Norway has been brought up quite a bit in the American media as of late.
Why is this small (population of less than 5 million people) Scandinavian country such a popular topic of conversation?
First off, Norway is being used by many advocates of health care reform in the United States as an example of how health care should be delivered in a country. Everyone is covered by universal health care in Norway.
Second, many people point to Norway as a shining example of how a government should manage its finances. Norway is in phenomenal shape in terms of its finances, with the country being able to boast of an extremely low unemployment rate (3.0%) and approximately $400 billion dollars USD in its government pension fund.
Michael Moore included a 10 minute segment on Norway as an extra on his "Sicko" DVD. Moore extols the virtues of the Norwegian system, giving a long laundry list of all of the perks that Norwegian citizens are entitled to. I have included the clip below:
All of this talk about Norway piqued my interest. The country is one of the wealthiest in the world per capita, and they also have one of the highest standards of living of any country in the world. How is this possible, and how is the government able to provide so many perks to its citizens?
In researching Norway, I quickly learned that the country has significant resources (they are one of the world's largest exporters of oil, natural gas and seafood). I also learned that the government has majority or full ownership of the largest operators in the Norwegian oil fields, and that any "surplus wealth" from Norwegian petroleum income is invested straight into the government pension fund.
I also learned that the Norwegian government has large ownership stakes in many important companies that operate in the country - as a matter of fact, the government has majority stakes in nearly 1/3rd of all publicly-listed companies in the country.
The thing that I was most curious about is Norway's tax system. I've heard from friends that used to live in the country that their taxes were really high, but I wanted to find out for myself.
Here are some of the major components of the Norwegian tax system. Most of this information is from a publication from KPMG called "Tax Facts Norway 2009: A survey of the Norwegian Tax System", which I have linked to below.
1. Income Tax.
Income tax is charged at a flat rate of 28% on net income.
A 9% surtax is charged on gross income if you earn between the equivalent of $73,641 - $119,662 USD, while a 12% surtax (on gross income) is charged if you earn anything over that.
In addition, taxpayers must make social security contributions based on whatever they make over $6,612 USD. 7.8% of any salary made over this amount goes towards social security contributions. Pension income is charged at a lower 3.0% rate.
2. Value Added Tax.
A Value Added Tax (or VAT) is charged on the sale of most goods and services in the country.
The general rate is 25%. A reduced rate of 14% applies to the sale of food and drink, while an even lower rate applies to hotel lodging, cinema shows, public transportation services and broadcasting charges.
The 14% rate does not apply to eating out at a restaurant. So, if you decide to take the family out for a dinner that ends up costing the equivalent of $100 USD, be prepared to pay an extra $25 in taxes (before the tip, of course).
3. Wealth Tax / Net Asset Tax.
Norwegians must pay an annual "wealth tax" on their net "worldwide assets".
There is an exemption (up to the equivalent of $78,483 USD), with any amount over that being subjected to a 1.1% "wealth tax".
In order to figure out how much you would pay, take the total worth of your assets (house, cash in the bank, etc) and subtract any liabilities (mortgage, etc).
As mentioned, there is an exemption up to 470,000 NOK (which works out to $78,483 USD) - any amount over that, and you are paying a 1.1% wealth tax.
As far as I am aware, this includes houses, cash in the bank, etc.
4. Property taxes.
Norwegian municipalities can choose to impose a property tax of between 0.2-0.7% on the total "fiscal value of the property". Not all Norwegian municipalities choose to levy this tax.
5. Death / Inheritance Tax.
Children, foster children and parents of the deceased pay a progressive rate for an inheritance or death tax. Here are the USD equivalents:
First $78,483 - Nothing
Next $55,105 - 6%
Anything Over $133,589 - 10%
"All other beneficiaries" pay this rate:
First $78,483 - Nothing
Next $55,105 - 8%
Anything Over $133,589 - 15%
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These are five major taxes that apply to the average citizen of Norway.
There are obviously also corporate taxes (which is a flat rate of 28% of taxable profits), but we won't get into that here.
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According to Forbes magazine, Oslo, Norway is the 14th most expensive city in the world to live in, just behind Paris and Milan.
As a whole, Norway is one of the most expensive countries in the world to live in, according to various cost of living indexes.
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Now, I'm not advocating one system over another.
However, I've heard many people over the last few weeks say "Why can't we have what the people of Norway have?", and I wanted to find out more.
Comment by Monique on September 08, 2009 @ 2:47 am
It's easy to think that the Norwegians are lucky with all the "perks" they get from their government. But it's also easy to forget that they pay for these "perks" at tax time.
