about 150 extrabudgetary organizations and funds, as compared to 500 budgetary organizations. - Some of the approximately 650 state majority-owned corporations are likely to fall within the GFSM 2001 definition of government and thus constitute extrabudgetary activities. - Examples of likely extrabudgetary entities include NRK, ENOVA, and Norsk Tipping. - Budget documents include a rudimentary consolidated central government budget which adds the extrabudgetary activities of GPF-G to the formal budget but omits other extrabudgetary mechanisms. - Extrabudgetary organizations are established under separate laws, have yearly plans and budgets approved by the parent ministry, provide individual financial reports, and usually follow procedures similar to agencies. ### Accounting, internal control, and reporting on budget execution - Accounting and internal control procedures are decentralized; ministries and agencies have managerial flexibility and are responsible for compliance with parliamentary decisions and for sound internal control systems. - There are no mandatory internal audit requirements; external auditors comment on identified deficiencies which are usually followed up. - A cash-basis central government chart of accounts is in use for consolidation purposes and is fully integrated with the budget classification. - Cash flow records are supplemented by recognition and reporting of financial assets and liabilities arising from cash transactions, as well as some imputed and notional transactions. - Agencies may use different charts of accounts and accounting bases for internal management, provided they can submit specified cash-basis reports in accordance with the central government chart of accounts to the GAFM for consolidated accounts. - Agencies are required to record accounts payable for goods and services, but there is no requirement to record other liabilities such as employee entitlements, including unfunded pensions. - The GPF follows accrual-basis accounting and can track assets and liabilities. Public corporations also use accrual-basis accounting principles. - A Treasury Single Account (TSA) for the budget entities is in place. Agencies may have bank accounts in one of three selected commercial bank accounts that operate on a zero-balance basis, replenished by transfers from the TSA on a daily or more frequent basis. *Source: _cr09193 - 18. Legislation governs asset management, including the granting of rights to use* ### 28. The accounting system is capable of producing accurate in-year reports on ### 28. The accounting system is capable of producing accurate in-year reports on central government budget outturns. ### Accounting and consolidation systems - The GAFM receives monthly, cash-basis financial reports from agencies and uses these to generate monthly consolidated reports on central government budget outturns. - An automated consolidation system is in use and agencies submit standardized reports in electronic format to this system. - The consolidation system and process are considered reliable as evidenced by low numbers of mispostings and reconciliation discrepancies. - The parliamentary committee responsible for reviewing audit reports and comments focuses mainly on performance audits, as it has a high degree of confidence that financial errors and irregularities are rare, and that adequate controls and follow-up procedures are in place. - The Provisions on Financial Management in Central Government set out specific requirements regarding common principles and standards for budgeting, accounting, and financial reporting (chapter 3), and on financial management systems of agencies (chapter 4). - The GAFM acts as a service bureau and offers financial management and payroll and human resource services to central government agencies. - System usage statistics: - Sixty percent of agencies use the financial management system. - 50 percent use the payroll system. - Sixty-five percent of the central government agencies use the central government charts of accounts, while 35 percent use the Norwegian Standard chart of accounts. - Approximately 27 percent of the central government agencies use accrual accounting basis for their internal accounts. - Main suppliers meeting MoF specifications: Agresso, Oracle, SAP, and Formula. - Central government accounts are regularly reconciled with budget appropriations and bank statements within four months after the year-end, and consistently tracked during the year. - Variances between appropriations and actual spending, both at the total level and at a ministry level, are disclosed in the annual financial statement. - Under Appropriation Regulations (section 13), ministries are required to submit to the OAG explanatory comments on any significant variances between appropriation and actual expenditure. ### In-year reporting to the Storting and reviews - Budget execution reports on the central government budget are not issued separately to the Storting but included in other documents. - Reporting timetable and use: - The report for the first quarter is used as supplementary background in connection with the revised national budget for the current fiscal year, but accounting information is not included in the budget documents. - The mid-year report is included in the Budget Bill for the coming fiscal year. - The third quarter’s report is covered in the second revision of the current budget. - The annual financial report is issued four months after year-end. - Statistics Norway publishes monthly data on aggregated expenditure and revenues of central government budgetary units within thirty days of the month-end. ### Supplementary budgets and contingency - There are two major supplementary budgets during the year: - The first is in May, together with the Revised National Budget; this may include fairly substantial changes, including impacts of changed macroeconomic circumstances and major policy developments. - The second is in November; usually a more technical exercise focusing on changes in standing appropriations due to demographic, legal, or technical developments. - Additional supplementary budgets related to specific sectors may occur but are not standard practice. - The budget includes a contingency appropriation used primarily to finance budget changes as a result of negotiations (public sector wages, pension adjustments, compensation to certain medical professions), and includes a small buffer for other purposes. - For 2008, the contingency amounted to NOK 10.9 billion, about 1.5 percent of non-oil budget expenditures. - Utilization of the allocation during the year is proposed by the government and requires parliamentary approval, which usually is given in the two regular supplementary budgets. ### Audited final accounts and audit process - The OAG financial audit comprises the central government accounts, government agencies, government agencies with special powers, and government funds and companies organized through separate legislation. - Performance audit covers the same areas and also includes state-owned enterprises, health enterprises and wholly-owned state limited companies. - The OAG also audits how the state’s interests are managed by state-owned enterprises, health enterprises, companies organized through separate legislation, wholly-owned state limited companies and partly-owned state limited companies. - Objectives of the OAG’s financial auditing: - Confirm that the accounts do not contain material errors and omissions (audit of the accounts). - Check that transactions and decisions regarding allocations are in compliance with the decisions and intentions of the Storting and with applicable regulations, and acceptable in light of norms and standards for central government financial administration. - Timetable: - Ministries and government agencies submit their preliminary accounts to the OAG in mid-February. - The consolidated accounts are submitted in mid-March and a further two months are allowed to complete the audit. - The Central Government Financial Statement is presented to the Storting in April. - The result of the financial audit is submitted to the audited entity in May in the form of a concluding audit letter with a copy to the parent ministry. - Document No. 1 (OAG’s annual report) is submitted to the Storting when the Parliamentary session commences in October; the Storting gives the final approval to all the central government accounts. - Note: No formal concluding audit letters are sent to the ministries and the Office of the Prime Minister, but audit findings are presented to the responsible ministries for comment. ### Public availability, schedules, and data dissemination - Commitment to timely publication of fiscal data: - In line with the RFMCG, the government’s financial statements are made publicly available to the Storting within four months of the end of the fiscal year. - An advanced release calendar for fiscal reports is presented on Statistics Norway’s website. - Norway subscribes to the IMF’s data dissemination standards, Special Data Dissemination Standard (SDDS), and complies with all requirements except on the provision of general government data within 6 months of the end of the period; the data are provided after 8–9 months, due to the time required to collect data on financial assets and liabilities. ### Coverage, timeliness, and scope of fiscal reporting - Coverage: - The government’s financial statements cover the budgetary central government. - Statistics Norway produces fiscal reports on revenue and expenditure and on financial assets and liabilities of the general government, the central government (both for the budgetary central government as well as Statistics Norway’s definition), and the local governments, as well as reports on the public corporations. - Periodicity and timeliness (as presented by Statistics Norway; entries preserved verbatim): - General government — Revenue and expenditure — Annual — t+3 months - General government — Financial assets and liabilities — Annual — t+9 months - Non-financial public corporations — Accounting figures — Annual — t+12 months - Non-financial public corporations — Structural business statistics — Annual — t+3 months - Financial public corporations — Accounting figures — Monthly — t+5 weeks - Central government (budgetary units) — Revenue and expenditure — Monthly — t+1 months - Central government (Statistics Norway's definition) — Revenue and expenditure — Quarterly — t+3 months - Central government — Financial assets and liabilities — Quarterly — t+3 months - Local governments — Revenue and expenditure — Quarterly — t+3 months - Local governments — Financial assets and liabilities — Quarterly — t+3 months - For compiling general government data, central government data are converted from cash basis into accrual basis and combined with accrual basis data for extrabudgetary units and modified accrual basis for local governments. - The definition of general government follows ESA-95 but differs from GFSM 2001 in that accrued unfunded pension liabilities and some public corporations performing government functions are not included. - Statistics Norway extracts some public financial institutions and some state enterprises from the budget sector and records these outside government. ### Budget documentation, forecasts, and fiscal risks - Budget documents: - Include the National Budget, the Budget Bill, separate budget proposals for each line ministry, and a tax legislation bill. - The National Budget provides extensive information on the macroeconomic and fiscal framework, discusses tax policies and management of government financial assets (in particular the GPF-G), and outlines key economic reforms. - The Budget Bill (“Yellow Book”) focuses on the expenditure side, includes an overview of ministerial revenues, provides information on budget developments over the last 10 years and summary estimates for the three years following the budget year, and includes draft budget appropriations and draft authorizations, including for guarantees and other commitments. - Line ministry budgets provide detailed explanations of the budget proposals as addenda to the Budget Bill. - Past and forecast data: - All main budget tables in the 2008 Budget Bill include data for 2007 (approved budget), 2007 (estimates), and 2008 (budget). Standard line ministry tables also include data for 2006 (actual). - The main budget document includes a section summarizing budget changes in 2009–11 compared to 2008. - The budget bill for 2009 introduced an economic breakdown of the 2010-12 projections. - Fiscal