Norway: Election 2005: Centre-Left Opposition Edges Out Norwegian Government, Pledges to Reverse Tax Cuts

Jens Stoltenburg, leader of Norway's Labour Party, has said that he will meet with his coalition partners today for talks on forming a new government after Prime Minister Kjnell Magne Bondevik conceded defeat.
Global Insight Perspective     Significance The centre-left opposition has managed to secure enough votes to establish a majority in parliament, ending Prime Minister Kjnell Magne Bondevik's stewardship of the country.  Implications While the biggest party within the new government has signalled its intent to adhere to the 'fiscal rule' that stipulates a government can only spend a small amount from Norway's vast oil wealth, the new government has pledged to boost social spending, which could be funded partially through the reversal of the previous government's tax reform policies  Outlook Unlike its predecessors, the new centre-left government enjoys a majority in parliament, which will enable an easier passage of the Red-Green Alliance's policies and, as the major victors of the election, the Labour Party will dominate the coalition. Despite receiving a relative drubbing in the polls, the Labour Party's socialist and agrarian coalition allies will push their own agenda, which could lead to future divisions within the government.  Labour Victory after Cliffhanger After one of the most closely fought contests in living memory, Norwegian Prime Minister Kjnell Magne Bondevik finally conceded that his minority centre-right coalition had been defeated by the centre-left opposition. With less than 1% of ballots to be counted, official results showed that the centre-left 'Red-Green Alliance', led by the Labour Party and backed by the Socialist Left and the Centre Party, secured a majority in the 169-seat Storting (parliament). The centre-left had enjoyed a healthy lead in opinion polls for the past two years, but entering the home straight in the election campaign, a number of polls suggested that that lead had been overturned and Prime Minister Bondevik had succeeded in tempting the electorate with promises of further tax cuts and a reduction in excise duties. Nevertheless, the preliminary results suggest that the outcome is a major victory, not only for the 'red-green' coalition, but predominately for the Labour Party and Labour leader Jens Stoltenburg. The main party within the 'red-green' alliance increased its vote by some 8.5% across the country, translating to a return of 61 seats in the Storting, leaving the Labour party as the biggest party in the parliament by a massive 24 seats.  Provisional Legislative Election Results (99% of the vote counted)    2001 2005 % Seats % Seats Centre-Left Government  Det Norske Arbeiderparti (Labour) 24.4 43 32.8% 61 Sosialistisk Venstreparti (Socialist Left Party) 12.4 23 8.7 15 Senterparti (Centre Party) 5.6 10 6.5 11 Opposition          Hoyre (Conservatives) 21.2 38 14.1 24 Fremskrittspartiet (Progress Party) 14.7 26 22.1 37 Kristelig Folkeparti (Christian Democrats) 12.4 22 6.8 11 Venstre (Liberals) 3.9 2 5.9 10 Others 4.2 1 3.1   Stoltenburg and his party had skilfully tapped into the widespread belief among the Norwegian electorate that the centre-right government had failed to capitalise fully on the country's vast oil wealth. With a combination of some populist policies, such as a pledge to boost spending on the elderly, and a public persona through which he has been generally regarded as a centre-left moderniser (although since the 2001 election defeat, he has carefully moved further to the left, building bridges with the party's rank and file), Stoltenburg has managed to galvanise the centre-left's traditional supporters, as well as capture those who previously voted for moderate centre-right parties such as the Christian Democrats and the Conservatives.  The collapse of the Christian Democrats' and the Conservative's vote to either the Labour Party or the populist Progress Party underlines the complete erosion of the cosy consensus that had long characterised Norwegian politics. The election campaign had focused primarily on economic issues as opposed to immigration and other social issues through which the Progress Party feels that it can appeal to its core support. However, the Progress Party still managed to win more than a fifth of the electorate, and in the process became the second largest party in parliament.  Although the Socialist Left and the Centre Party will take a number of cabinet positions in the new government, yesterday's result was first and foremost a victory for their Labour allies, and in some ways leave the two parties in a weaker position. The Centre Party, which is predominately a party advocating devolution as it received its core support from the rural regions, managed to maintain its share of the vote, but the Socialist Left lost over a third of its seats. Prime Minister Bondevik had been unable to frighten the electorate over the consequences of a Labour government, but they had been receptive and heeded his warnings about the policies of the Socialist Left. The Socialist Left electoral platform included provisions to oppose further oil exploration in the Barents Sea, as well as a pledge to withdraw Norwegian troops from both Afghanistan and Iraq. Bondevik and the Progress Party skilfully portrayed the party as a relic from the past.  Outlook and Implications  The results undoubtedly leave the Labour Party in a position of strength and will allow the newly formed government, which is due to take office next month, to push through a number of key electoral pledges. This includes halting the privatisation process and a  reversal of the current government's tax reforms, including overturning the 2004 White Paper which pledged to phase out the wealth tax, which other centre-right parties and business associations in Scandinavia claim discourages investment and leads to re-location of business to other countries such as the Baltic nations. At the same time, Stoltenburg has declared that the new government will return taxes to the 2004 level, reversing some of the tax cuts of the Bondevik government, amounting to an estimated 4 billion kroner (US$636.5 million) to fund higher social spending. However, the Labour Party has declared its intention to adhere to the 'fiscal rule' that stipulates a government can only spend up to 4% of the country's vast Petroleum Fund, which now stands at some US$172 billion, for budgetary purposes. The inevitable boost in spending from the new government on healthcare, public-sector worker wages and childcare, which clearly resonated with the electorate, could possibly have an impact on the government's monetary policies, specifically its attempts to implement a 'step-by-step' approach to bring inflation back to the targeted level and stabilise expectations on the one hand, and control the risk of output growth accelerating too quickly on the other (see Norway: 9 August 2005: Government of Norway Urged to Adhere to Strict Spending Rules as Political Pressures Mount).  Despite the Labour party's success, both the Socialist Left and the Centre Party have stated their intent to fight their corner and there is still the potential for some major splits within the government in the near future. The Labour Party stands firmly to the right of the Socialist Left and the Centre Party, and clear differences can be observed with regard to environmental policy that could exacerbate the divisions. The Socialist Left remains opposed to the resumption of oil exploration in the Barents Sea, but the Labour Party indicated that, if elected, it will continue to allow activity in the region. While there is no indication that the Labour party will change this policy, the Socialist Left will attempt to use this to bludgeon the government into accepting the Socialist Left's policies in other areas such as increases in social spending.  As in the previous government, the main party within the coalition will be a firm supporter of Norway's eventual membership to the European Union (EU). This is will be countered on the one hand by the Socialist Left who oppose EU membership on the basis that any liberalisation of trade and service, resulting in deeper political integration, would erode Norway's carefully constructed 'cradle-to grave' welfare system, and on the other by the agrarian Centre Party, which opposes Norway's entry to the EU on a practical level  (claiming that it would result in Norwegian farmers receiving less money from central government) and an ideological level (stating that they are opposed to any additional layer of sovereignty being imposed on the country). Negotiations are expected to continue between the three parties to hammer out a common platform, but it is unlikely that these differences can be reconciled. While the Labour Party can look forward to a short honeymoon period, political stability is not assured in the medium term, although this should have little effect on the country's disciplined economic policy.