May 28, 2014 / 5:52 PM / 5 years ago

EXCLUSIVE-Norway PM Solberg pledges more tax cuts, no reduction in welfare

* To cut wealth tax, corporate tax burden

* Won’t cut welfare, oil money spending

* Needs more infrastructure, better education

By Balazs Koranyi and Terje Solsvik

OSLO, May 28 (Reuters) - Norway plans to cut taxes, build more infrastructure and step up spending on research next year as it prepares to reduce its reliance on oil, Prime Minister Erna Solberg said on Wednesday.

The Conservative Party leader, who took office in October after eight years of Labour Party rule, also told Reuters there would be no welfare cuts or reduction in oil money spending next year, despite calls from the International Monetary Fund.

As the Scandinavian country’s dominant energy sector is slowing after a decade-long boom, the government aims to make other sectors more competitive. It hopes to announce plans to partially privatise some state firms before the summer, although any asset sales would be small, Solberg said, dampening expectations for sales of major stakes in companies such as Statoil or telecoms firm Telenor.

“We have to prepare for the years when the oil sector doesn’t have such a large impact as now ... it’s important to start,” Solberg, 53, said in an interview at her office in the Akershus Fortress, a medieval castle in Oslo - the premier’s temporary quarters since anti-immigrant militant Anders Behring Breivik blew up the government’s headquarters in 2011.

“Oil investment might not increase as fast, it might go down a little bit, but I think this strategy for competitiveness is not a short-term strategy, it’s much more long term,” said Solberg, Norway’s second female prime minister.

Once seen as a model European economy, Norway has run into problems as the energy boom is tailing off years ahead of expectations, exposing a country unprepared and threatening the long-term viability of its generous welfare model.

High spending within the oil industry has pushed up wages and other costs to unsustainable levels in all sectors and non-energy companies are now struggling to pick up the slack in what has been virtually a single-track economy for the past decade.

Solberg has mostly lost her “Iron Erna” nickname - earned as a local government minister for her tough stance on immigration - since softening her Conservative Party’s image with her book “People, not Billions”. She abolished inheritance tax after taking office last year and has said that reforms to the wealth tax and to taxes affecting companies are next up.

“We lowered taxes last time we were in government, we’ll continue to lower them,” she said. “But if you ask business what has been their biggest problem, it’s lack of skilled workers, for example engineers, that our education system hasn’t been able (to produce).”

Although Norway cut its corporate tax rate to 27 percent this year, it still has the highest rate in the Nordics, above Sweden’s 22 percent and Finland’s 20 percent, which is a drag on companies operating on the mainland, away from oil.

NO WELFARE CUTS

Mainland growth is seen falling to about 1.75 percent this year, half the rate seen in 2012, and economists say there is a risk Norway, one of the world’s richest nations with per capita GDP of around $100,000, could become trapped in a longer period of tepid growth.

Although the country has had the foresight to put aside a massive $875 billion rainy-day cash pile since 1996, or $171,000 per person, this is less than the sum of the government’s future pension obligation.

In addition, successive governments have been spending more oil money, and this year that spending will be $20 billion higher than in 2007.

The International Monetary Fund told Norway last week that it needs to prepare for a potentially rocky transition to life after oil and has to cut back on spending; curb welfare, such as sickness and disability benefits; complete its pension reform; and ease trade restrictions, particularly in agriculture.

When asked if Norway should cut welfare spending, the prime minister said “No”.

“You don’t get rich on disability,” said Solberg, who has spent her entire life in politics and won her first seat in parliament at the age of 28. “I think it’s not cutting the spending (that’s important) but making sure people don’t fall out of the labour market.”

Instead of spending less oil money, Norway needs to shift spending to focus on infrastructure, which would boost labour mobility, and education, she said.

Solberg, who singled out Telenor and Statoil a year ago as companies in which the state needs to cut its stakes, took a more reserved view on privatisation now.

“It’s still the principle to have a little bit less ownership but to have state ownership is vital, it’s important for businesses to keep their headquarters, research and development in Norway,” she said. “We don’t have any large proposal for selling off assets now.” (Editing by Susan Fenton)

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