The emerging economies were hardest hit by the previous global crisis in the late 1990s. This time OECD countries were the most severely affected. But Norway seems to have largely escaped the crisis. Overall, output has fallen to a lesser extent in Norway than in other countries and it recovered more quickly. Unemployment has remained low. One might almost believe that Norway was immune to crises and that the country is unique. But this is not the case. It is dangerous to believe that we will be able to manage every crisis as successfully. 2  IMF Country Report No. 10/24, January 2010. Norway: Staff Report for the 2009 Article IV Consultation. BIS Review 15/2010  7  Norway is not unique. We cannot expect driving forces to be as beneficial in the future. Real interest rates cannot be expected to fall. Another sharp boost to export prices is not likely. In addition, Norway’s economy is now vulnerable. Norwegian labour has never been as costly as it is today. Norwegian businesses may be at a disadvantage in tenders and competitions given the current high level of spare capacity in other countries. Moreover, it has never been more profitable to relocate activities abroad. During the upturn, Norwegian firms fared well in spite of high costs thanks to efficiency gains, high turnover volumes and price increases. The cost of Norwegian labour has been very high, but there has been full employment. Markets will be more demanding ahead.
Moreover, the valuation of property as a basis for wealth tax has been completely arbitrary. The new property valuation system is a small but is the right step towards applying market valuation as a basis for housing taxation. Third, property is an effective tax vehicle but property taxes are low. Property cannot be relocated. Nor does property tax distort the use of resources in the way that taxation of labour and entrepreneurship does. An increase in property tax will dampen fluctuations in house prices and credit cycles, reducing the magnitude of both gains and losses. Tax on capital gains on housing, and deductibility of losses, would in particular make a considerable contribution to attenuating price spirals in the housing market. The result would be a more stable economy. 3 Driven by the tax system, housing accounts for a large share of household wealth. On an uncertain basis, the value of housing capital can be estimated at over NOK 4.5 trillion, or more than one and half times the size of Norway’s sovereign wealth fund. 4 The high degree of concentration on housing investment crowds out business investment. Higher property taxes would increase growth potential because business investment would become more profitable. 3  See Paul van den Noord (2005) “Tax incentives and house price volatility in the Euro area: Theory and evidence.” Economie international 101, pp. 29–45. 4  The figures are based on the model documented in Staff Memo 2006/4, Norges Bank.