risks: - The National Budget provides comprehensive discussion of uncertainties related to macroeconomic assumptions and focuses on long-term fiscal sustainability and risks, in particular related to oil and future pension liabilities. - There is no discussion of measures to mitigate short-term macroeconomic risks, or of how to adjust policies and targets if certain negative events were to occur. - PPPs and guarantees: - The budget shows all commitments on PPP arrangements for the year and projections for the next year. - A summary of new guarantees is included with the budget documentation. - A more comprehensive analysis of individual PPPs is presented in the budget for the year when they are approved. - Disclosure of other fiscal risks (public enterprises and extrabudgetary activities) is limited. - There is no consolidated fiscal risk statement. - Statements on contingent liabilities: - The Appropriation Regulations authorize ministries to incur commitments beyond the fiscal year in the Budget Bill; the bill contains a specified list with maximum amounts. - The annual financial statements provide a comprehensive statement of commitment and guarantee authorizations, amounts actually committed or guaranteed, outstanding guarantees, and guarantees that have been called. - For many guarantees there are risk-fund arrangements to cover estimated future payments; in some cases beneficiaries must pay guarantee provisions. - Future pension fund liabilities are discussed extensively in the National Budget; the GPF-G is seen as partial provisioning for them. ### Tax expenditures - The budget provides extensive documentation on tax expenditures. - Benchmark: general tax rules and on persons, activities, and goods being taxable according to the same principles and rates; deviations from the reference system are considered tax expenditures. - Behavioral responses are not taken into account in the computation of tax expenditures. - The complete list of tax expenditures, including calculations, rationale, and estimated cost of each measure, is published every year as a chapter of the National Budget. - A consolidated figure for tax expenditures is not provided. - Table of the five largest tax expenditures in the 2007 budget (as reported in the 2008 National Budget): - Non-taxation of the advantage of living in a home or secondary home for oneself — 49.7 NOK billion — 2.2 Percent of GDP - Net wealth on tax real estate — 23.1 NOK billion — 1.0 Percent of GDP - Preferential treatment of employees' contributions to occupational pension schemes — 16.0 NOK billion — 0.7 Percent of GDP - Regionally differentiated employers' social security contributions — 9.4 NOK billion — 0.4 Percent of GDP - Special taxation rules for shipping companies — 1.9 NOK billion — 0.1 Percent of GDP *Source: _cr09193 - 28. The accounting system is capable of producing accurate in-year reports on* ### 41. Information on gross public debt is comprehensive and easily available ### 41. Information on gross public debt is comprehensive and easily available ### Availability and presentation of public debt data - Statistics Norway’s website provides debt data for the central, local, and general governments. - Statistics on financial assets and liabilities for the central and local governments are published quarterly. - Data for the central government are also available on the website of the MoF. - The data are presented in gross terms, classified by currency, type of instrument, and remaining maturity. - Information is also presented on currency swaps. - The stock of expenditure arrears is insignificant. - Publicly available debt reports are presented to the Storting annually by MoF, with information regarding maturity, type of instrument, lender, and showing projections of future debt service commitments. - Debt records are reliable and comprehensive. ### Published information on non-debt liabilities - Published information includes pension obligations, guarantee exposure, and contractual obligations. - The budget includes a chapter on fiscal projections based on the macroeconomic model MSG and on generational accounting where projections of long-term pension liabilities play a central role. - The rise of spending associated with population aging is identified as one of the main long-term fiscal challenges faced by Norway. ### Government financial assets and reporting - The government presents to the Storting annual financial statements; the capital account section includes detailed specifications of different funds, shares, securities, loans, and interim accounts. - Some financial assets are valued at market value while others are valued at historic cost. - The MoF presents a separate annual report to the Storting on the management of the GPF-G. - Annual and quarterly reports on the management of the GPF-G and other financial assets of the Norwegian government are published by Norges Bank. - The GPF-N publishes semi-annual reports on its financial position. - The Ministry of Trade and Industry publishes semi-annual reports on the largest state-owned financial and nonfinancial corporations, including annual balance sheets. - A discussion on valuation of petroleum resources can be found in Appendix 1. ### Analysis of long-term public finances - Analysis of long-term public finances is routinely undertaken and published and is a defining feature of Norway’s fiscal framework. - In-depth analysis of projected long-term fiscal trends and long-term sustainability is included in the National Budget, particularly related to future oil revenue and pension liabilities. - A broader analysis is undertaken every four years in the government White Paper “Economic Perspectives”, which is submitted to the Storting by the Minister of Finance and incorporates inputs from external research institutions. - The last document of this type was published in January 2009. - The 2009 document focused on sustainable development (sustainable public finances), global warming, income disparities (in Norway), and key challenges related to the aging of the population, globalization, and the environment. - One objective of the document is to provide a coherent economic framework for political parties when preparing programs for the next general election. ### Budget transparency and classification - All budget documents are made publicly available when submitted to the Storting and include summary sections. - Following adoption of the budget, a pocket guide to the budget is published. - The budget is presented in accordance with economic, administrative, and program classification and is integrated with the chart of accounts. - Appropriations are at the level of programs and are classified within each program as operating, investment, transfers, and financing. - The economic classification distinguishes revenue and expenditure from financing data. - The budget presents operating expenditures as one amount and does not show totals for employee expenditures and goods and services separately as required by GFSM 2001. - The budget does not contain a functional classification consistent with the UN COFOG classification, but an approximation to COFOG can be prepared based on program classification. ### General government balance and fiscal indicators - The structural, non-oil balance of the budgetary central government is the main indicator of the fiscal position in the budget; the general government balance is not monitored during the year. - Budget documents focus on budgetary central government and particularly on the structural non-oil (cash) balance targeted by the fiscal guidelines. - The overall budget balance has had very limited operational significance in recent years. - The underlying growth in expenditures (adjusted for changes in coverage and other technical changes) is an important fiscal indicator. - The nominal non-oil budget balance is frequently referred to in public debate. - Estimates for the general government balance in the National Budget are compiled by Statistics Norway; these are constructed to be consistent with accrual principles and broadly in line with GFSM 2001 definitions, but are not used for policy purposes and not systematically monitored and reported during the year. ### Results-oriented budgeting and reporting - Ministries and agencies are required by the Appropriation Regulations and the RFMCG to establish clear performance objectives and to link their budgets and management systems to these targets. - The validity and relevance of objectives and the reported effectiveness of programs are quite variable across ministries. - The Ministry of Justice’s budget has a well-developed structure of objectives and information on results. - Some other budgets present very ambitious but general objectives without clear strategies for achievement, monitoring, or assessment of implementation efficiency. - The national budget includes a section on the efficiency of government spending, including international comparisons in selected sectors. ### Accounting basis, reconciliation, and fiscal reporting - Budget estimates are generally reliable and the variance between budgeted and actual outturn of main fiscal aggregates is disclosed to the public. - Expenditure estimates tend to be quite realistic; non-oil revenue estimates are more variable and tend to underestimate cyclical variations. - During 2004–07 non-oil revenues were higher than projected, and the non-oil deficit correspondingly lower; such differences are disclosed and explained in financial statements and subsequent budgets. - Central government accounting principles and policies are disclosed in the annual financial statement. - The accounting basis for the central government is cash, supplemented by recognition and reporting of selected financial assets and liabilities. - An appropriation account of revenues and expenditures is presented on a cash basis in accordance with Section 13 of the Appropriation Regulations. - A separate capital account provides information about stocks of financial assets and liabilities, mostly those arising from cash transactions. - Employee entitlements such as unfunded pension obligations are not recognized as liabilities. - Nonfinancial assets are not recognized as assets, but written off as expenditures in the year of acquisition. - The capital account relates to the central government and includes the net financial position of the GPF; the main rule is that assets and liabilities are valued at historic cost, with the exception of the valuation of the GPF which is based on market value. - The capital account includes three types of imputed or notional entries related to budgetary funds, guarantee funds, and budgetary enterprises; the lack of a presentation of a full reconciliation between the capital account and the appropriation account made it difficult to ascertain whether these entries are self-cancelling. - The annual financial statement was not consistent with the cash-basis IPSAS: it did not include a cash flow statement reconciling cash receipts and payments and the beginning and closing cash balances, and there was no full presentation of a consolidated cash flow statement that includes all entities controlled by the government. - A trial project to implement accrual accounting in 10 central government pilot agencies commenced in 2004; pilot agencies submitted annual reports since 2005 based on central government accrual accounting standards; the trial did not change budgeting or appropriations (which remain on a cash basis); results of the pilot program were to be evaluated in 2009. - Subsequent steps noted: a presentation of a full reconciliation between the capital account and the appropriation account was included in the annual accounts for 2008; the annual financial statement for 2008 included a cash flow statement reconciling cash receipts and payments and the starting and closing cash balances. ### Reconciliation practices and statistical revisions - Reconciliations with bank accounts and appropriations are carried out effectively. - The surplus of the GPF-G is reconciled with the change in the net assets or equity of the fund during the year. - A reconciliation of the change in cash balances to the net cash flows during the year is not presented (with steps taken after the assessment to address this issue as noted above). - Changes in statistical data are managed by Statistics Norway and are clearly documented in their publications. - Changes in budget classification are tracked through the “dynamic chart of accounts” maintained by the MoF, which provides bridge tables between different