Dutton, Lisa
From: Hoff, Ingrid
Dear Maria and Marie,
Reference is made to your mail of 23 June. Quite informally I send you some answers to your questions, see enclosed draft letter. Our reply will be sendt you formally as soon as posssible.
Best regards,
Ingrid Hoff
Fra: Wiersholm, Marie [mailto:[email protected]] Sendt: 23. juni 2006 12:00 Til: [email protected]; Hoff, Ingrid Kopi: Utne, Amund Emne: Questions concerning the notification of the social security scheme
Dear Marit and Ingrid,
In relation with the Norwegian notification of the scheme on regionally differentiated social security contributions we have some questions that we hope you can help us providing answers to:
Rules on cumulation
1) We kindly ask the Norwegian authorities to confirm that they will ensure that in case of cumulation of aid under the social security scheme and other schemes, funding of the same eligible costs under the other schemes will be coordinated with the social security scheme and that the aid ceilings in the guidelines applicable will not be exceeded.
Duration of the scheme
2) It follows from paragraph 71 of the Regional Aid Guidelines that : “In all cases, the need for and level of operating aid should be regularly reexamined to ensure its long-term relevance to the region concerned. The Authority will therefore only approve operating aid schemes for the duration of these guidelines”.
On this basis, we kindly ask the Norwegian authorities to confirm that the duration of the scheme is from 2007-2013.
Population figures etc
3) Please confirm whether the population figures in the notification are as of 1 January 2005. 1
4) We kindly ask the Norwegian authorities to provide population figures (development over last five and ten years and population density) for Bodø and Tromsø (Zone 4a).
5) Are the Norwegian authorities aware of any other urban centres than Tromsø and Bodø in Northern Norway with high population density and/or population increase?
6) Could the Norwegian authorities please provide us with the figures on population density and population development for the eligible parts of Sogn og Fjordane and Nord-Trøndelag?
7) Could the Norwegian authorities furthermore provide us with the figures on population density and population development for the rest of the adjacent area to Hedmark og Oppland (except Sogn og Fjordane) and to Northern Norway (except Nord-Trøndelag)?
8) We kindly ask the Norwegian authorities to verify the number of split labour market regions notified to be eligible for aid.
9) We furthermore kindly ask the Norwegian authorities to verify the number of islands notified to be eligible for aid which belong to a labour market region with a population density above 8 inhabitants per square kilometre.
10) We would appreciate if the Norwegian authorities could provide us with an estimation of the distance in kilometres from Vadsø to Oslo.
Efficiency of the aid
11) Do the Norwegian authorities have access to any report stating that labour subsidies are the most efficient measures when the objective is creating employment in specific regions? If yes, could you please provide us with the reference to this report?
12) Could the Norwegian authorities please provide us with references to reports stating that the benefit of the tax reduction would partly be shifted from the employers to the employees in the areas covered by the scheme?
We would very much appreciate your help concerning these questions. Thank you very much in advance.
Best regards,
Maria Segura and Marie Wiersholm
EFTA Surveillance Authority Rue Belliard 35 B-1040 Brussels Tel: (+32)(0)2 286 18 53 or (+32)(0)2 286 18 65 Fax:(+32)(0)2 286 18 00 email:[email protected] [email protected]
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Royal Ministry of Finance
EFTA Surveillance Authority Rue Belliard 35 B-1040 Brussels Belgium
Your ref Our ref Date 06/803SØ ih .06.2006
Subject: Notification of a scheme of regionally differentiated social security contributions – additional information
Reference is made to our letter of 12 May 2006 and your mail of 23 June 2006. Please, find below the requested additional information.
Rules on cumulation 1) The eligible costs in the Norwegian scheme is the total labour costs actually payable by the employer, i.e. gross wages before tax paid by the employee but inclusive the normal social security contributions rate paid by the employer. The Norwegian authorities confirm that we will ensure that in case of cumulation of aid under the social security scheme and other schemes, funding of the same eligible costs under the other schemes will be coordinated with the social security scheme and that the aid ceilings in the guidelines applicable will not be exceeded.
Duration of the scheme 2) The Norwegian authorities confirm that the duration of the scheme is from 1 January 2007 until 31 December 2013.
Population figures 3) We confirm that the population figures in the notification are as of 1 January 2005. The source of the population figures is Statistics Norway.
