e21 Olympics: Balanced Budget

With 13 medals through six days of competition, Norway leads the medal count at the real Winter Olympics in Sochi. Today, the country broke through with its first medal in the e21 Olympics, a gold medal in the Balanced Budget event, which measured budget surplus as a percentage of GDP.

November 2013 data from the Organisation for Economic Co-operation and Development show that Norway expects to have a budget surplus equal to 11 percent of its GDP in 2014. The competition was quite a rout: second place Poland’s surplus is only projected to be 4.6 percent of its GDP. The bronze medal went to South Korea, who expects a budget surplus of 1.3 percent of its GDP in 2014.

Thanks to the 1969 discovery of oil in the North Sea, Norway has experienced strong economic growth and tax revenue from energy production. The Scandinavian nation has seen positive GDP growth every year since 1988, except for 2009 due to the global recession. The government has had a budget surplus for more than a decade. Oil revenue goes into a specific fund from which the government can only spend four percent per year. 

Norway narrowly voted against joining the European Union in 1972 and 1994. Their economy has benefited from not being subject to EU regulations, but still being able to trade freely with most of Europe. Eighty percent of Norway’s exports go to Europe. Norway’s government was also wise to remain out of the price-controlling regime that is the Organization of the Petroleum Exporting Countries.

Poland has been one of the most impressive economic stories of Eastern Europe’s post-Soviet era. In every year since 1992, it has experienced positive GDP growth—even during the global recession. However, the government has not always been thrifty with its budget. OECD data show Poland will only have a budget surplus for 2014, and then return to its typical deficits in 2015. The one-time influx of revenue came from government seizure of $51 billion in privately-run pension funds. Even though the seizure is meant to correct a pension funding gap, it will only increase the pension system’s long-term liabilities.

South Korea’s sole budget deficit of the last seven years was caused by the global recession in 2009. Even then, the country still experienced positive GDP growth—just as it has in every year since 1998. However, South Korea’s new president, Park Geun-hye, may usher in a new era of low budget surpluses, or even deficits. She was elected on a platform of increasing social spending without raising taxes, and the 2014 budget increases welfare and infrastructure spending. On the other hand, the budget does cut back on federal support for local governments. South Korea is projected to maintain the same surplus as a percentage of GDP in 2014 that it had in 2013. 

Needless to say, it would be wise to not hold your breath waiting for South Korea’s communist neighbor to the north to win an e21 Olympic medal, unless it is for the highest percentage of citizens in labor camps or suffering from malnutrition.

The United States fared poorly in the Balanced Budget event, finishing 27th out of 31 with an OECD-projected deficit of 5.8 percent of GDP. However, this shows improvement from 2009’s deficit of 9.8 percent of GDP, the worst since World War II. The U.S. has not run a budget surplus since 2001. In order to bring down deficits in the long-term, the president and Congress should embark on reform of entitlements, including the budget’s largest program, Social Security. Unfortunately, the political will to tackle entitlement reform is weak while incentives to spend remain strong. 

With this week’s debt ceiling suspension through March 15, 2015, the U.S. debt ceiling has been raised 95 times since 1940. This was a “clean” debt ceiling suspension, meaning no reductions in future spending were included as part of the bill. Political pressure to act was high as Treasury Secretary Jack Lew said the government would run out of money to borrow on February 27. The House bill was approved Tuesday, 221-201, with 193 Democrats and 28 Republicans voting in favor. On Wednesday, the Senate approved the House’s debt ceiling bill. The Senate voted 67 to 31 to end a filibuster—12 Republicans joining all the Democratic Senators for the vote. The approval of the House bill then passed 55 to 43, entirely along party lines.

The debt ceiling is now over 100 percent of GDP. With U.S. debt at $17.3 trillion and growing, this percent is unlikely to fall anytime soon. Unfortunately, the United States does not look to be in contention for a medal in this event at the next e21 Olympics. 

After four events in the e21 Olympics, Poland is the only country to have earned more than one medal. In addition to its silver medal in today’s event, Poland also won bronze for its 19 percent corporate tax rate. Norway joins Ireland, Chile, and the United States as gold medal winners. Tomorrow’s e21 Olympics event will see OECD countries competing on capital gains tax rates.

*The e21 Olympics are in no way affiliated with the International Olympic Committee