Investment opportunities spotted by Delphi in Norwegian Budget U-turn

Norway’s new government has ordered a series of significant changes be made to the country’s Budget, which Delphi’s Espen Furnes says contain opportunity for investors.

The Norwegian Ministry of Finance this morning announced amendments to the 2014 Fiscal Budget as “a first step of the new government towards a change of policy direction.”

“The Government will promote growth of the Norwegian economy through targeted tax reductions, high priority on infrastructure and emphasis on other measures to stimulate productivity and competitiveness.”

The Ministry said that the amendments marked a key change by moving to cut rather than increase the tax level. The estimated tax relief under the proposed amendments would amount to some NOK8bn on an accrued basis.

However, the new government is also betting that its plans will work because of of an upwards revision in the expected value of the country’s sovereign wealth fund, the Government Pension Fund Global, which is funded by revenues from the oil and gas sector.

The non-oil fiscal deficit would be NOK3.9bn higher than that proposed by the previous government at NOK139bn (€15.3bn). However, the Ministry added: “The expected value of the Pension Fund has been revised upwards and the proposed structural deficit is now NOK56bn below the 4% path of the Fiscal Policy Guidelines. The spending of petroleum revenues is equivalent to 2.9% of the value of the Government Pension Fund Global.”

Minister of Finance Siv Jensen said: “The increased spending of petroleum revenues is targeted on measures that stimulate growth and production.”

For investors the changes may have a real impact, according to comments from Oslo based Espen Furnes, manager on the Norway domiciled Delphi Europe fund.

“There are two main changes that can be interesting for investors in the new ‘blueblue’ Norwegian Budget,” he said.

“The biggest move in the budget for next year is the planned increase in infrastructure spend. The Norwegian infrastructure is dated and needs a lot of investments the coming years. The increase in infrastructure spend for next year combined with a dedicated infrastructure fund is positive news for engineering companies operating in the Norwegian market.”

“On tax cuts, a lowering from 28% to 27% corporate tax rate was already expected, but the big change is an equal cut in personal taxes. This, together with a small cut in the controversial wealth tax could give some room for higher consumption for 2014.”

Oslo’s OBX index is up about 20% year to date. Over five years the index, which represents a free float adjusted total return, has more than doubled from a level of about 220 to 495.


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