classifications used each year. - Following changes in classification, historical data series in budget documents are revised to reflect the classification used in the current budget. ### Internal oversight, procurement, and audit - Public servants are subject to a well-defined code of behavior under the Public Administration Act and Ethical Guidelines for the Public Service; additional ethical considerations appear in the Civil Servants Act, the Public Information Act, the Central Government Information Policy, and the Workers’ Protection Act. - There is no particular governmental agency responsible for anti-corruption activities besides a special department of the police—“Eco-crime” (The Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime). - Norway was ranked 9th in the 2006 Transparency International Corruption Perceptions Index. - Civil service employment procedures are governed by the Civil Servants Act; entry follows an open competitive process based on merit, vacancies are publicly advertised, applicants are interviewed by a committee, and names of applicants are available to the public (removable on request). - Procurement is governed by international agreements (WTO and EEA/EU rules) and national law; legislation and prescribed practices are consistent with international standards. - There is no centralized government procurement agency; the Agency for Public Management and e-Government established in January 2008 includes a department with responsibilities for regulating and monitoring procurement and providing technical support. - There are well-established mechanisms for complaints against procurement decisions, including a Public Procurement Complaint Board (established in 2003) which has handled approximately 850 cases since its creation. - Media scrutiny has been instrumental in identifying irregular procurement, particularly at the municipal level. - There have been reports that some ministries have breached or circumvented procurement rules for consultancy services; the OAG has provided several notifications of such practices. - Purchases and sales of public assets must be authorized in the annual budget; proposed assets to be sold are described in the budget and major assets may be separately identified in explanations to the financial statements and related reports. - One exception: budget entities are generally allowed to sell outdated equipment to finance purchase of similar new equipment without explicit authorization in the budget. - There is no requirement for internal audit in government organizations; only a few large agencies have established internal audit units. - Internal audit units are established in the Tax and the Customs and Excise Administrations, the Social Security Administration, and a few other institutions; their activities are governed by internal rules, they usually report to the head of the agency, and reports are not publicly available. - RFMCG require ministries and agencies to ensure internal control but do not mandate organizational requirements or the establishment of internal audit units. - There is systematic collaboration between the OAG and internal audit units; the OAG requires copies of internal audit reports and audit plans and regularly holds meetings with internal audit units. - The MoF and the GAFM are planning a survey of internal audit functions to assess scope for further development in this area. *Source: _cr09193 - 41. Information on gross public debt is comprehensive and easily available* ### 58. Tax administration has effective internal monitoring and control ### 58. Tax administration has effective internal monitoring and control ### Internal monitoring and control in tax and customs administrations - The tax and customs and excise administrations are highly computerized for handling of cases and for communication with the taxpayers. - A large part of the tax returns are submitted on line, as well as the customs declarations. - The tax and the customs and excise administrations are among the few government agencies with a formal internal audit system, set up to ensure financial accountability of revenue collection staff and systems, as well as compliance with the agencies’ performance objectives. 4.2.6 - The tax and the customs and excise administration are also subject to external audit by the OAG. - There is a code of conduct for tax officials, consistent with the Ethical Guidelines for the Public Service which applies to all personnel in revenue administration. ### Legal protection, governance, and reporting arrangements - The Tax and the Customs and Excise Administrations are agencies reporting to the MoF. 4.2.6 - Procedures for appointment and dismissal of their directors are the same as for other government agencies. - The relationship with the MoF is governed by the letter of allocation, where MoF specifies the agencies’ budget, their targets, performance indicators, and reporting requirements. - The agencies are operationally independent to perform their activities; the ministry is responsible to the Storting for the agencies’ compliance with the Storting’s decisions. - Both the tax and the customs and excise administrations produce annual internal reports for the MoF as well as annual official performance reports which are available to the public. - As part of the MoF’s annual report to the Storting, the ministry also reports on the activities of the revenue authorities. ### Independent external audit (OAG) - External audit is independent of the executive branch, and its mandate covers all central government activities, as well as recipients of state grants, public corporations, and some organizations defined in law. 4.3.1 - The Constitution requires the Storting to elect five auditors to review the financial statements. - The Auditor General Act of 2004 provides more detailed provisions for the work of the auditors. - The five auditors and their personal deputies are elected for a period of four years, and the established practice is that they reflect the composition of political parties in the Storting. - The Storting also elects a chair and a vice-chair of the auditors’ board. - The OAG’s budget is proposed by the OAG and approved by the Storting; The MoF incorporates the proposed budget in the overall budget framework without amendments. - The OAG has a broad mandate covering all the activities of central government, including the GPF-G, public hospitals and universities, as well as public corporations and state grant recipients; the OAG does not cover the local government sector. ### OAG capacity, outputs, and practices - Audit capacity is adequate to perform the external audit role. 4.3.1 - The OAG has about 500 staff, and is generally perceived to be highly competent. - The main activities include financial audit (70 percent), performance audit (26 percent), and corporate control of state interests in companies with full or partial state ownership (4 percent). - These companies also have private auditors, and the corporate control is generally much less comprehensive than the regular audits. - The OAG submits an annual report on the audit of the government accounts to the legislature, but does not provide a formal audit opinion on the consolidated annual financial report or the reports of ministries. 4.3.2 - OAG reports the result of the auditing activities to the Storting in Document No. 1: - Part I: extract of the Central Government Accounts in accordance with the Constitution (paragraph 75 k). - Part II: summarizes the results of the financial audit. - Part III: summarizes the results of the corporate control. - Part IV: encompasses the results of the financial audit and the corporate control for each of the ministries; detailed findings on the consolidated government accounts and the Central Government Financial Statements, including the capital account, are reported in Part IV, under the section about the MoF. - OAG provides final audit letters on the accounts of government agencies, but does not provide a formal audit opinion on the accounts of the ministries and the consolidated central government. - The OAG’s annual report and performance audit reports are reviewed by the Standing Committee on Scrutiny and Constitutional Affairs, which provides recommendations to a plenary session of the Storting; the plenary session is open to the public. - The Standing Committee may decide to have open hearings on reports before submitting findings to the plenary; the decision to conduct open hearings is based on the severity and political importance of the issue, and on public and media interest (in 2007 the committee conducted several open hearings). - All reports submitted to the Storting are made available to the public and on the OAG website. ### External scrutiny of macroeconomic models and statistics - External scrutiny of macroeconomic models and assumptions is actively encouraged. 4.3.3 - The main models used for macroeconomic forecasting are managed by Statistics Norway, and are described in great detail in numerous publications. - Different stakeholders, including political parties and media, can commission Statistics Norway to carry out macroeconomic forecasts based on different assumptions than those made by the government. - Statistics Norway is given legislative assurance of independence. 4.3.4 - Statistics Norway was established by the Statistics Act, whereby its professional independence from the government and the Storting is secured. - The budget and the work program are approved by the Storting. - Main tasks: collects, compiles, and disseminates official statistics; produces independent analysis and research; coordinates Norwegian statistics; responsible for international statistics cooperation. - A peer review by Eurostat in June 2007 found that Statistics Norway either largely or fully meets the principles of the European Statistics Code of Practice; indicators within Professional Independence, Mandate for Data Collection, and Statistical Confidentiality are fully met. ### IMF staff commentary: assessment and findings - The Norwegian fiscal management system is characterized by a high level of transparency and Norway is a leader in resource revenue transparency as assessed in Appendix I. - Norway’s public management system operates in a highly decentralized fashion and demands a high degree of integrity and well-functioning government institutions—these conditions are largely met. - There is scope for improvements, in particular in presenting consolidated central government budgets and more comprehensive government accounts. - Resource revenue management transparency is very high. - The fiscal framework is based on two transparent pillars: the fiscal guidelines and the GPF-G. - The fiscal guidelines have contributed to decoupling fiscal policy from oil market volatility and resulted in the bulk of petroleum revenues being saved for future generations; the structural non-oil balance is used as a key and transparent fiscal indicator. - The design and management of the GPF-G are state of the art from a fiscal transparency perspective; the fund is well integrated with the budget, with substantial levels of disclosure and stringent transparency and governance provisions. - Summary of assessment (Code of Good Practices on Fiscal Transparency): - Clarity of roles and responsibilities: institutional framework and division of responsibilities are clear; definition of general government is largely consistent with GFSM 2001 but excludes some units that perform government functions; long-standing ambiguity about the accountability of local tax collectors. - Open budget processes: budget process is open and highly transparent; budget documents present comprehensive, high-quality information and extensive analysis, including long-term fiscal perspectives; room for improvement in consolidated central government operations and institutional coverage; scope to enhance medium-term fiscal planning and performance budgeting. - Public availability of information: scope and quality of information made available to the public are very high; no consolidated statement of fiscal risks; budget presentation not fully consistent with GFSM 2001, particularly as regards the functional classification. - Assurances of integrity: the OAG undertakes financial and performance audits and corporate control and reports to the Storting in Document No.1; OAG audits financial statements of government agencies but does not present a formal audit opinion on ministries’ accounts and the consolidated central government; Statistics Norway’s data and analyses are highly