As regards the 2000 budget, the Bank states:

"Overall, the Government's budget proposal generally seems to be in line with the assumptions on which Norges Bank bases the implementation of monetary policy. A stronger stimulus from fiscal policy than proposed in the budget bill would intensify pressures in sheltered sectors. In isolation, further fiscal stimulus may thus entail that wage and price inflation in the economy is not reduced to European levels the next couple of years. Norges Bank must in this case take into account that such developments will jeopardise the fundamental preconditions for exchange rate stability."

Norges Bank refers to the considerable historical slippage in government expenditures:

"The budget documents indicate that there has been considerable slippage in government budget expenditure through 1999. On average, during the last four years the underlying growth in central government expenditure has been 1¼ percentage points higher than projected.

Norges Bank would point out that such a systematic slippage in the government expenditure may raise the issue exactly how the fiscal stance is to be interpreted as a basis for the implementation of other economic policy elements and among private sector agents. Norges Bank would further point out that continued slippage at this point in time primarily would affect demand in service industries and in the public sector where pressures are already high and there is limited scope for increasing employment. At the same time, this would weaken the basis for further growth in exposed sectors.

The budget for 2000 shows a generational deficit of between NOK 5 and 20 billion. The obligations associated with expenditure on social security and statutory rights account for a considerable portion of total spending growth. At the same time, part of the growth in expenditure is being financed by higher taxes and non-recurring revenues. It is essential that these imbalances do not persist over time."

Norges Bank's submission also includes a broad statement on the implementation of monetary policy and an assessment of the interaction between monetary policy and other economic policy areas. The letter is available on Norges Bank's web site:

http://www.norges-bank.no/english/publications/submission.html