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Comment by John on September 08, 2009 @ 4:33 pm
I know someone who is from Norway… I have been told that their health care system isn't very good and the bedside manner stinks. I understand this is one person's view.
Someday, our taxes will have to be that high to fund our future national healthcare system and our debt. The only difference will be is that in Norway everyone has some skin in the taxpaying game whereas in the US, it is only the high income groups that pay substantial taxes. The US lower income tax brackets of negative taxes (the earned income tax credit groups), and the ones below Norway’s 28% taxes can hardly be considered “skin in the game” worthy. Things need to be equaled a little better. EVERYONE needs to pay taxes in order for these systems to work without major backlash.
What is the average tax rate paid in the US?
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Comment by Marc Jordan on September 09, 2009 @ 12:30 pm
Whoa, it seems that the Norwegian system may actually be better than the US. Here's why:
1. The base tax rate of 28% is pretty much in line with the US.
2. Workers have 7.8% taken out of their paycheck for Social Security, versus our 7.65% (ha, we are lower).
3. In the US, many states levy state and local income taxes. In California I think it's around 10%.
4. Their property taxes are outrageously low. The article quotes a high of .07%. Here in the US we pay
anywhere from 2-3%.
5. A 25% VAT does sound excessive compared to out state income taxes. But some states such as New York and California are approaching 10% sales tax.
6. The author asks how we would like to have $25 added to a $100 restaurant bill. My experience in Norway was that the VAT is always included in the menu price. At the bottom of the menu is usually a line stating "Prices inclusive of VAT".
7. One thing the author didn't mention is that in Norway college tuition is free to students and paid through the tax system.
So as you can see, things aren't always what they appear.
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Comment by Dave on September 09, 2009 @ 4:02 pm
Hi Marc
Thanks for your comments.
Just a few things:
1. I'm not arguing for or against either system.
2. The property tax quoted was a high of 0.7%, not 0.07%.
3. Norway has a phenomenal number of perks that are provided to its citizens - this was implied in the article. I am sure that there are many more that could be mentioned.
4. Interesting about the VAT - it's still an added cost though, and it's still 25% on most items.
5. I find the wealth tax to be the most interesting of the five listed here.
So, you squirrel away your money every year (after paying taxes on it) in your savings account, but still have to pay a "wealth tax" if you have over 80k in net assets?
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Comment by John on September 15, 2009 @ 9:41 am
My daughter just returned from a 6 month study abroad program in Oslo, and we have family living there as well. One of the main differences in the taxation of citizens in Norway is that almost everyone pays fairly high taxes where statistics here show that more than 50% of Americans pay no income tax at all and that a large number actually receive more back in a tax refund than they ever paid in. It would be political suicide for either party to increase taxes to the point they are at in Norway or other countries that offer socialized health care and there aren't enough wealthy taxpayers to cover the burden so we end up with a huge deficit if we want to enact the same type of public services.
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Comment by gg on September 26, 2009 @ 1:14 pm
I lived in Norway and I loved the healthcare I got, personally. I walked into a clinic with no appointment and was treated 40 minutes later, certainly no longer than I would have to wait here in the states. The doctor was nice and it cost me $20 because I was not a citizen.
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Comment by emma on October 04, 2009 @ 9:35 pm
I'm doing a report on Norway, and this site was really helpful. thanks! could you maybe put more on the differences between their taxes and our taxes? like more compare/contrast.
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Comment by Adam on October 15, 2009 @ 2:20 am
Norway has extremely low unemployment but they put people that are out of work are put on "sick" leave. This does not get counted as "unemployed." It is very easy to say you have back pain or mental problems to get on this "sick" leave. I have heard that 13% of the working population is on "sick" leave but very hard to find the facts.
New (cheap) car costs over $50,000, gas costs $8/gallon, and healthcare is ok but not as good as USA (if you have insurance.)
Norway will have a problem in the future with too many living on the almighty gov't. Besides the "sick" leave people getting $ from the gov't, they also get in immigrants in from Africa, middle east, that get a house, car, living expenses when they get here. Give it 20 years and I think policies will change.
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Comment by Bobby Casey on January 26, 2010 @ 6:00 pm
I just returned from a trip to Norway and I was certainly surprised. $11 beer and $50 pizza! $5 one-way subway ride and $250,000 Porsche 911. And everyone I spoke to was disgusted with the very long wait times for healthcare. If you have a broken leg they will see you immediately, but need and MRI? See you in 6 months. If you are a high earner, your effective tax rate is about 50% and you will pay about $2500 per month for a 700 square foot apartment.
