Alaska Oil| Missing the point …

As reported on these pages, yesterday the Government of Norway announced that it was increasing its oil tax rate a moderate amount.  In reporting on the increase we explained that it had to do mostly with the Government’s attempt to balance activity between the country’s petroleum and non-petroleum sectors  and warned that the increase had very little relevance to Alaska’s continuing debate over oil taxes.

Indeed, if there is any relevance, the Government’s action re-enforces Alaska’s use of oil taxes to affect economic activity.

As reported in the story by Financial Times on the increase, and as we explained in the column yesterday, the Government is enacting the tax increase consciously in order to slow activity in the oil sector.  “Projects in Norway’s offshore sector, which accounts for a fifth of the country’s gross domestic product, have run into huge delays and cost overruns, reducing government revenue ….”

The tax increase, which actually is a targeted reduction in a specific component of the deductions permitted in calculating the tax, is designed to slow what has become an economically overheated business sector.  According to the Government’s Finance Minister (as reported by Business Week), the purpose is to “damp the pressure and cost increases created by the high activity level in the petroleum sector.”

As a consequence, what Norway is doing is exactly the same thing as Alaska did this past session — using tax levels to affect economic activity.  Alaska lowered taxes in order to increase economic activity; Norway is increasing taxes in order to slow and direct economic activity in the oil sector, as we explained yesterday, in order to bring some balance between the oil and non-oil sectors of its economy.

Importantly, Norway is not increasing taxes in order to increase overall government take.  As explained in yesterday’s column and discussed further in today’s Wall St. Journal, the tax increase on the oil industry is being used to offset a corresponding tax decrease on the non-oil sector.

Late yesterday, Senator Wielechowski weighed in on the subject with the following comment:  “Norway, already w a 78% oil tax rate that’s much higher than Alaska’s ACES oil tax rate, is RAISING their oil taxes.”  While technically correct (Norway is raising their taxes), in the current Alaska context the comment clearly is meant to imply that Norway’s action demonstrates high tax rates are compatible with economic growth.

In fact, the opposite is true and Senator Wielechowski’s comment misses the point.  Norway’s action is using high tax rates to slow economic activity, hardly the approach that Alaska needs currently.

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