•  The central government budget – growth in public spending – influences the krone and the size of the internationally exposed business sector in the medium term. Government expenditure and revenues must be in balance in the long term. •  Wage formation, the structure of the economy and incentives determine how efficiently we use our labour resources and other economic resources. There is also an interaction: •  In its budget resolutions, the government authorities will attach importance to the effects of the budget on the Norwegian economy and will therefore take account of interest rate effects. In this way, they avoid a situation where growth in public spending and the interest rate push the economy in different directions. •  With a known monetary policy response pattern, the social partners can take into account interest rate effects when wage increases are agreed. •  Moreover, the parties to public sector negotiations can take into account that the higher pay increases are, the fewer people can be paid over government budgets. The interaction here came into clear evidence when employment in the general government sector fell after the expensive wage settlement in 2002. The authorities can achieve better economic policy results if they can commit in advance to a set of credible policy rules. Households, enterprises and capital markets are forward-looking in their decision-making. It is therefore important that the authorities do not create doubt, but on the contrary act in a long-term and predictable manner. There must be consistency between plans and actions.
For these reasons alone,  BIS Review 21/2005  3  the use of petroleum revenues may in periods deviate from the 4 per cent rule. Spending was also increased in response to the economic downturn. We can therefore safely affirm that the fiscal rule has been normative for fiscal policy. At the time of the introduction of the fiscal rule in 2001 projections pointed to a continued increase in the use of petroleum revenues. We had to expect this growth in spending to lead to weaker competitiveness in Norwegian manufacturing, either through higher wages or an appreciation of the krone. With wage growth in Norway higher than abroad, the competitive position of Norway’s manufacturing industry has weakened by about 15 per cent since the mid-1990s. Competitiveness is about 4 per cent weaker than the average for the past 30 years. The krone has been influenced by high oil and gas prices and prices for other Norwegian export goods. Monetary policy has also influenced the path for Norway’s relative costs, but the nominal value of the krone is about the same as 10 years ago. Strong growth in public spending and expectations of moderately higher growth in the use of petroleum revenues now seem to have been factored into the cost level. Over the past 30 years manufacturing has been scaled back in waves. The last wave occurred around the turn of the millennium, but a substantial decline also occurred in the period 1977 to 1984 and from 1987 to 1992.