Since the beginning of the 1990s, Norway, like Sweden and Finland, has become more closely integrated into Europe. The EEA Agreement, which provides for the free movement of labour, capital, goods and services, has enhanced efficiency in many industries. The recent WTO rounds have covered a broader range of goods and services and the number of member countries has increased. Almost all countries are now members or observers, and the issues are broad-ranging. Trade policy has paved the way for the change in the international division of labour which has brought benefits to Norway and the other Nordic countries. Third, the tax reform in 1992 was a crossroads. It made it possible to finance the welfare state with a substantially lower loss of efficiency and wealth creation than previously. The key was to reform the deduction schemes for personal and company taxation and to introduce more equal tax treatment of companies across industries and aim at neutral taxation of capital income and interest. Marginal taxes could be lowered. The tax deductibility rate for interest was considerably reduced for households. It became more advantageous to save and less advantageous to borrow. The pressure on our tax system has also been reduced because public spending control has improved over the past 10-15 years. BIS Review 15/2007  15  Fourth, Norwegian credit markets have undergone structural changes.
Consequently, the rise in property prices will tend to be highest in those countries where income growth is highest. 8  BIS Review 15/2007  Norway is now reaping the considerable benefits brought by the strong expansion in Asian countries and changes in the international division of labour. Norway’s GDP is increasing sharply and this is reflected in high government revenues and saving, increased household purchasing power and buoyant earnings in the business sector. The rise in house prices is partly being driven by growth in household income. Moreover, this period of prosperity and government budget surpluses may have engendered a sense of security which is also affecting household saving and house purchases. It would appear that household saving has fallen markedly in Norway in the recent past. Saving was probably negative in the latter half of 2006, which would be the first time saving has fallen since 1988. Housing investment for the household sector as whole is being fully debt-financed, i.e. an increase in net debt. External and domestic interest rates are low in an environment of solid growth. Long-term interest rates have fallen sharply both in nominal and real terms since the beginning of the 1990s. Inflation has declined and contributed to a fall in nominal interest rates. A more stable inflation environment also results in lower real interest rates when investors become more certain about returns. Furthermore, it would appear that high saving in some parts of the world is pushing down long-term interest rates.