UPDATE: OECD Warns Norway On High Household Debt, House Prices

- Norway FinMin: No plans to increase housing taxes
- Norway FinMin: High house prices and household debts are a concern
- Norway FinMin: No need to investigate wealth tax further


OSLO (Dow Jones)--While Norway has a strong and well-managed economy, high household debt and elevated house prices "pose a risk," said the Organization for Economic Cooperation and Development Wednesday.

"Low interest rates may have been encouraging the real-estate boom," the OECD said in an economic survey of Norway, adding that the house price and household debt vulnerabilities should be addressed by "macro-prudential policy and consumer protection." The level of floating-rate loans is unusually high, making Norwegians vulnerable to rate increases, it said.

The OECD said "the strength of the economy and prudent supervision" have helped the Norwegian financial system to weather the financial crisis well, and that Norway continues to benefit from its "well managed petroleum wealth and sound macroeconomic policies," with high levels of well-being and social cohesion. But it also called for changes in the country's tax system.

Norway should consider reducing "the implicit tax subsidy on owner-occupied housing," the OECD said, by introducing taxes on imputed rental income or a national property tax, or by phasing out tax deductions on mortgage interest.

The taxation of capital in Norway should be changed as it "imposes distortions on savings," the OECD said. It pointed to ministry of finance calculations suggesting that taxation of real returns can be over 100% for fixed-income assets and equity shares, and as low as 0% for owner-occupied housing.

The OECD warned that "the extraordinary tax advantages" to housing investment may lower economic growth, as people invest money in property instead of more productive categories of investment. This could boost house prices and household debts and make the financial system more vulnerable, it said.

"I have no plans to increase housing taxes," said Norway's Minister of Finance, Sigbjorn Johnsen, at an Oslo press conference where the OECD presented an economic survey of Norway Wednesday.

Johnsen said that reforming the capital taxes is a difficult issue, and that Norway had already done a "reasonably thorough investigation" on the effects of its wealth tax. The investigation was presented in 2011 as part of an evaluation of the country's 2005 tax reform. Johnsen said he did not see the need for another investigation.

"We have reasonably good information on the effects of our capital taxation," said Johnsen, emphasizing the need to balance between efficient capital taxes and the distribution of wealth and income.

"We have broadened the base, increasing the so-called bottom brackets to exclude many people from paying capital taxes," said Johnsen, but added that Norway will continue to reform its capital tax. "This is one issue we will look at when working with the 2013 budget," he said.

Johnsen said that high house prices and household debts is a concern for Norway, and that the country will keep evaluating its housing and tax policy.