Norway's Solberg Girds for Election Battle as Polls Tighten

(Bloomberg) -- Kicking off a five-week election battle, Norwegian Prime Minister Erna Solberg sharpened her message by warning that a political shift after next month's election could derail a recovery in the economy of western Europe's biggest crude producer.

The election campaign is coming to center around taxes, with the main challenger Labor opposition pledging to reverse two-thirds of the 21 billion kroner ($2.6 billion) in tax cuts that Solberg has pushed through since taking power in 2013. Creating the conditions for more jobs to support welfare and the economy will be the key challenge over the next four years, Solberg said at an election rally in Oslo.

The biggest threat to the economy is “that the tax hikes from Labor increases the burden on many of those that are creating the new jobs to such a degree that it stifles the necessary investments,” Solberg said in an interview after the rally.

While polls are tightening, Solberg faces an uphill battle to stay in power after a period of anemic economic growth. Her minority coalition with the right-wing Progress Party and two smaller support parties would only win 80 seats if an election were held today, according to an average of recent polls by website pollofpolls.no. Labor and its support parties stand to win at least 87 seats.  

Soon after taking power in 2013, the Solberg government was hit by a sharp drop in crude that sent shock waves through the Norwegian economy. Rising unemployment and slowing economic growth was met with counter-cyclical policies and massive investments in infrastructure, making Solberg the first head of government to dip into the country's sovereign wealth fund.

In addition to slashing taxes and boosting spending on infrastructure, Solberg's ambitions to overhaul the country's public sector and combining municipalities has met resistance and could help to explain the rising popularity of the Center Party. 

If re-elected in September, the prime minister promises to continue unabated with reforms, but says the room of more tax cuts is limited.

“Taxes are an important tool for us together with infrastructure investments, research and development to create more jobs,” she said.

To contact the reporter on this story: Sveinung Sleire in Oslo at ssleire1@bloomberg.net.

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Stephen Treloar