For these reasons alone, 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 in 2003. We can therefore safely affirm that the fiscal rule has been normative for fiscal policy. Nevertheless, over the last years more oil money has flowed into the Norwegian economy than earlier. Petroleum investment shows a pronounced increase this year. Moreover, government petroleum revenue spending has increased in recent years. The fiscal rule is part of a set of economic policy guidelines. The various components of economic policy have varying effects. This is why they have different functions: •  Monetary policy steers inflation in the medium and long term and can also contribute to smoothing swings in output and employment. •  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. To give you an example: •  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.
The background material for the Act relating to the Petroleum Fund clearly indicates that the Fund shall not be a second central government budget and, by implication, shall not be used for investment or spending that have not received priority in the budget. The chart shows the share of the central government’s annual net cash flow from petroleum activities that has been transferred from the Fund to the fiscal budget. Since 1996, a considerable portion of the petroleum revenues has been retained in the Fund. In 2000 and 2001, there were almost no transfers from the Fund to the fiscal budget while in the past two years the share transferred to the fiscal budget represented about one-third of the cash flow. 1  See Act relating to the Government Petroleum Fund, adopted on 22 June 1990 and amended by Act no. 2 of 16 January 2004. The Petroleum Fund has become large. At the end of the second quarter of 2005, the market value of the Petroleum Fund’s portfolio was nearly NOK 1 200 billion or approximately EUR 150 billion, or roughly 65 per cent of GDP. The Ministry of Finance has defined a clear mandate for Norges Bank’s management of the Petroleum Fund. Norges Bank shall seek to achieve an excess return in relation to a benchmark portfolio by means of active management within a certain risk limit. The chart shows developments in both the average annual net real return and the real return without the contribution from active management.