4) The population figures (development over last five and ten years and population density)
Postal address Office address Tax Policy Department Reference PO Box 8008 Dep Akersg. 40 Telephone +47 22 24 45 09/22 24 90 90* Ingrid Hoff N-0030 Oslo, Norway Org. no 972 417 807 Telefax +47 22 24 27 07 Telephone +47 22 24 45 12
for Bodø and Tromsø (Zone 4a) are:
Population growth 1995- Population growth 2000- Municipality Population density 2005 2005 Tromsø 24,5 12,4 %5,8 % Bodø 32,0 9,9 %4,6 %
5) Regarding urban centres other than Bodø and Tromsø, the following municipalities are, or contain, small centres, and have a higher population density than 8 inhabitants per square kilometre and/or population growth over both the last ten or five years. Note that the list contains even very small centres:
Population Population growth 1995- growth 2000- Population Municipality Population density 2005 2005 2005 Narvik 9,1 -2,2 % -0,5 % 18512 Brønnøy 7,3 8,0 % 2,0 % 7585 Alstahaug 34,4 -1,7 % -0,6 % 7398 Rana 5,7 0,7 % 0,3 % 25320 Vågan 18,9 -4,0 % -2,1 % 9034 Sortland 13,4 8,6 % 3,3 % 9536 Harstad 63,5 0,6 % 0,4 % 23108 Lenvik 12,3 1,0 % 0,0 % 11035 Hammerfest 10,9 -3,1 % 0,5 % 9261 Vadsø 4,9 -3,6 % 0,8 % 6181 Alta 4,6 7,9 % 4,7 % 17628
6) The figures on population density and population development for the eligible parts of Sogn og Fjordane and Nord-Trøndelag are:
Population Population development Population development density 1995-2005 2000-2005
Eligible parts of Sogn og Fjordane 4,7 -4,1 % -1,9 % Eligible parts of Nord- Trøndelag 2,6 -4,4 % -2,0 %
7) The population density and development figures for the rest of the adjacent area to Hedmark and Oppland (except Sogn og Fjordane) and to Northern Norway (except Nord- Trøndelag) are:
Population Population Population density development 1995-2005 development 2000-
Page 2 2005
Adjacent to Hedmark and Oppland (except Sogn og Fjordane) 2,9 -4,6 % -2,6 % Adjacent to Northern Norway (except Nord- Trøndelag) 3,2 -2,0 %-0,8 %
8) The number of split labour market regions notified to be eligible for aid is seven. The regions in question are (eligible municipalities in parentheses): Stavanger (Kvitsøy), Voss (Granvin and Ulvik), Flora (Bremanger), Sogndal (Luster and Leikanger), Førde (Naustdal, Jølster and Gaular), Steinkjer (Snåsa, Namdalseid and Verran) and Levanger (Mosvik). However, Steinkjer and Voss meet “the population criteria” also on a labour market level.
9) The number of islands notified to be eligible for aid that belong to labour market regions with a population density above 8 inhabitants per square kilometre is: 17.
10) The distance from Vadsø to Oslo is approximately 2300 km.
Efficiency of the aid 11) Please find below reference to reports (and analyses) stating that labour subsidies are the most efficient state aid measure when the objective is to create employment and settlement in specific regions.
“Regional subsidies on labour and capital” by Truls Lind and Jan Serck- Hanssen, University of Oslo, is published in the Swedish Journal of Economics 1972. (Two types of governmental intervention are considered: Subsidies on the use of labour and of capital. Employing data mainly from Norwegian National Accounts, effect of subsidies are estimated. Among the results are: for any given sum of subsidies, labour subsidies yield larger welfare gain than capital subsidies.)
An Annex to the Official Norwegian Report; “Statlig næringsstøtte i distriktene”, NOU 1984: 21 A, written by the former Professor in Social Economy at the University of Oslo, Jan Serck- Hanssen. (Extract of the Annex follow enclosed. The conclusions in the Annex are based on an analysis which has been presented by Serck- Hanssen, among others, in the Swedish Journal of Economics, see above. The conclusion that subsidies to labour at a rate that varies from region to region, but which is identical for all sectors within the region, are the most efficient measures when the aim is to achieve a settlement pattern objective (avoid regional unemployment and depopulation), has since then been repeated in Norwegian economic literature, i.a. “Produksjonsteori” (“Production Theory”), written by the professors Michael Hoel and Karl Ove Moene at the Department of Economy at the University of Oslo, published by the Universitetsforlaget 1987.
A report made by an independent expert committee in 2001, “Differensiert arbeidsgiveravgift, kunnskapsstatus” (Differentiated social security contributions, the status of knowledge), Møreforskning Molde, December, 2001 (www.himolde.no).
Page 3 (The report is based on economic theory and assessments of several previous empirical studies of the scheme. The report concludes that the regionally differentiated social security contributions increase the demand for employees resident in the regions in question. With respect to the main source of the regional problem, the measure is considered to be more targeted than other measures. An essential feature of the measure is its general nature within the different zones. According to the report, more selective measures are considered to be less accurate.)
12) Please, find below references to reports stating that the benefit of the tax reduction would be partly be shifted from employers to the employees in the areas covered by the scheme. The results of the analyses vary as regards the actual size (importance) of these effects, but all studies suggest that there are such incidence effects.
J. M. Dyrstad (1992) “Arbeidsgiveravgiften og sysselsettingsproblemene” Sosialøkonomen no 3, 1992. (The estimated long run incidence effect of a partial regional change in social security contributions is 0,3, i.e. 30 per cent of the regional reduction in social security contributions is shifted over into wages.)
Frode Johansen and Tor Jabob Klette (1997) “Wage and Employment Effects of Payroll Taxes and Investments Subsidies” Discussion paper/ Statistics Norway, Research Department, no 194, 1997 and Memorandum from the Department of Economics, University of Oslo, 1998. (The empirical results of this study suggest that a large part of regional changes in payroll taxes (social security contributions) is shifted over to wages (between 60 and 100 per cent).)
J.M. Dyrstad and K. Johansen (2000) “Regional Wage Responses to Unemployment and Profitability: Empirical Evidence from Norwegian Manufacturing Industries”, Oxford Bulletin of Economics and Statistics Oxford Bulletin of Economics and Statistics, 62 (1), 101- 117. (The empirical results of this study indicate that about 20 per cent of a partial regional change in social security contributions is shifted over in higher wages to employees.)
All of the studies were carried out in the manufacturing sector. Reference is also made to footnote 7 of our letter of 12 June 2006 and to table 1, page 5
Yours sincerely,
Geir Åvitsland Deputy Director General
Ingrid Hoff Senior Advicer
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