regarded; different accounting principles across consolidated government issues and coverage pose challenges; a trial project to implement accrual accounting in some agencies is proceeding and will be evaluated in 2009; more extensive use of internal audit procedures should be considered. ### Key recommendations and other recommendations - Provide information on the consolidated central government in budget documents, including all central government institutions (as defined by GFSM 2001) on a gross basis, including extrabudgetary units that perform government functions, regardless of their legal status; the consolidated budget would be presented for information and shown on a cash basis in the Budget Bill document. (Paragraphs 72–75) - The existing tables showing general government on an accrual basis, prepared by Statistics Norway, should continue to be included in the National Budget. - Undertake a review of the public corporate sector to include corporations that perform government functions in the central or general government, as appropriate. - Line ministry budgets could contain consolidated statements regarding all sector spending, whether budgetary or extrabudgetary. - Presentation of consolidated central government data in budget documents would provide a more accurate and comprehensive view of central government activities. - Gross budgeting should be the guiding principle for the budgetary central government; currently net budgeting is applied in some areas, including universities and colleges, which reduces transparency. (Paragraph 73) - Consider extending the coverage of the accounts, including the capital account, in the annual financial statement; a medium-term aim: produce consolidated financial statements for the budgetary central government and all entities controlled by it, as required by internationally accepted accounting standards, e.g. cash IPSAS. (Paragraph 74) - Disclose a list of the controlled entities consolidated and explain any exclusions. - Consolidated reports should also provide financial information for each constituent sector. - Disclose all government assets and liabilities and the full resource implications of policies and programs; recognize and report all significant financial assets and liabilities in the financial balance sheet (capital account), regardless of timing of cash transactions; nonfinancial assets and related depreciation could be recognized at a later stage. The pilot project on accrual-basis accounting in agencies has reportedly positive experiences. (Paragraph 75) - Other recommendations (High priority) - Include institutional tables in budget documents showing coverage of budgetary central government, consolidated central government, general government, and the public sector, with main differences explained; MoF and Statistics Norway should review coverage of extrabudgetary units and public corporations. (Paragraph 76) - Disclose all exceptions to the procedures in the Appropriation Regulations; consider a Budget Systems Law in the longer term based on current Appropriation Regulations to provide a more comprehensive framework for the budget preparation process. (Paragraph 77) *Source: _cr09193 - 58. Tax administration has effective internal monitoring and control* ### 78. The reporting of standard reconciliations as part of fiscal accounts would ### _cr09193 - 78. The reporting of standard reconciliations as part of fiscal accounts would ### Standard reconciliations and cash flow reporting (paras 78–78 footnote) - Reporting standard reconciliations as part of fiscal accounts would improve transparency by demonstrating the internal consistency of the fiscal accounts, providing greater assurances and enhancing their credibility. - First-step reconciliation: - Reconcile the cash receipts and payments in the appropriation account of the budgetary central government during a period with the movement in cash and bank balances in the capital account. - Prepare a standard cash flow statement to show operating, investing, and financing cash flows; the net of the cash flows should agree or be reconciled with the changes in the stock of cash and bank balances shown on the capital account. - Net assets reconciliation: - Reconcile the change in the consolidated net assets of the central government from one period to the next with the consolidated surplus and any valuation changes during the period. - This reconciliation is currently carried out for the GPF-G, but not for the consolidated assets and liabilities of the budget and the fund. Extending this reconciliation to the consolidated accounts would facilitate a proper appreciation of the significance of the change in the net asset position. - Footnote: “Since this assessment was made, steps have been taken to implement the recommendations in this paragraph. See footnotes 34 and 35 in paragraph 50.” ### Accrual-basis accounting and medium-term fiscal planning (paras 79–80) - Medium-term extension of accrual-basis accounting: - Consider gradually extending the accrual-basis accounting pilot to assess whether accrual-basis accounting should be applied throughout the government sector. - Rationale: Accrual-basis accounting allows a better appreciation of costs, helps provide a clearer understanding of the long-term implications of policies, and is a complete system which automatically contains checks and balances. - Medium-term fiscal planning enhancements: - Present medium-term expenditure estimates in the same format as in the budget, using the same classification, to better assess medium-term implications of current policies and new policy initiatives. - Consider consolidating and further developing medium-term budgeting where sector envelopes would be ceilings, not floors, and subject to regular budgetary review and discussion. - A medium-term budget can improve analysis of medium-term perspectives and the quality of the dialogue between the MoF and line ministries. - Note: Risks acknowledged given Norway’s special fiscal situation in the coming years, characterized by likely substantial fiscal resources (as discussed in paragraph 24). ### Performance budgeting, internal audit, and external audit observations (paras 81–83) - Performance budgeting: - Encourage ministries to present more concretely specified sectoral objectives in some cases. - Provide clearer strategies and measures to achieve those objectives and indicate how achievement will be monitored. - Consider some degree of standardization (e.g., in the definition of programs and objectives). - Performance budgeting should operate within a framework of clear and transparent accountability and hard budget constraints. - Internal audit: - MoF and GAFM have initiated an evaluation of the role of internal audit in strengthening internal control. - Review international experiences (including EU countries) and develop a concrete strategy for how to use internal audit. - Consider more extensive use of internal audit procedures; for smaller units, internal audit may need to be outsourced to the GAFM, analogous to other financial management outsourcing. - External audit: - The OAG does not express an audit opinion on the accounts of ministries, the consolidated government accounts, and the capital account, which may cause uncertainty regarding their formal status. (Rated Lower priority) ### Budget classification, QFAs, documentation, and local government register (paras 84–87) - Budget classification improvements: - Introduce a functional classification consistent with COFOG and present the budget according to this classification in addition to other classifications in use. - Consider, consistent with GFSM 2001, disaggregating operating costs into employee entitlements and costs of goods and services for disclosure purposes while maintaining appropriations at the existing aggregated level. - Footnote: “Since this assessment was made, steps have been taken to implement the recommendations in this paragraph. See footnote 32 in paragraph 46.” - Quantification of QFAs: - Provide a quantification of QFAs in budget documents; although the extent of QFAs is limited, quantifying them would help assess more comprehensively the scope of government activity. - Budget document analysis: - Include more self-contained analysis in budget documents, with short summaries of main issues and greater use of references to preceding work, to avoid assuming reader familiarity. - Central register of local government responsibilities: - Implement a central register (maintained by the Ministry of Local Governments and Regional Development) because current responsibilities are only gaugeable from separate documents. ### Resource Revenue Transparency — Summary assessment (paras 88–92) - Overall finding: - The report finds a very high level of transparency in the management of petroleum revenue, particularly in the availability of public information, with discretion in some areas linked to petroleum tax administration. - Clarity of roles and responsibilities: - Institutional framework is clear, with division of responsibilities across ministries and agencies. - The petroleum tax regime is clearly stated and has remained stable, containing positive features such as the uplift on investment and refund of unsuccessful exploration. - Production licenses give licensees an exclusive right to exploration and production in licensed areas; there is substantial discretion in the award of production licenses with emphasis on work program evaluations and technical/geological expertise. - Decisions regarding which license areas to offer must be discussed by the Storting. - The relationship between the government and state-owned enterprises in the petroleum sector is clearly defined and the companies do not undertake QFAs. - Open budget process: - The budget process is highly transparent and the GPF-G is largely integrated with the budget; it has a clear governance structure, a detailed investment strategy, and promotes accountability by its manager (Norges Bank). - The rising assets in the GPF-G increase the premium on maintaining stringent transparency standards. - The budget process is highly transparent in the identification of petroleum revenue-related flows. - Public availability of information: - Information on petroleum revenue payments by companies, receipts by the government, and many aspects linked to the management of the GPF-G (including the level of financial assets, the investment strategy, risks, returns, individual equity positions, external managers, implementation of ethical guidelines, and management costs) are readily and regularly available. - Assurances of integrity: - Governance framework provides strong assurances of integrity, with involvement of Norges Bank, the MoF, and the OAG in control and audit of GPF-G. - Government plans to improve internal control and external audit functions further based on recommendations from an international consulting firm. - Tax administration in the petroleum sector is challenging; important measures such as the establishment of norm prices and possibility to make advance rulings have been implemented to reduce discretion, though a few concerns about non-transparencies remain in the tax assessment and appeals process (see Appendix I). ### Resource Revenue Transparency — Recommendations (para 93) - Recommendations to enhance transparency in petroleum sector tax administration: - The Petroleum Assessment Board could explain the legal basis and rationale for changing tax assessments in a more formal way to reduce appeals and help taxpayers state their cases in following appeals’ instances. - OTO’s functions as representative of the government in appeals cases and as secretary/advisor to the Appeals Board should be clearly separated to avoid potential perceptions of asymmetry in access to the Appeals Board. - Consider a scheme similar to the one applied by the Petroleum Price Board, where a committee of independent experts is called to advise the Board in appeal cases. ### Appendix I — Introduction and clarity of roles (Appendix I, Intro and paras 1–3) - Key statistics and context: - In 2007, Norway’s petroleum industries, including crude oil and gas extraction, accounted for 23 percent of GDP, close to 50 percent of exports, and about 31 percent of government revenue in 2007. - Norway ranked as the world’s fifth largest oil exporter and the tenth largest producer in 2006. - Legal and institutional framework: - The Petroleum Act and associated regulations govern petroleum operations in Norway. - Pursuant to section 1-1 in the Act, the Norwegian state has the proprietary