It is this estimate that underlies the plan drawn up by the Government and the Storting, referred to as the fiscal rule. The rule states that the Government is to spend, as an annual average through the business cycle, the expected return on the petroleum fund i.e. 4 per cent. Because of the high level of activity, the Government has proposed somewhat lower petroleum revenue spending next year than the 4 per cent of the Fund’s value at the beginning of the year. The proposed tax programme for next year will have a fairly neutral impact on economic activity. Proposed direct and indirect tax rates will generate approximately the same government revenues as last year’s tax rates had they been left unchanged. However, the overall central government budget will have a stimulatory effect. This is reflected in fairly strong nominal spending, which is higher than the rate of growth in mainland GDP that can normally be expected. Norges Bank’s interest rate setting is based on two main criteria for future interest rate developments. First, the interest rate is set with a view to stabilising inflation close to the target in the medium term. The horizon will depend on the shocks to which the economy is exposed and their effects on the path for inflation and the real economy ahead. Second, the interest rate path shall provide a reasonable balance between the path for inflation and the path for capacity utilisation.
Moreover, Norwegian importers have gained access to new markets in central Europe and Asia which offer substantially cheaper  2  BIS Review 141/2007  consumer goods. Norway’s terms of trade have improved by about 40 per cent since 2002. Recently, however the terms of trade have become slightly less favourable. This is partly due to weaker prices for Norwegian exports, such as metals. Slightly higher import prices have also had a negative impact. Second, an ample supply of labour has boosted output growth. A strong increase in the population has expanded the growth capacity of the Norwegian economy without a comparable increase in wages. In particular, the supply of foreign labour has increased sharply after EU enlargement in 2004. Over the past two years, these labour inflows have accounted for over 30 per cent of growth in the labour force in Norway. At the same time, this has enabled Norwegian companies to be bolder in accepting new assignments and making investments, in the knowledge that they can procure labour throughout Europe. Third, productivity growth has been unusually high, for both companies competing on international markets and those supplying goods and services to the domestic market. The result is lower production costs. Banks and other service sectors, in particular, have outperformed other countries in this respect. The business sector has been quick to adapt and change, and to make use of new technology that is available in an international market.