right to sub-sea petroleum deposits and the exclusive right to resource management. - According to section 3-3 of the Act, a production license gives licensees an exclusive right to exploration and production of petroleum deposits in areas covered by the license; the licensee becomes the owner of the petroleum which is produced. - The Petroleum Tax Act of 13 June 1975 No. 35 (last amended in December 2005) and other general laws and regulations specify legal authority over oil-producing companies. - Institutional roles: - The Storting establishes the framework for petroleum activities and must discuss matters of strategic importance, such as opening new areas for petroleum activities. - Ministry of Petroleum and Energy (MPE): overall responsibility for management of petroleum resources, allocation of licenses, approval of development plans, and monitoring of state-owned/partly state-owned enterprises (StatoilHydro, Petoro, Gassco). - Norwegian Petroleum Directorate (NPD): MPE’s technical arm, administratively subordinated to MPE, responsible for administrative and financial control of exploration and recovery; reports to MPE but has considerable independence. - Ministry of Finance (MoF): overall responsibility for ensuring the state collects taxes, fees, and other revenues from the petroleum sector. - Ministry of Labor and Social Inclusion: responsible for health and safety and coordination of HSE in the petroleum industry. - Ministry of the Environment: responsible for the external environment. - Ministry of Fisheries and Coastal Affairs: responsible for oil spill contingency measures. - Licensing system features: - Licensing system main features in place since the 1970s; production licenses normally awarded through publicly announced licensing rounds (yearly since 1999 for mature areas; every second year in frontier areas). - Any prequalified company can participate; awards are based on pre-announced criteria focused on technical expertise and geological understanding; details of the evaluation process are not disclosed. - Production licenses stipulate acreage, location, license period, work obligation, state participation, and other block-specific conditions; licenses granted for up to 10 years, extendable up to 30 years (and even 50 years in specific cases) for licensees meeting the original work commitment. - Transfer of interest in a production license requires approval by the MPE and the MoF (the latter sets conditions to neutralize tax effects from the transfer). *Italic: Source: _cr09193 - 78. The reporting of standard reconciliations as part of fiscal accounts would* ### 4. The tax regime of the petroleum sector is clearly stated and comprehensively ### 4. The tax regime of the petroleum sector is clearly stated and comprehensively covered in the law. ### Overview of legal and institutional framework - The Petroleum Tax Act (enacted in 1975) supplements the General Tax Act; the two are internally consistent. - Tax rules (the Act and regulations) are produced through the normal legislation process and are comprehensively presented to the public. - Royalty on the NCS was phased out for the last two fields (Oseberg and Gullfaks) in 2005. - Production sharing contracts (PSCs) are not used in the fiscal regime for the petroleum sector in Norway. ### Tax rates and structure for upstream petroleum activities - Net profits from extraction and pipeline transportation of petroleum in the NCS are first subject to the ordinary corporate tax of 28 percent. - A special tax of 50 percent applies after subtracting an investment-based uplift allowance of 30 percent of investment costs (7.5 percent a year over 4 years). - The Storting determines the tax rates for petroleum companies during the budget process each year; corporate tax and special tax rates have been stable since 1992. ### Deductible expenses, depreciation, losses, and financial costs - All relevant expenses for NCS activities are tax deductible: operating expenditures, exploration costs, shut-down and decommissioning costs, and research and development expenditures. - A linear depreciation schedule over 6 years applies to production installations and pipelines. - Net financial costs (up to a certain limit) may be deducted against both the corporate tax and the special tax. - Starting in 2007, a new rule for calculation of deductible financial costs was introduced: - Deductible net financial costs are the sum of interest costs and foreign exchange losses, less foreign exchange gains, pertaining to interest-bearing debt. - Deductions shall equal such proportion of the net financial costs of the company as corresponds to 50 percent of the ratio between the value of assets attributed to extraction and pipeline transportation of petroleum on the NCS (net of tax depreciation as of December 31 of the tax year) and the average interest-bearing debt over the tax year. - Other financial income and expenses shall be attributed to the onshore district. - Losses may be carried forward without time limits and, since 2002, earning interest. - Starting in 2005, companies can claim reimbursement of the tax value of costs incurred by exploration and shut-down, including decommissioning activities (that cannot be offset by revenue and associated taxes elsewhere). - All income and expenses from upstream activities are consolidated at company level (no ring fencing between licenses); there is, however, a ring fence at the company level between petroleum extraction and other activities (e.g., other industrial activities or results from foreign investments). ### Indirect taxes and special treatment - Treatment of indirect taxes (VAT, customs and excise duties) for petroleum or petroleum products is in principle the same as for other activities. - Special provisions: supply of goods and certain services from the Norwegian mainland to offshore petroleum activity is zero rated under the VAT. - Government proposal: deliveries to offshore installations will be defined as exports; deliveries of goods and services in mainland Norway for use on offshore installations will still be zero rated. ### Tax reference prices (norm prices) and transfer pricing - Tax reference prices for Norwegian crude oil by grade, called norm prices, are used to determine taxable income from oil production to reduce transfer pricing issues. - Norm prices principle: correspond to prices in trades between independent parties in a free market. - Norm Price Board: - Subordinated to the MPE. - Regulations require at least five members; at the moment there are six members, including four independent members, one representative from the MoF, and one representative from the MPE. - Two deputy members represent the MoF and the MPE. - The Board is supported by MPE staff and meets quarterly to set norm prices for the previous quarter. - Norm prices are set by discretionary judgment (no formula), based on a broad evaluation of market value and all relevant market information. - Preliminary norm prices are presented in writing to companies, which can provide views at quarterly meetings before final determination. - In case of disagreement, companies can ask for a committee of experts to advise the MPE on the “fairness” of norm prices. - Gas sales are taxed on the basis of the actual realized sales price, except for transactions between associated parties that deviate from market conditions; tax authorities may adjust according to the arm's length principle. - The General Tax Act establishes that the OECD Transfer Pricing Guidelines must be taken into consideration when applying the arm’s length principle. - Additional reporting and documentation requirements on transactions with related parties have been introduced. ### Environmental taxes and area fee - CO2 and NOx taxes are levied on NCS activities and are deductible from the corporate and special tax bases. - The CO2 tax is levied on emissions from petroleum activity, including flaring and use of oil, diesel, and gas on petroleum installations on the NCS. - Starting in January 2008, the CO2 tax levied on the petroleum sector has been reduced to offset the estimated costs of a mandatory quota system for CO2 emissions. - Since 2007, a specific tax is imposed on NOx emissions from turbines and flaring on offshore installations. - An environmental agreement between the Ministry of Environment, the Norwegian Oil Industry Association (OLF), and 14 other business organizations includes a 3-year exemption from the NOx tax subject to specific conditions. - An area fee: licensees must pay an incremental area fee for each year after the expiration of the initial exploration period. ### Fiscal authority, disclosure, and revenue integration - The Ministry of Finance (MoF) holds overall responsibility for ensuring state collection of taxes, fees, and other revenues from the petroleum sector. - Petroleum revenues and governmental petroleum expenditures are integrated in the budget framework and process like other revenues and expenditures. - Total net revenue from the petroleum sector is directly transferred from the budget into the GPF-G, which is largely integrated with the budget. - No government agencies may borrow on behalf of the government for resource-sector specific purposes without Storting consent; the MoF is responsible for all central government borrowing. - Legislation includes requirements for full disclosure of all petroleum-related revenue, loan receipts and liabilities, and asset holdings: - The Constitution includes access to public documents (Article 100) and entitlement to be informed about the state of the natural environment and effects of encroachment (Article 110b). - Management of the GPF-G includes extensive reporting requirements regarding the GPF-G’s portfolio. ### State equity participation, SDFI, and state-owned companies - State Direct Financial Interest (SDFI): - Since 1985 the state can keep a discretionary share of a production license; the share can vary by field depending on expected profitability and resource potential. - The government holds shares in 113 production licenses. - The government’s equity share is as high as 56 percent, but has usually been 20 percent in more recent licensing rounds. - SDFI represents about a third of Norway’s daily petroleum production and total reserves. - Petoro manages the SDFI on behalf of the central government since 2001; StatoilHydro markets the state’s oil and gas. - Petoro is the licensee for, not the owner of, the SDFI shares; as one licensee the state pays its share of investments and costs and receives corresponding gross income from the license. - SDFI revenues and expenditures are included in the budget; the Storting approves the SDFI’s budget and framework annually. - Petoro cannot raise loans or provide security without Storting consent; government contributions are paid in cash and no borrowing or carry operations are undertaken. - The SDFI is disclosed in propositions to the Storting; SDFI revenue and expenditure estimates are presented in the government’s budget proposition published in October and updated twice during the year. - Petoro’s accounts are presented in quarterly and annual reports; annual accounts are presented in a booklet to the OAG. Every one or two years an independent consultant firm calculates and discloses the value of the SDFI holdings. - State-owned companies and roles (post-2000 strategic review): - MPE monitors state-owned companies on behalf of the state; these companies do not undertake policy or regulatory functions. - StatoilHydro: - Partially privatized in 2001 with 62.5 percent ownership from the State. - Listed on the New York Stock Exchange and on Oslo Børs; subject to U.S. SEC filing requirements. - By end-2007 entitlement to oil and gas production outside Norway represented 18 percent of its total output. - Dividend policy targets returning 45-50 percent of consolidated net income (IFRS) through cash dividends and share repurchases, subject to flexibility based on cash flows and capital needs. - MPE has one representative in the Election Committee; the state is not represented on the Board of Directors (Board consists of 10 members). - The government is increasing the state's shareholding in StatoilHydro over time to 67 percent (Storting decision of 2001 concerning a minimum state shareholding of two-thirds); if the state increases holding in excess of two-thirds, it would have sole power to amend the articles of association. - Petoro: - 100 percent non-profit state-owned limited company established in 2001 to manage the SDFI portfolio on behalf of the government. - Acts as a licensee within licensee groups but is not an oil company/operator; it oversees operations of licensee groups and helps prepare SDFI-related budget proposals. - Fully guaranteed by the government which assumes Petoro’s liabilities in licensee groups and receives all revenues from the SDFI portfolio through the central government’s budget. - Petoro has no own revenue sources; operations financed by appropriations from the central government’s budget approved by the Storting. - Must maintain separate accounts for the SDFI and its own operations and prepare separate financial statements. - Gassco: - State-owned company established in 2001 to act as operator of the natural gas transportation system transferred to Gassled. - Reimbursed for operator costs by infrastructure users. - Established to satisfy EU gas directive requirements for gas transport operations. ### Non-commercial activities and environmental liabilities - Petroleum companies do not carry out non-commercial or quasi-fiscal activities as part of the fiscal regime. - No regulation of wholesale or retail prices of resource products; no policy of providing products below cost recovery or market price for domestic consumption. - Government reimburses StatoilHydro for its proportionate share of costs related to marketing the state's oil and gas from SDFI arrangements. - Environmental and site abandonment costs: - Environmental-related expenses and shut-down and decommissioning costs are tax deductible (and refundable). - The Petroleum Act establishes that the state must compensate fishermen for financial losses from occupation of fishing areas by petroleum activities; licensees are liable for pollution damage and prevention measures. ### Sovereign wealth fund (GPF-G) management and coordination with fiscal activities - The Petroleum Fund (established 1990; first deposits 1996) renamed GPF-G in 2006; GPF-G has no separate legal status and is a Norwegian krone account held by the MoF in Norges Bank. - Norges Bank invests the corresponding international assets in its own name through Norges Bank Investment Management (NBIM); Norges Bank is the formal owner of the foreign assets. - The value of the MoF’s account in Norges Bank is set equal to the market value of the corresponding pool of foreign assets; Norges Bank bears no financial risk from changes in GPF-G value. - Under the Government Pension Fund Act, the MoF has overall responsibility for GPF-G management and has delegated operational management to Norges Bank via regulations, guidelines, and a management agreement that are public. - GPF-G is largely integrated into the state budget and functions as a tool to strengthen the budget process; GPF-G has no authority to spend or borrow—spending is executed through the budget. - GPF-G inflows: all state petroleum revenues (net of petroleum-related expenditures) transferred from the central government’s budget, net government financial transactions related to petroleum activities, and return on GPF-G investments (net of remuneration to Norges Bank). - GPF-G outflow: the sum needed to cover the non-oil budget deficit, as measured in the final budget revision (usually in late November/early December); net allocation (withdrawal) to (from) the GPF-G largely reflects the overall budget surplus (deficit). *Source: _cr09193 - 4. The tax regime of the petroleum sector is clearly stated and comprehensively covered in the law.* ### 12. The investment policies for the GPF-G are clearly stated, including through ### _cr09193 - 12. The investment policies for the GPF-G are clearly stated, including through ### Investment governance and operational management - Operational management of the GPF-G is carried out by Norges Bank, implementing investment strategy in accordance with publicly disclosed investment guidelines issued by the MoF. - MoF retains authority for management of the GPF and presents key changes to investment guidelines to the Storting to ensure broad political support. - MoF receives advice on investment guidelines from Norges Bank, the ministry’s advisory council on investment strategy, and external consultants involved in performance measurement and benchmarking. - MoF has an Asset Management department responsible for the ministry’s duties related to the GPF-G; Norges Bank Investment Management (NBIM) is responsible for implementing strategy and active management. - The investment strategy is formulated by defined benchmarks with risk limits; operational management is fully delegated to Norges Bank within those limits, with a framework for accountability. - Benchmark portfolios are “virtual portfolios” defined by instrument types, countries, and currencies. - MoF limits include allocation between equities and fixed income instruments, maximum ownership interest in individual companies, and a tracking error relative to the benchmark to allow for active management by NBIM. - The GPF-G invests only in foreign financial assets. ### Strategic asset allocation and limits - Current strategic allocation: 40 percent fixed income instruments and 60 percent equities. - MoF plans to over time invest up to 5 percent of the GPF-G in real estate (which will reduce the allocation to fixed income). - MoF plans to increase the limit on maximum ownership in individual companies from 5 percent to 10 percent. - The investment strategy has evolved as the GPF-G grew and the time horizon lengthened. ### Ethical guidelines and stewardship - MoF established Ethical Guidelines for the GPF-G in 2004 based on a broad political consensus. - Ethical Guidelines are transparent, predictable, and based on internationally recognized standards such as the U.N. Global Compact and the OECD Guidelines for Multinational Enterprises. - Two policy instruments are used: the exercise of ownership rights and exclusion of companies. - Decisions to exclude companies rest with the MoF but are based on publicly available recommendations from an independent Council on Ethics for the GPF-G. ### Transparency, reporting, and public disclosure - Budget documents present a discussion of the main aspects of GPF-G management, including a statement on investment strategy explaining rationale and prospects; substantial strategy changes are discussed with the Storting through White Papers. - GPF-G’s market value is shown in annual financial statements and annual budget documents, and in the (unaudited) balance sheet of Norges Bank published monthly. - A detailed list of the GPF-G’s equity holdings at year-end is published by Norges Bank the following spring. - In line with the management agreement, Norges Bank produces publicly available quarterly and annual reports including returns by asset class and currency, excess returns relative to benchmark portfolios, management costs, audited financial statements with explanatory notes, and lists of external fixed income and equity managers. - Starting in 2007, MoF reports annually to the Storting on financial performance, fiscal sustainability outlook, changes in investment strategy, implementation of ethical guidelines, and risk assessments. ### Budget, accounting, and identification of petroleum revenues - Returns from GPF-G investments are not integrated in the budget. - Planned spending of petroleum income is guided by fiscal guidelines; actual transfer from the fund to the state budget is determined in the final budget. - Petroleum revenue is clearly identified in the government accounting system; sources are classified (direct income taxes, CO2 and NOx taxes, area fees, revenue from government petroleum activities (SDFI), and dividends from StatoilHydro). - Total budget revenues are presented as consolidated “revenues from petroleum activities” and “revenues excluding petroleum”; these figures are compiled monthly on a cash basis. - Estimated investment income from the GPF-G is presented on both accrual and cash bases. - The non-oil budget balance and the structural non-oil budget balance are presented as key indicators; the structural non-oil budget balance is used as an indicator of fiscal stance (change presented as a share of mainland trend-GDP). - Budget documents present overall budget deficit, consolidated balance of the budget and the GPF-G, and the general government’s overall balance. - The non-oil budget balance includes interest and dividends received and paid by the central government, but excludes dividends that accrue to the GPF-G as returns on its assets. - The estimated non-oil budget balance in the final budget revision (late November/early December in the budget year) is used to determine gross transfers from the GPF-G to the budget; final central government accounts (usually in April of the following year) may show slight deviations. ### Reporting of petroleum-related transactions and EITI - Revenue and expenditures linked to the petroleum sector are clearly identified and reported with detailed economic classification in budget and National Budget documents. - Annual budget proposals report gross petroleum revenues on a cash basis and show transfers from and to the GPF-G on a gross basis. - The Oil Taxation Office publishes taxable incomes and assessed tax liabilities by petroleum company by early December for the prior year (these figures are not directly comparable to budget figures due to installment payments spread over two calendar years). - No payments from Petoro to central government; SDFI income is a “cash-flow instrument” channeled directly to the fiscal budget. - Information on StatoilHydro dividend payments to central government is publicly available. - In fall 2007 the government decided to implement the Extractive Industries Transparency Initiative (EITI) criteria in Norway; MPE leads the work with planned civil society participation to set up a working plan. ### Resource valuation and disclosure - Estimates of net petroleum wealth and future net government revenues from petroleum activities are published in budget documents. - NPD annually updates petroleum “resource accounts” based on operators’ information; NPD publishes resource accounts and methodologies. - Petroleum resources are classified according to a classification system updated in 2001 in line with recommendations of the World Petroleum Congress, the Society of Petroleum Engineers, and the American Association of Petroleum Geologists. - NPD uses approximately 250 data sets from operators including more than 600 projects; NPD adjusts operators’ projections by its own estimates of undiscovered reserves. - Latest resource account suggests that undiscovered reserves amount to 26 percent of total resources. ### Risk assessment and sensitivity analysis - Budget documentation includes discussion of risks related to oil price developments in a medium- to long-term perspective anchored in the fiscal framework. - Budget documents regularly disclose calculations showing impacts of alternative assumptions, including an oil price sensitivity analysis (for example, the impact on export receipts and government petroleum revenue of a change in oil prices of NOK100 per barrel, relative to the baseline projection). - Risks to the GPF-G are assessed in MoF and Norges Bank reports; market risk is expressed in terms of portfolio volatility and operational risk management. - MoF’s 2007 report assessed potential risks to rate of return using two methods: a forward-looking Monte Carlo simulation and a backward-looking stress-testing exercise based on past crisis scenarios. ### Internal control, audit arrangements, and recent changes - Internal control and audit of the GPF-G are framed by the management agreement between MoF and Norges Bank, MoF guidelines, and Norges Bank’s governance structure. - The Central Bank Audit provides an audit opinion on Norges Bank’s annual accounts (which include the GPF-G) according to instructions from Norges Bank’s Supervisory Council and auditing standards from the Norwegian Institute of Public Accounts. - NBIM issues quarterly reports that include financial statements of the GPF-G audited by the Central Bank Audit. - Given rapid growth of the GPF-G and increased allocation to equities, Norges Bank is changing internal control arrangements. - The 2007 annual audit was done in cooperation with a private auditing firm. - An Audit Committee reporting to the Bank’s Board and a separate internal audit department are being established to strengthen internal controls. - MoF intends to propose amendments to the Central Bank Act to establish a normal external audit function in Norges Bank conducted by a private independent firm appointed by the Supervisory Council, and to explicitly subject Norges Bank’s accounting framework to the Accounting Act. ### Petroleum tax administration and taxpayer rights - The tax administration framework for NCS extraction and pipeline transportation differs from onshore and other sectors; regulated by the Petroleum Taxation Act and a specific chapter in the Tax Assessment Act. - Income from exploitation and pipeline transportation is allocated to the Shelf District and taxed by oil taxation authorities (OTO with the Oil Taxation and Appeal Boards). - OTO is an independent entity reporting to MoF; it assessed upstream direct taxes for about 40 companies in 2004 and earlier years, and 66 companies in 2006. - OTO has 45 employees, mostly trained tax economists and tax lawyers organized in joint teams. - Assessment period: April (annual tax returns) until early December (when list of tax assessments by company is made public). - Tax assessments are decided by a five-member Oil Assessment Board appointed by MoF but independent; appeals decided by a seven-member Appeals Board for Oil Taxation. Decisions by the Appeals Board are not subject to further administrative appeal; legal action can only be brought against a decision in an appeal case. - OTO acts as Secretariat for both Boards and represents government in cases resolved by the Boards. - Petroleum companies have the same taxpayers’ rights and services as other corporate taxpayers, with duty to disclose all material facts. - Information obtained by tax assessment bodies may be shared with other government bodies for estimating future taxes; recipients are subject to confidentiality obligations. - Areas affecting transparency: Oil Assessment Board is not required to explain or document legal basis for adjusting tax assessments to taxpayers; OTO can meet with the Appeals Board to discuss cases (a right not shared by taxpayers); detailed rulings by the Appeals Board are not made public but summary information is published with the company’s consent. *Source: _cr09193 - 12. The investment policies for the GPF-G are clearly stated, including through* ### 23. International and national petroleum companies comply with international ### 23. International and national petroleum companies comply with international standards for accounting, auditing, and publication of accounts. ### Accounting and auditing standards for petroleum companies (4.3.1, 1.1.5) - For the preparation of the financial statements of publicly listed companies, the Norwegian Accounting Act gives the option of applying NGAAP, which are largely in line with international accounting standards, or international standards. - The option to apply international standards is useful in particular for multinational petroleum companies. - Norwegian auditing standards are materially in accordance with international auditing standards. - As a public and listed company in Oslo and New York, StatoilHydro must comply with all applicable international accounting and auditing standards: - Accounting practices must comply with International Financial Reporting Standards as issued by the International Accounting Standards Board and adopted by the European Union. - An independent external auditor conducts audits in accordance with the standards of the Public Company Accounting Oversight Board from the U.S. - Internal control over financial reporting is effective according to the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. - Petoro is required to prepare its accounts in line with the Norwegian Accounting Act and a private firm undertakes the external auditing of its financial statements. ### External audit and reporting on petroleum revenue flows (4.3.1) - Overall central government’s revenues are subject to external financial audits by the OAG to ensure the integrity of the information. - In that context, the OAG reviews the GPF-G as part of the MoF’s audit on the basis of the work performed by Central Bank Audit, but does not prepare a separate report on GPF-G. - The OAG audits the financial statements of the SDFI and reports the results of the audit to the Storting. - The external audit by the OAG on central government’s (petroleum) revenues would be consistent with the EITI principle of validating the information on the government’s receipts of petroleum companies’ payments. - The OAG also undertakes performance audits regarding the effectiveness of the management of government (petroleum-related) revenue and assets. - The office undertook a performance audit on the management of the GPF-G by Norges Bank a few years ago. - Separate annual accounts for the SDFI are usually prepared, both on the cash basis used by the government and in accordance with the Norwegian Accounting Act.21 *Source: _cr09193 - 23. International and national petroleum companies comply with international* ### Appendix II. Summary Tables ### Appendix II. Summary Tables ### Clarity of Roles and Responsibilities (1.1) - Overall summary assessment: Largely observed. - 1.1.1 The structure and functions of government should be clear. - Assessment: The general government definition, as reported for statistical purposes by Statistics Norway, is largely consistent with Government Finance Statistics (GFS) principles. - Comment: It would be desirable to provide information on the consolidated central government in budget documents. This would include all central government institutions (as defined by GFSM 2001) on a gross basis, including extrabudgetary units that perform government functions, regardless of their legal status. The inclusion of institutional tables in budget documents would enhance transparency. - 1.1.2 The fiscal powers of the executive, legislative, and judicial branches of government should be well defined. - Assessment: The fiscal roles of the executive and legislative branches are clearly defined, while the judiciary branch of government plays no explicit role in fiscal management. - 1.1.3 Responsibilities of different levels of government should be clearly specified. - Assessment: The relationships between the levels of government are clearly defined but the distribution of responsibilities is not specified in any single legal instrument. - Comment: There could be merit in implementing a central register of local government responsibilities maintained by the Ministry of Local Governments and Regional Development; at present responsibilities can only be gauged from a number of separate documents. - 1.1.4 Relationships between the government and public corporations should be based on clear arrangements. - Assessment: Relationships between government and public nonfinancial and financial corporations are for the most part clearly defined. - Comment: Quasi-fiscal activities (QFAs) carried out by public nonfinancial corporations are limited, but they are not fully costed and presented in budget documents. The government has extensive ownership of public corporations and the relationship is largely arm’s length, but there may be scope for further clarification and prioritization of objectives. Arrangements regulating profit transfers from state enterprises to the budget are clear. Norges Bank is operationally independent and has no fiscal role. There would be merit in providing a quantification of QFAs in budget documents. - 1.1.5 Government relationships with the private sector should be conducted in an open manner. - Assessment: Laws and processes governing government regulation of the nonfinancial private sector are conducive to favorable business conditions. ### Legal, regulatory, and administrative framework for fiscal management (1.2) - Overall summary assessment: Observed. - 1.2.1 Collection, commitment, and use of public funds should be governed by comprehensive laws/regulations. - Assessment: The regulatory framework for management of public finances is clear and comprehensive, but there is no budget system law, and there is some scope for discretionary exceptions to basic regulations. The legislative basis for tax collection is clear and comprehensive. - Comment: The budget process would be strengthened by disclosing all exceptions to the procedures in the Appropriation Regulations; a Budget Systems Law could be considered in the longer term. There is long-standing ambiguity about accountability of local tax collectors. - 1.2.2 Laws/regulations related to tax and non-tax revenues should be accessible and appeal processes timely. - Assessment: Tax administration is clearly defined and well-coordinated with overall fiscal management, but there is some lack of clarity about the role of central and local government tax collectors. Taxpayers’ legal rights are well defined and appeals are considered in a timely manner. - 1.2.3 Sufficient time for consultation on proposed laws and regulatory changes. - Assessment: Public opinion is sought concerning proposed laws, regulatory changes and broader policy changes. - 1.2.4 Contractual arrangements between the government and public or private entities should be clear and publicly accessible. - Assessment: Contractual arrangements are publicly accessible. - 1.2.5 Government liability and asset management should have an explicit legal basis. - Assessment: Legislation governs asset management, including granting rights to use or exploit public assets. Debt issuance is authorized annually by the Storting. Privatization is covered by general rules on the sale of state assets and payments of receipts to the budget are transparent. ### Open Budget Process (2.1–2.2) - Overall summary assessment for preparation: Observed. - 2.1.1 A budget calendar should be specified and adhered to. - Assessment: The timetable for the Government’s submission of the draft budget and subsequent amendments to the Storting are specified in the Appropriation Regulations and are followed in practice. - 2.1.2(a) Annual budget should be realistic and prepared within a medium-term framework. - Assessment: Budget forecasts and underlying macroeconomic assumptions are clearly presented and realistic. A statement on medium-term fiscal policy objectives is included. - Comment: Budget documents present comprehensive, high-quality information including long-term fiscal perspectives and sensitivity analysis, but there is room for improvement in providing information on consolidated central government operations and institutional coverage. There is scope to enhance medium-term fiscal planning and performance budgeting. - 2.1.2(b) Fiscal targets and rules should be clearly stated. - Assessment: Fiscal targets are clearly stated and explained and linked to the fiscal guidelines. - 2.1.3 Description of major expenditure and revenue measures should be provided. - Assessment: Estimates of new revenue and expenditure initiatives are explained and current and future budget implications are provided, but medium-term estimates are not explicitly linked to the budget classification. - Recommendation: Present medium-term expenditure estimates in the same format and classification as the budget to better assess medium-term implications. - 2.1.4 Budget documentation should include an assessment of fiscal sustainability. - Assessment: An assessment of fiscal sustainability is included along with sensitivity analysis of main assumptions. - 2.1.5 Coordination and management of budgetary and extrabudgetary activities. - Assessment: Mechanisms are defined for most sectors and non-reported extrabudgetary operations seem limited. - 2.2 Budget execution, monitoring, and reporting procedures. - Overall assessment: Observed. - 2.2.1 Accounting system should provide a reliable basis for tracking. - Assessment: Accounting and internal control procedures provide a reliable basis for tracking payments and a subset of financial assets and liabilities. The accounting system can produce accurate in-year reports on central government budget outturns. - Comment: The survey of internal audit prevalence is an important initiative. The MoF and GAFM have initiated an evaluation of internal audit roles; more extensive use of internal audit procedures should be considered. - 2.2.2 Timely midyear report and frequent updates. - Assessment: The Storting receives timely in-year reports and undertakes a mid-year review. - 2.2.3 Supplementary proposals should be consistent with original budget presentation. - Assessment: Supplementary revenue and expenditure proposals are presented consistent with the original budget presentation. - 2.2.4 Audited final accounts and audit reports should be presented and published within a year. - Assessment: The audited final accounts are available for the Storting within nine months after the end of the fiscal year. ### Public Availability of Information (3.1–3.3) - Overall summary assessment: Observed (3.1); Largely Observed (3.2); Observed (3.3). - 3.1.1 Budget documentation should cover all budgetary and extrabudgetary activities of central government. - Assessment: Budget documents convey substantial information on central government fiscal activities with some limitations; there is only limited coverage of the general government. Defense expenditures are comprehensively reported. - 3.1.2 Comparable outturns for preceding years and forecasts should be provided. - Assessment: The Budget Bill discloses main fiscal aggregates for one year prior to the budget year and provides some information about spending three years beyond the budget year. - 3.1.3 Statements on tax expenditures, contingent liabilities, and QFAs should be part of budget documentation. - Assessment: Analysis of fiscal risks focuses on sensitivity of budget estimates; there is extensive information on long-term fiscal risks. Guarantees and PPPs are disclosed, but there is no consolidated statement of fiscal risks. Statements on explicit contingent liabilities related to budget organizations are included. Tax expenditures are included. - 3.1.4 Receipts from all major revenue sources should be separately identified. - Assessment: Fiscal reporting by Statistics Norway covers all of general government and receipts from all major revenue sources are separately identified. - 3.1.5 Central government should publish information on debt, financial assets, and significant nondebt liabilities. - Assessment: Information on gross public debt is comprehensive and easily available. Published information on non-debt liabilities includes pension obligations, guarantee exposure, and contractual obligations. Government financial assets information is widely available. - Recommendation: Disclose all government assets and liabilities and recognize all significant financial assets and liabilities in the financial balance sheet; nonfinancial assets and related depreciation could be recognized at a later stage. - 3.1.6 Budget documentation should report the fiscal position of subnational governments and public corporations. - Assessment: The budget documentation provides the fiscal position of subnational governments and reports on the finances of public corporations, although it does not present the consolidated position. - 3.1.7 Government should publish a periodic report on long-term public finances. - Assessment: Analysis of long-term public finances is a defining feature of Norway’s fiscal framework and is routinely undertaken and published. - 3.2.1 A clear and simple summary guide to the budget should be widely distributed. - Assessment: A clear and simple guide is widely available. - Comment: Budget documents could include more self-contained analysis; topical analysis is sometimes assumed familiar in subsequent documents. - 3.2.2 Fiscal data should be reported on a gross basis with standard classifications. - Assessment: The budget classification is not fully consistent with international standards. Net budgeting is applied in some areas (including universities and colleges). - Recommendation: Introduce a functional classification consistent with COFOG and present the budget accordingly. - 3.2.3 Standard summary indicators should be used (overall balance, gross debt, etc.). - Assessment: The structural, non-oil balance of the budgetary central government is the main indicator in the budget; the general government balance is not monitored during the year. - 3.2.4 Results relative to major budget program objectives should be presented annually. - Assessment: Discussion of objectives and expected results is variable. Ministries could present more concretely specified sectoral objectives, clearer strategies and monitoring measures, and some standardization in program and objective definitions might be considered. - 3.3.1 Timely publication of fiscal information should be a legal obligation. - Assessment: Fiscal information is comprehensive and readily available to the public. - 3.3.2 Advance release calendars for fiscal information should be announced and adhered to. - Assessment: There is a clear commitment to provide information at scheduled times by announcing an advance release data calendar. ### Assurance of Integrity (4.1–4.3) - Overall summary assessment: Largely observed (4.1); Largely observed (4.2); Largely observed (4.3). - 4.1 Fiscal data should meet accepted data quality standards. - 4.1.1 Budget forecasts and updates should reflect recent trends and policy commitments. - Assessment: Budget estimates are generally reliable and the variance between budgeted and actual outturn of main fiscal aggregates is disclosed to the public. - 4.1.2 The annual budget and final accounts should indicate the accounting basis used. - Assessment: Norwegian central government common accounting standards are used and a statement on the accounting basis is included in the annual financial report. - Recommendation: Consider extending coverage of accounts including the capital account; a medium-term aim would be consolidated financial statements for the budgetary central government and entities it controls, as required by internationally accepted accounting standards (e.g. cash IPSAS). Consider gradually extending the accrual-basis accounting pilot. - 4.1.3 Data in fiscal reports should be internally consistent and reconciled. - Assessment: The process of accounts reconciliation and fiscal reporting is partly effective but has scope for improvement in some important areas. Major revisions and changes to data classification are explained. - Recommendation: Reporting standard reconciliations as part of fiscal accounts would improve transparency and demonstrate internal consistency. Note: after this assessment, steps were taken in this direction (see footnotes 34 and 35 in paragraph 50 of the main text). - 4.2 Fiscal activities should be subject to effective internal oversight and safeguards. - 4.2.1 Ethical standards for public servants should be clear. - Assessment: Public servants are subject to a well-defined code of behavior. - 4.2.2 Public sector employment procedures should be documented and accessible. - Assessment: Civil service employment procedures are clear and well-understood. - 4.2.3 Procurement regulations should meet international standards and be accessible. - Assessment: Procurement rules and practices meet international standards and are well-known but not always observed in practice. - 4.2.4 Purchases and sales of public assets should be open and major transactions identified. - Assessment: Purchases and sales are generally undertaken in an open manner and major transactions are separately identified in the budget and sometimes in fiscal reports. - 4.2.5 Government activities and finances should be internally audited. - Assessment: There is no requirement for internal audit in government organizations, and only a few large agencies have established internal audit units. - 4.2.6 National revenue administration should be legally protected and report regularly. - Assessment: Tax administration has effective internal monitoring and control mechanisms and is legally protected from political interference similar to other branches of government. - 4.3 Fiscal information should be externally scrutinized. - 4.3.1 Public finances should be subject to scrutiny by an independent national audit body. - Assessment: External audit is independent of the executive and its mandate covers all central government activities, recipients of state grants, public corporations and some organizations defined in law. Audit capacity is adequate. - 4.3.2 The national audit body should submit reports to the legislature and publish them; follow-up mechanisms should exist. - Assessment: The OAG submits an annual report on the audit of the government accounts to the legislature, but does not provide a formal audit opinion on the consolidated annual financial report or the reports of ministries. - Comment: The absence of an audit opinion on ministries’ accounts, the consolidated government accounts, and the capital account may cause uncertainty regarding their formal status. - 4.3.3 Independent experts should be invited to assess fiscal and macroeconomic forecasts. - Assessment: External scrutiny of macroeconomic models and assumptions is actively encouraged. - 4.3.4 The national statistical body should have institutional independence. - Assessment: The national statistics office is given legislative assurance of independence. *Source: _cr09193 - Appendix II. Summary Tables* ### 1. Central Government (CG) ### Central Government (CG) ### Budget estimates and forecasts - 1. Central Government (CG) budget estimates - Included in budget/report documents: Yes - Available to the public: Yes - Para. ref.: 47 - Code ref.: 2.1.1 - 5. CG Budget forecasts - Included in budget/report documents: Yes. In budget documents. - Available to the public: Yes. - Para. ref.: 21 - Code ref.: 2.12 - 9. Macroeconomic assumptions - Included in budget/report documents: Yes. In Budget documents. - Available to the public: Yes - Para. ref.: 21 - Code ref.: 3.13 ### Expenditures, funds, and special items - 2. CG Defense Expenditures - Included in budget/report documents: Yes - Available to the public: Yes - Para. ref.: 34 - Code ref.: 2.1.1 - 3. CG EBFs - Included in budget/report documents: No. Budget does not specify a consolidated definition of EBFs. - Available to the public: No.. - Para. ref.: 3, 26 - Code ref.: 2.1.1 - 7. CG Tax Expenditures - Included in budget/report documents: Yes. In budget documents. Estimate of cost Methodology is explained - Available to the public: Yes. - Para. ref.: 40 - Code ref.: 2.1.3 - 8. CG QFAs - Included in budget/report documents: No. Some QFAs identified in budget documents. - Available to the public: No - Para. ref.: 5 - Code ref.: 2.1.3 ### Risk analysis, contingent liabilities, and sustainability - 6. CG Contingent liabilities - Included in budget/report documents: Yes. In budget documents. - Available to the public: Yes. - Para. ref.: 39 - Code ref.: 2.13 - 10. Analysis of fiscal risks/sensitivity analysis - Included in budget/report documents: Yes. In great detail in budget documents. - Available to the public: Yes - Para. ref.: 25 - Code ref.: 3.15 - 13. Sustainability Analysis - Included in budget/report documents: Yes, in the budget documents. - Available to the public: Yes - Para. ref.: 25 - Code ref.: 3.1.1 ### Debt, financial assets, and reporting on assets - 11. CG Debt - Included in budget/report documents: Yes. Published in Statistics Norway’s website and in documents presented to the Storting. Data includes debt composition by currency, maturity, type of instrument. - Available to the public: Yes - Para. ref.: 41, Box 5 - Code ref.: 2.1.4 - 12. CG Financial Assets - Included in budget/report documents: Yes. Published in Statistics Norway’s website and financial statements - Available to the public: Yes - Para. ref.: 43, Box 5 - Code ref.: 2.1.4 - Note: Separate reports are presented on assets of GPF-G by the MoF and also there are reports published by Norges Bank on GPF-G and reports published by GPF-N. ### Consolidation, general government and final accounts - 14. General government budget estimates - Included in budget/report documents: Yes Presented in the budget, compiled by Statistics Norway. - Available to the public: Yes - Para. ref.: 3, 47, Box 5 - Code ref.: 2.1.5 - 17. CG Final Accounts - Included in budget/report documents: Yes, result of financial audit is submitted to the Storting nine months after the end of the fiscal year in OAG’s annual report Document No. 1 - Available to the public: Yes - Para. ref.: 31, 50 - Code ref.: 3.4.2 - 18. Consolidated general government Final Accounts - Included in budget/report documents: No. - Available to the public: No - Para. ref.: (blank) - Code ref.: 3.4.2 ### Frequency of fiscal reporting - 15. CG Monthly/quarterly reports on fiscal outturn - Included in budget/report documents: Yes. Three quarterly reports submitted to the Storting. Statistics Norway produces monthly and quarterly CG revenue and expenditure reports. - Available to the public: Yes - Para. ref.: 29, Box 5 - Code ref.: 3.4.1 - 16. General government Monthly/quarterly reports on fiscal outturn - Included in budget/report documents: No. Only annual report produced by Statistics Norway. - Available to the public: Yes - Para. ref.: Box 5 - Code ref.: 3.4.1 *Source: _cr09193 - 1. Central Government (CG)* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09193.pdf_